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Effective Management of PI Disputes at FOS

Learn about managing PI disputes at the Financial Ombudsman Service (FOS) in Sydney and Melbourne. Gain insights from industry experts and understand the FOS process and outcomes.

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Effective Management of PI Disputes at FOS

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  1. Effective Management of PI Disputes at FOS Sydney 8 November 2011 Melbourne 9 November 2011

  2. Presented by • Alison Maynard - Ombudsman, Investments, Life Insurance & Superannuation • Amie Cousins, Manager Conciliation Team • Maxine Tills, SparkeHelmore • Ewen McKay, Assetinsure (Melbourne) • Melinda Cavalieri, Conciliator (Melbourne) • Cathie Thompson, Vero (Sydney) • Alexandra Sidoti, Conciliator (Sydney)

  3. Introduction and Welcome • Alison Maynard - Ombudsman, Investments, Life Insurance & Superannuation

  4. Introduction and Welcome • The role of FOS • What’s new at FOS? • The FOS Process • What FOS needs from PI Insurers • PI Insurer Perspective • Representing PI Insurers at FOS • Outcomes of FOS Disputes • Myth-busting statistics • Questions

  5. The role of FOS • Alison Maynard - Ombudsman, Investments, Life Insurance & Superannuation

  6. The role of FOS • External Dispute Resolution Scheme • Approved by ASIC (RG139) • Condition of AFSL if dealing with retail client • Independent/accessible/fair/accountable/efficient and effective • Free to consumers • Paid for by industry via fees and levies • Resolves disputes by negotiation, advice and conciliation • Makes decisions binding on Members.

  7. The role of FOS Member Obligations • Constitution /Terms of Reference/ Membership Agreement • Must have compliant IDR process (RG165) • Must advise complainants that they may complain to FOS • Must cooperate with process • Must observe timeframes • Must comply with Determination if accepted by consumer • Must pay fees/levies.

  8. The role of FOS Decision making criteria (RG139.183) “In determining the extent of loss or damage suffered by a complainant, the scheme should have regard, not only to relevant legal principles, but also to the concept of fairness and to the relevant industry best practice.”

  9. The role of FOS – TOR 8.2 Decision making criteria - FOS “….. FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following: a) Legal principles b) applicable industry codes or guidance as to practice c) good industry practice; and d) previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by those)”

  10. What's new at FOS ? • Alison Maynard - Ombudsman, Investments, Life Insurance & Superannuation

  11. New Terms of Reference Some significant changes • Monetary limits and caps • Consequential and non-financial loss • Time limits • Recommendations and determinations

  12. Compensation Caps • A “cap” is the maximum value of the remedy FOS may award for a “claim” (excluding costs and interest) • Monetary limit for a claim is now $500,000 • Different caps apply for different types of claims • Some caps will increase on 1 January 2012 • Caps will be indexed

  13. Amount of caps

  14. Compensation • Direct financial loss • Consequential (indirect) financial loss capped at $3,000 per claim • Non-financial loss capped at $3,000 per claim • Legal or other professional costs or travel costs incurred by Applicant capped at $3,000 (unless exceptional circumstances apply)

  15. Time limits • Dispute must be lodged with FOS: • within 6 years of date when Applicant first became aware (or should reasonably have become aware) they suffered the loss; and • where Applicant received “IDR response” within 2 years of the date of that IDR response • In exceptional circumstances, FOS may consider dispute lodged outside these time limits

  16. Recommendation • Recommendations have been introduced as the first stage of the decision-making process. • A case will proceed to determination by an Ombudsman or Panel if either party rejects the recommendation.

  17. What is a claim at FOS? For the purposes of applying monetary limit/cap. • A set of facts when put together give the Applicant a right to ask for a remedy (cause of action) • FOS cannot aggregate claims just because they arise out of an ongoing relationship between the Applicant and the Financial Services Provider • FOS interpretation based on Finkelstein J. in Financial Industry Complaints Service v Deakin Financial Services [2006] FCA 1805.

  18. What is the practical effect? • Multiple parties – e.g. husband, wife, husband and wife jointly, SMSF – will all be entitled to make a separate claim • Multiple separate instances of advice (usually evidenced by separate Statements of Advice) may also give rise to separate claims. NB: FOS looks at the amount of the loss, not the total amount invested.

  19. How does FOS calculate loss in financial advice disputes? LOSS • Direct • Consequential (limit $3,000) • Too remote OBJECT • To put the Applicant in the position they would have been in, but for the breach of duty.

