The Financial Ombudsman Service (FOS) decides financial services disputes on the basis of what is "fair and reasonable." The recent case of R (Aviva Life and Pensions) v Financial Ombudsman Service [2017][1] demonstrates that in deciding what is fair and reasonable, the FOS is willing to take the moral high ground rather than resolve disputes according to established legal principles.


On 12 November 2013 Mr McCulloch took out life insurance with Aviva. In his application he did not disclose that he had been consulting his GP in relation to possible mental health issues since September 2013, and had been referred to a consultant psychiatrist and for a CT scan because of his family's concerns about changes in his personality.

Sadly, Mr McCulloch was diagnosed with a rare form of early onset dementia following the CT scan. His condition was terminal, and his family made a claim under the policy on 11 December 2013, by which time Mr McCulloch was in a hospice.

Aviva declined the claim on the grounds of misrepresentation and avoided the policy. It was accepted that, in a court, Aviva would have been entitled to do so.

A complaint was submitted to FOS. The FOS made an award in Mr McCulloch's favour on the basis that, given the illness which he was suffering, he could not have been expected to make the same disclosures that a reasonable person would be expected to make. In other words, the FOS took the moral high ground, rather than adhering to legal principles.

Aviva sought judicial review, and an order to quash the FOS' decision.

The judicial review proceedings

Aviva argued that in making its decision on what was "fair and reasonable", the FOS should have taken account of relevant laws, regulations, codes of practice and industry standards. It was not disputed that Aviva was legally entitled to decline the claim and avoid the policy. However whilst the judge agreed that laws and regulations should all have been taken into account, he still found that the FOS was entitled to depart from those legal guidelines, provided it gave reasons why.

Aviva's second line of argument was that the FOS decision should be overturned because it was so irrational and outrageous, that no sensible person could have arrived at it (the "Wednesbury unreasonableness" test). The judge decided that it was not outrageous to hold an insurer to its contract in the unusual circumstances of this case. The FOS should have supported its decision by careful reasoning, which had not happened, but the decision itself was not Wednesbury unreasonable.

The FOS decision was however quashed because it did not give reasons for departing from the legal guidelines, and the case was remitted back to the FOS for a fresh determination.


This decision reaffirms that the FOS is not bound to follow the law and regulations when deciding what is fair and reasonable. However if it does depart from law and regulations, it must provide detailed reasons for doing so.

It seems unlikely that the FOS will reach a different conclusion when it determines Mr McCulloch's complaint next time around, although it is certain to explain carefully which rules and regulations it has considered, and its reasons for departing from them.

The judge did express concerns about the divergence between the law and the position adopted by the FOS, adding by way of postscript that the jurisdiction of the FOS "occupies an uncertain space outside the common law and statute." He also commented that the FOS is not absolved from consistency in its decision making, which may give insurers grounds for challenging future decisions – especially as its decisions are published.

The judge also recognised force in the argument that insurance is about risk, and that insurers require proposal forms to be completed accurately so that the risk can be properly valued and the premium assessed. He accepted that some weight should be given to the argument that fairness and reasonableness should take into account the commercial interests of the insurer as well as the interests of the insured. As such insurers should put forward commercial arguments and not focus solely on the legal merits of the claim when making submissions to the FOS.

Despite the misgivings expressed by the judge, the outcome of the Aviva case is that morality can trump law in the decisions of the FOS, provided it explains why.

[1] R (Aviva Life and Pensions) v Financial Ombudsman Service [2017] EWHC 352