Basic Search Fields

Monetary Limit & Caps

How FOS applies the monetary limit and compensation caps to claims

 
Monetary Limit
 
Paragraph 5.1.o) of the current FOS Terms of Reference (TOR) provides that FOS can deal with a dispute unless “the value of the Applicant’s claim in the Dispute exceeds $500,000”. We refer to this as our “monetary limit”.
 
As with any dispute that falls outside the TOR, FOS can consider a dispute involving a claim for more than $500,000 if all parties and FOS agree.
 
Compensation caps
 
Paragraph 9 of the TOR identifies what remedies FOS can award, and the compensation caps applicable to claims made by an applicant – that is, the maximum compensation (not including interest or costs) that can be awarded for each claim. In addition to the overall cap on the compensation that can be awarded, there are specific limits on some types of compensation:
 
  • for consequential financial loss, the limit is $3,000, and
  • for non-financial loss, the limit is $3,000.
 
In general insurance cases, FOS cannot award compensation for consequential or non-financial loss if the policy in question expressly excludes liability for such loss.
 
Schedules 1 and 2 to the TOR set the compensation caps for claims in different types of disputes. Whether Schedule 1 or 2 applies in relation to a dispute depends on when the dispute was lodged.
 
For disputes lodged from 1 January 2010 to 31 December 2011, Schedule 1 applies and the compensation caps are:
 
 
Type of Claim
Amount per claim
1.
Claim on a Life Insurance Policy or a General Insurance Policy dealing with income stream risk or advice about such a contract.
 
If the claim is in excess of this monthly limit, the monthly limit will apply unless:
  • the total amount payable under the policy can be calculated with certainty by reference to the expiry date of the policy and/ or age of the insured; and
  • that total amount is less than the amount specified in row 5.

If this is the case, then the limit will be the amount in row 5.
$6,700 per month
2.
Third party claim on a General Insurance Policy providing cover in respect of property loss or damage caused by or resulting from impact of a motor vehicle
$3,000
3.
Managed investments claims, stockbroking claims, claims made in relation to securities and any derivative products and financial planning claims (other than advice pertaining to a Life Insurance Contract, in which case row 1 or 5 applies whichever is applicable).
$150,000
4.
Claim against a General Insurance Broker except where the claim solely concerns its conduct in relation to a Life Insurance Policy (in which case row 1 or 5 applies, whichever is applicable).
$100,000
5.
Other
$280,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
We have published operational guidelines (OGs) about how the provisions of the TOR operate. See the OGs, particularly the OGs to paragraph 9.7, for a full discussion of the caps (available at www.fos.org.au/og). Information about remedies and compensation caps is also provided in session 3 of our free e-learning modules available at: www.fos.org.au/elearning.
 
For the purpose of assessing whether a dispute is within the monetary limit and/or the compensation caps set by the TOR, we look at how the monetary limit and/or the compensation caps apply to each claim within the dispute. As we are receiving a number of queries about how we identify a “claim” in practice, set out below is further discussion about how FOS identifies a claim in order to apply the monetary limit and the relevant compensation cap.
 
Number of claims within dispute
 
Both the $500,000 monetary limit and the compensation caps apply in relation to a claim rather than to a dispute or the value of the financial product in question. In any dispute, one claim or multiple claims may be raised by an applicant, depending on the nature of the allegations they have made against the financial services provider (FSP).
 
In practice, where an applicant raises multiple claims against an FSP, FOS usually deals with all of the claims together as a single dispute because this is more efficient for dispute resolution and administration.  However, the monetary limit and compensation caps specified in Schedule 1 or 2 apply to each claim within the dispute.
 
What is a claim?
 
The expression “claim” under the TOR should not be confused with an “insurance claim” which refers to the actual application for benefits under an insurance policy.
 
FOS takes the view that the expression “claim” refers to the set of facts that, put together, give an applicant the right to ask for a remedy. This means a set of separate events or separate facts that lead to the alleged losses. In legal terms, a “claim” may also be described as a “cause of action” arising out of a wrongdoing or set of facts.
 