  20. How does FOS calculate loss in financial advice disputes? Direct loss usually calculated by reference to the performance of suitable investments in comparison with the performance of the unsuitable (disputed) investments. FOS may look at: • Suitable investments the Applicant has switched to (where the Applicant has switched from the unsuitable investment); • The suitable benchmark asset allocation used by the FSP; • The suitable industry benchmark allocation; • Suitable investments that were actually recommended by the FSP to the Applicant; or • Other investments or indices that represent suitable investments.

  21. Contributory Negligence and Mitigation of Loss Compensation awarded may be reduced where Applicants fail to take reasonable care of their own interests and are regarded as contributing to their own loss. The compensation awarded will be reduced to the extent that the Applicant has deviated from the standard of care a reasonable person in the Applicant’s position would have taken.

  22. FOS will look at • When did the FSP’s breach of duty or contract occur? • When did the Applicant become aware of the FSP’s breach or should have become aware? • Were there any actions the Applicant could have taken to avoid or minimise the consequences of the FSP’s breach? • Were the actions what a reasonable person in the Applicant’s position would have done?

  23. The FOS Process • Amie Cousins, Manager Conciliation Team

  24. Process

  25. Lodging a dispute • Disputes lodged by several means including online dispute form, email, letter • Registration occurs where an Applicant lodges a dispute before first complaining to the FSP or within 45 days of first requesting the FSP to remedy the matter • FOS registers a dispute by notifying the FSP that dispute has been lodged and it has up to 45 days (or balance) to resolve the dispute directly with the Applicant • FOS may extend or reduce the 45 day period in special circumstances • FOS may deal with an urgent dispute immediately

  26. Where FSP has not resolved dispute A dispute will proceed and jurisdiction will be assessed where: • An Applicant has previously complained to the FSP and has received a response which does not resolve the dispute; or • More than 45 days has passed since the Applicant contacted the FSP and the dispute remains unresolved. at the time the dispute is lodged with FOS

  27. Dispute handling • If a dispute is within jurisdiction FOS notifies the FSPs of the dispute and provides copy of the dispute material • FSPs are provided with 28 days to provide initial dispute response and all relevant information to FOS • After receiving initial FSP response to a dispute FOS considers most appropriate means of progressing and resolving a dispute

  28. Dispute handling (2) • FOS is focused on assisting FSPs and Applicants resolve disputes by agreement • New TOR and dispute process provide for variety of dispute resolution methods including: • negotiation • conciliation • initial assessment of merits • FOS has been increasing its use of conciliation and negotiation to resolve disputes and this will continue to expand in next 12 months

  29. Dispute handling (3) • Voluntary • Confidential • Quick and efficient • Offers creative and commercial outcomes • High satisfaction rate • Control with the parties (outcomes/authority) • Conciliator can provide information and reality test.

  30. Dispute handling (4) • To assist in consideration of dispute, FOS can require a party to: • take action • provide necessary information • attend interview • FOS can appoint independent expert to report to FOS • If FOS obtains expert advice, it can require FSP to pay or contribute to expert’s reasonable fees limited to $3,000 per dispute unless circumstances are exceptional

  31. Decision making process FOS has a new two step decision making process: • Recommendation • Determination

  32. Recommendation • A Recommendation is a comprehensive assessment that sets out: • all the relevant facts of the dispute • the information relied on • the view reached by FOS about how the dispute should be resolved, and • the reasons for that view • A Recommendation is made by a FOS caseworker who is authorised by the Chief Ombudsman to make Recommendations

  33. Decision making process • A Recommendation can be accepted or rejected within 30 days • If both parties accept Recommendation, it is binding and dispute is resolved • If either party rejects the Recommendation, a Determination will be made • Determination is final decision and if accepted by Applicant within 30 days is binding on FSP • In certain circumstances a Determination may be expedited without Recommendation being made

  34. Decision making process When considering whether to expedite a dispute to Determination, FOS takes into account the circumstances of the dispute, including: • Any urgency (for example, if an Applicant is experiencing ill health) • The size of the loss involved • The age of the matter • Whether an FSP has gone into external Administration

  35. Ombudsman or Panel? • Chief Ombudsman (or delegate) decides whether to allocate a Determination to Ombudsman or Panel • Factors which are taken into account include: • type of dispute • expertise required • significance of dispute • submissions by parties

