Solicitor calls a halt to threat of action

A solicitor who two years ago collected £80,000 from endowment victims to finance a class action against insurers this week abandoned his fight and promised to return all the cash.

In September 2000 solicitor Joseph Aaron from Ilford, Essex, emerged as a possible saviour for disappointed endowment policy holders. Mr Aaron, who said he had considerable expertise in fighting claims against insurance companies, attracted more than 200 clients as a result of widespread media publicity. He asked each for payment of between £375 and £475 upfront.

Two years later no claims have been commenced, and Mr Aaron has not even sent letters to insurance companies formally threatening court action. The difficulty, he told Jobs & Money this week, has been in arranging funding to pursue such actions. Although he has taken around £80,000 he said this is nothing like enough to cover all the different claims that would need to be brought. He said he has spent much of the past two years trying to find an insurance company to bear the risks of these costs for a reasonable premium.

In May he thought he was on the verge of negotiating a deal with a leading insurer but that fell through. He now admits that it is unlikely he will succeed in arranging cover.

Mr Aaron says he will have to abandon most of the claims, but will return clients' money in full, leaving him out of pocket for the considerable amount of time he has put into preparing cases.

He hopes to obtain legal aid for a few clients. And he may act for some, whose claims seem cast iron, without any further payment on the basis his bill will eventually be paid by the endowment company if the case is won.

Of the others Mr Aaron said: "I am not leading people of modest means into unknown litigation with an uncertain outcome ."

With hindsight Mr Aaron might have taken more steps to sort out funding before taking on so many clients, but it shows the difficulty so licitors have in dealing with such cases.

However, endowment victims should not assume that their only hope of compensation is by taking their cases to the Financial Ombudsman. There are many cases where going to court may prove more successful.

Legally, if an insurance company's agent told a customer that a policy would create enough money to pay off a mortgage, there is a contract that binds the company to pay that much however its funds perform and however much it syphons of for expenses.

However, this is not a line that either the ombudsman or the Financial Services Authority appear to have taken on board. A spokesman for the ombudsman said: "We are aware that a contract could be created, but in none of the cases we have reviewed, have we decided that the agent's words did amount to a contractually binding promise."

Where the ombudsman awards compensation it does so on the basis of what is "fair and reasonable", but this is often considerably less than a court would order.

Endowments were typically sold by commission-driven salespeople, many of whom would say practically anything to get a sale. Yet the ombudsman has decided not a single one - among 30,000-plus endowment cases it has reviewed - of those salespeople actually made a clear enough promise to be legally binding.

Hastings woman Susan Day is reported this week to shortly be having her claim for a likely £17,000 shortfall on an Abbey Life policy dealt with in the county court. She will argue that as the company's salesman told her, without qualification, that the policy would at least cover her mortgage then it is obliged to do just that.

In that situation what is primarily sought is not compensation for misselling, but an order that the company honour its obligation.

If the judge believes her, she is likely to recover at least that shortfall and perhaps more as she was also told there would be "a bit over".

· Richard Colbey is a barrister