FOS does not aggregate a number of claims into one “claim amount” just because the claims all arose from an ongoing relationship between an FSP and an applicant.
 
Our view accords with the explanation of how an external dispute resolution scheme should interpret and apply the meaning of the word “claim” given by Finkelstein J in Financial Industry Complaints Service v Deakin Financial Services [2006] FCA 1805.
 
Multiple parties and their claims
 
A dispute may have one or more parties involved.
 
This can arise for instance where an applicant receives financial planning advice. The statement of advice may be written for the applicant and her husband, recommending investments be made by:
 
  • the applicant
  • the applicant’s husband
  • jointly by them both, and
  • their self-managed superannuation fund.
 
In this situation, the dispute involves four “parties”:

1. the applicant has a legal right to bring a claim in relation to the investments in her own name
2. the applicant’s husband has a legal right to bring a claim in relation to the investments in his own name
3. the husband and wife have a right to bring a claim jointly in relation to the investments made jointly, and
4. the superannuation fund has a right to bring a claim in relation to the investments made by the fund.

 

We measure each party’s claim against the monetary limit and the applicable compensation cap to identify whether the remedy for that claim falls within the maximum remedy allowed under the TOR.
 
For a joint investment, where the recommendation or promise was made to the husband and wife jointly, and the loss is to the value of the jointly held investment, FOS will not permit a claim by two or more people to be “split” and treated as multiple claims, each for a fractional share of the total loss (with a cap applying to each claim).
 
In the example above, the superannuation fund, rather than the beneficiaries of the fund, has a claim, irrespective of the number of beneficiaries of the fund. It is the fund that has the claim because it is the fund that has suffered the loss, not the individuals who may benefit from the fund.
 
For banking and finance disputes, we will generally permit a joint account holder to lodge a dispute without the other joint account holder being a party to the dispute. For example, where the dispute involves an unauthorised withdrawal of funds from a joint account, we will regard the claim of the joint account holder to be half of the total value of the alleged unauthorised withdrawals for the purposes of assessing whether the dispute is within our jurisdiction.
 
Multiple causes of action and claims
 
Even where there is a single party/applicant and a single product, there may be multiple causes of action (for example, breach of contract and negligence). However, to the extent that each cause of action relates to the same alleged loss, the $500,000 claim limit and the compensation caps will apply to the loss as a whole.
 
FOS will not “split” the loss between the different causes of action in this situation. Rather, each cause of action will be treated as a claim for the full amount of the alleged loss, and the maximum that can be awarded in respect of that loss will be limited by the compensation cap.
 
However, where different causes of action result in different (non-overlapping) losses, then the amount of each claim will relate to the loss attributed to the specific acts or omissions giving rise to that claim.
 
Banking and Finance
 
In the context of banking disputes, it is not the amount of the loan that we look at to determine if a dispute is within our monetary limit or compensation cap. Rather, we consider the amount of the loss which an applicant has suffered as a result of the alleged conduct. Each dispute is different and, therefore, we assess each dispute on a case by case basis. However, some examples are included below.
 
Where an applicant claims an FSP granted them a number of loans over a period of time in error, FOS is likely to treat the credit decision for each loan as a separate claim and will not aggregate the claims. This is because each credit decision is a separate event and is based on different facts.
 
Alternatively, if an applicant claims an FSP allowed a third party to access funds from one account without the proper authority of the account holder, FOS is likely to treat this as one claim and will aggregate all the unauthorised withdrawals. This is because the withdrawals all arose from the same set of circumstances, that is, the FSP allowing the third party unauthorised access to funds in the account.
 
In disputes about financial difficulty, the account balance or facility limit is not relevant when assessing jurisdiction. We will look at the amount of loss suffered which may include the “money’s worth” of any variation sought, any default margin levied on the contractual interest being charged, enforcement expenses and costs of any receiver or controller appointed over the secured assets.
 