  36. Ombudsman or Panel in ILIS? • Investments & Life Insurance disputes that will normally be determined by a Panel include: • claims for >$50,000 • fraud claims • income protection claims • complex or new financial products • complex factual questions • Further Guidelines on allocation to be developed over time

  37. Dealing with the FOS process • Timeliness, timeliness, timeliness! First response due in 28 days. • Usually correspondence from FOS will give you good information on what is required • Raise any jurisdictional arguments as early as possible • Let us know early if you need more time to provide a response (it’s a lot easier for us to explain it to the applicant then) • Full and complete response with all evidence relied upon supplied. • Our staff are there to assist both parties to resolve the dispute • Consider whether a conciliation conference may assist in resolution and ask for one to be conducted if you think it can • Make use of the FOS staff member who is handling the dispute – ring and ask questions. • Refer to the FOS website: www.fos.org.au

  38. Morning Tea

  39. The PI Insurer Perspective • Ewen McKay, Assetinsure

  40. FOS Seminar for PI Insurers THE PI INSURER PERSPECTIVE Ewen McKay - Assetinsure Pty Ltd

  41. Agenda The good. The not so good. The not so good at all. The future?

  42. The good. • In reality, the majority of PI claims are not litigated – FOS is an expert forum for conciliation of disputes/ claims. • New FOS Terms of Reference (TOR) 2010 include some improvements, most notably: • 2 stage determination process (in built quasi review mechanism); • dispute resolution criteria now include “regard” for previous relevant decisions of FOS and predecessors (although not bound by same). • FOS is much more transparent than in the past. • Regular & ongoing dialogue with PI insurers/ brokers.

  43. The not so good. • Historically, the relationship between PI insurers and FOS (FICS) could be characterised as “fraught”. • FOS generally perceived by PI insurers as “applicant” (claimant) friendly. • Nature of FOS in conflict with fundamental assumptions of the “insurance model”: • no rules of evidence; • not strictly bound by current law (other criteria apply); • limited right to appeal/ review determinations (improved); • not bound by precedent (improved). • Different approaches to aggregation/ disaggregation of disputes/ claims.

  44. The not very good at all. • Concern about apparent narrow focus of FOS – product/ transaction oriented rather than portfolio oriented. • Concern about the ability of FOS to adequately deal with “multi-party” or complex matters esp. where there are extra-jurisdictional issues: • consideration of parties who are not members of FOS; • proportionate liability. • Concern about proposed new “limit” in 2012 for investment matters ($280,000 – monetary value of remedies).

  45. The future? • Increase in limits makes FOS disputes more material to PI insurers – greater sensitivity to contentious determinations and procedural issues. • Scope for PI insurer/ FOS disputes to increase? • Test case provision (Clause 10 of TOR) – scope to remove dispute from FOS to court system where: • important consequences for FS provider or industry; or • important point of law. • Any deterioration in claims outcomes will lead to increased PI insurance premiums/ excesses and/ or PI insurers exiting market. • Dialogue will be increasingly important.

  46. Representing PI Insurers at FOS • Maxine Tills, Special Counsel, SparkeHelmore

  47. The Financial Ombudsman Service (FOS) Presented by: Maxine Tills – Special Counsel November 2011

  48. FOS – From the perspective of ASFL’s Solicitor The Terms of Reference (TOR) of FOS operate as a contract between FOS and its members. The types of disputes FOS can consider are extremely broad. FOS’s discretion to exclude or continue to determine a dispute is also extremely broad under clause 5.2 of TOR. One reason for FOS to exercise its discretion to exclude a claim is there is a more appropriate place to deal with the dispute such as a Court, Tribunal or other dispute resolution scheme. Another is that the Dispute is frivolous or vexatious or lacking in substance. If FOS exercises its discretion to exclude a Dispute, the Applicant has a right of review under clause 5.3(b) if FOS is satisfied that the Applicant’s objection may have substance. There is no review or appeal provisions in the TOR for members. 48

  49. Increase in Disputes in FOS • The GFC caused a spike in related claims for at least 2 years following it. • Currently unclear if there is a substantial number of GFC related claims yet to be made. • Increase in FOS monetary jurisdiction from $150,000 to $280,000 for Disputes lodged after 1 January 2012 may lead to an increase in Disputes.

  50. When the claim is made against an AR/AFSL • Importance of notifying PI insurer early. • 28 day response period from initial FOS letter has usually expired before instructions from the PI insurer to act in defence are obtained. • Need to obtain the client file and a statement from the AR quickly. • Often difficult if AR has left the AFSL to obtain either documents or a statement.

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