 
Investment advice
 
In the context of investment disputes, it is not the amount of the investment that we look at to determine if a dispute is within our monetary limit or compensation cap. Rather, we consider the amount of the loss which an applicant has suffered as a result of the alleged conduct.
 
If there are separate instances of advice having been provided, such as different statements of advice having been provided annually over a period of several years, then an adviser has a duty to fulfil his or her obligations on each occasion. It may be that the first and third pieces of advice were sound, but that does not prevent a breach of the adviser’s obligations on any other occasion.
 
An applicant may have several causes of action or claims for each of several investments made:
 
  • in the same product over a number of years, or
  • in different products.
 
For each of those investments, the applicant might have the following causes of action:
 
  • breach of the service contract
  • negligence in respect of a recommendation to invest in an unsuitable product
  • breach of statutory duty to provide disclosure documents.
 
The remedy available for each of these causes of action may be similar or the same, but each is available as a separate cause of action.
 
In these examples, we would identify the remedy for each of the separate causes of action and determine whether each remedy individually comes under the compensation cap.
 
Stockbroking
 
Stockbroking relationships may involve a significant number of trades entered into. The basis of disputes about these trades often revolves around the terms of the trading agreement. 
 
If the basis of the dispute is an ongoing breach of contract, even though there are a number of disputed trades, the trades are usually aggregated because there is a single breach. However, if there are a number of alleged breaches, each of which is specific to an individual trade, then each breach may form a separate claim.
 
Insurance
 
Disputes featuring two or more insurance claims under the same policy may potentially have different claims raised in respect of them. This arises because the bases of the insurer’s decisions about each of the claims may give rise to separate causes of action.
 
In these examples, we would identify the remedy for each of the separate causes of action and determine which compensation cap(s) will apply.
 
Life insurance
 
Disputes may be broken down into the number of policies. If there are multiple insurance contracts, there are likely to be multiple claims even if the policies have been bundled together, as either the applicable policy wording, the insurer’s underwriting or both may vary from policy to policy. Therefore, the compensation cap on remedies applies to each claim/contract.
 
To explain this, a series of examples is provided below.  In each example, it is assumed the dispute is lodged in 2010.
 
  1. In a claims dispute under a policy providing a lump sum benefit (eg. death, total and permanent disability (TPD) or trauma benefit):
a)    TPD benefit is $650,000 – FOS cannot consider the dispute (paragraph 5.1o)).
b)    TPD benefit is $350,000 – FOS can consider the dispute, but can only award a maximum of $280,000 excluding costs and interest (paragraph 9 and Schedule 1 row 5).
c)    TPD benefit is $190,000 – FOS can consider the dispute, and can direct payment of $190,000 plus costs, interest, and up to $3,000 each in compensation for consequential or non-financial loss if appropriate (paragraph 9 and Schedule 1 row 5).
 
  1. In a claims dispute under a policy providing an income stream benefit (eg. income protection), where the benefit has been denied altogether
a)    Benefit is $9,000 per month and the claim (at the time the dispute is lodged) covers at least the last 5 years and may be ongoing – FOS cannot consider the dispute as the claim amount is already $540,000 (paragraph 5.1o)).
b)    Benefit is $9,000 per month and the claim (at the time the dispute is lodged) covers the last 2 years and may be ongoing – FOS can consider the dispute, but can only award a maximum of $6,700 per month (in respect of the period in dispute – FOS will not normally direct payment of future benefits), excluding costs and interest (paragraph 9 and Schedule 1row 4).
c)    Benefit is $5,000 per month and the claim (at the time the dispute is lodged) covers the last 2 years and may be ongoing – FOS can consider the dispute, and can direct payment of $5,000 per month plus costs, interest, and up to $3,000 each in compensation for consequential or non-financial loss if appropriate (paragraph 9 and Schedule 1, row 4).
 
  1. In a claims dispute under a policy providing an income stream benefit (eg. income protection), where the benefit has been paid but at a lower rate, then the approach in example 2 above will apply, except that the amount taken into account (to assess the claim amount or the per month compensation rate) will be the amount of that difference, rather than the full benefit amount (ie. full benefit – lower benefit paid x months paid = amount of claim).
 
  1. In the case of a life insurance policy with an investment component or surrender value, where the dispute relates to the difference between the surrender value and what the applicant believes the surrender value should be, the claim amount is likely to be the amount of that alleged difference (ie. surrender value as paid – surrender value as claimed = amount of claim).
 
  1. In the case of a policy with both a risk component (eg. death benefit) and an investment component or surrender value, the nature of the claim will depend on the nature of the allegations made against the FSP. If it relates to deprivation of a lump sum benefit, the approach in example 1 above will apply. If it relates to a diminution in the surrender value, then the approach in example 4 above will apply.
 
General insurance
 
In a general insurance claim dispute, the amount of a claim will normally be the difference between the amount the applicant says should be paid on the claim, and the amount (if any) actually paid.
 
To explain this, a series of examples is provided below. In each example, it is assumed the dispute is lodged in 2010.
 
  1. Fire damage to a consumer’s house is estimated at $663,000. FSP denies the entire claim – FOS cannot consider the dispute (paragraph 5.1o)).
  2. Fire damage to a consumer’s house is estimated at $386,000. FSP denies the entire claim – FOS can consider the dispute but can only award a maximum of $280,000 excluding costs and interest (paragraph 9 and Schedule 1 row 4).
  3. Storm damage to a business is estimated at $425,000. FSP accepts the business interruption claim of $210,000, but denies liability for damage to the business’ stock amounting to $215,000 – FOS can consider the dispute and make an award for all or part of the $215,000, plus costs and interest (paragraph 9 and Schedule 1, row 4).
  4. Storm damage to a business is estimated at $625,000. FSP accepts the business interruption claim of $210,000, but denies liability for damage to the business’ stock – FOS can consider the dispute as the amount of applicant’s claim is $415,000. However, it can only award a maximum remedy of $280,000 excluding costs and interest (paragraph 9 and Schedule 1, row 4).
  5. Fire damage to home is estimated at $550,000. FSP denies liability but offers ex gratia payment of $75,000. Applicant rejects offer and seeks payment of full claim. FSP does not agree to FOS considering the dispute – FOS cannot consider dispute as amount in dispute is $550,000 (paragraph 5.1o)).
  6. An uninsured third party motor vehicle claim is made for $10,000 where FSP denies liability – FOS can consider the dispute, but can only award a maximum remedy of $3,000 (paragraph 9 and Schedule 1 row 2).
 
 
Insurance Broking
 
Disputes against an insurance broker may relate to a general or life insurance policy. The approach to establishing the nature and amount of the claim(s) in these disputes will be the same as for general or life insurance disputes, as explained above. However, where the dispute is against a general insurance broker, the amount of the compensation cap will be less than the compensation cap for a claim against a general insurer.
 
 
How is the amount of a claim assessed?
 
Ordinarily, FOS will approach this assessment on the basis of placing the applicant in the position that they would have been in had the alleged wrongdoing not occurred.
 
In the case of a breach of a duty or negligence in providing a financial product, this may mean returning the applicant to the position that they would have been in if they had never received the financial product or service.
 
In the case of a breach of contract, this may mean returning the applicant to the position that they would have been in had the contract been fulfilled by the FSP.
 
In disputes about misleading conduct, the remedy for misleading conduct is not to make the promise come true. Instead the question we ask in determining the claim for loss is how much worse off was the applicant as a result of relying on the representation compared to the position they would have been in had the misrepresentation not been made.
 
This is the basis upon which we will assess the amount sought in respect of each claim.
 
 
Contributory factors and compensation caps
 
As part of an assessment of the merits of a dispute, we may consider whether there was any contributory negligence, mitigation of loss and other similar legal concepts to reach a final view about an amount payable as a result of a breach.