Time limit hope for endowment losers

Up to half the people facing shortfalls on their mortgage endowments could escape imminent time limits on their rights to claim compensation for being mis-sold policies.

Solicitors Beresfords, from Doncaster, South Yorkshire, says many 'red letters' sent to tell policyholders they face a high risk of a shortfall, failed to give adequate warning that they must complain within three years of receiving the letters, or six years of buying their policies, to qualify for compensation through a process set up by the Financial Services Authority (FSA).

Beresfords, a firm which makes mass financial services claims, is preparing a report on these time limits to send to the authority, the Financial Ombudsman Service and the insurers which sold endowments. It argues that many of the red warning letters did not put policyholders on sufficient notice to set the official clock ticking.

'In 50 per cent of cases there don't appear to be valid time bars,' says Martin Ryan, the firm's compliance and regulation officer. 'There seem to have been a lot of incorrect red letters going out - specifically not drawing the attention of the client to take action or setting no date by which action had to be taken.'

Up to 5 million people who took out endowments are expected to find they end up with too little money to pay off their mortgages when their endowment policies mature, according to Which? Many would be eligible for compensation, but only a minority have put in a claim.

Some insurers are using time bars as a blanket reason not to examine complaints sent to them. Policyholders who are dissatisfied with the response from their adviser or insurer are entitled to complain to the Financial Ombudsman, which is upholding up to 90 per cent of complaints against some companies.

The FSA is holding a meeting of industry bodies this Friday to discuss proposals on endowment compensation. It is expected to present research on how claims have been handled which is believed to cast financial advisers and insurers in a poor light.

The effect of red letters is not the only legal avenue being explored. Raymond Donn, senior partner of law firm Donns in Manchester, believes time bars should only be used once a policy has matured, resulting in a shortfall. 'We intend to challenge the time bars when the insurance companies start invoking them next year. A lot of people who have mortgages don't know if there is going to be a shortfall.'

Meanwhile, as Cash reported last week, people who were given a guarantee that their mortgage would be repaid could see legal redress if their policy matures leaving a shortfall.

One Cash reader received a letter from her independent financial adviser at the time of sale, which read: 'I am absolutely satisfied that there is no risk involved here and a very good chance of having a substantial surplus at the end.' Former Personal Investment Authority Ombudsman Adam Samuel says this statement could be construed by a court as being a guarantee.

Everyone sent a red letter should make a compensation claim to their financial adviser, insurer or the Financial Ombudsman within three years of receiving it.

But pressure is being applied behind the scenes to get the regulator and the industry to drop the time bar.

Martin Ryan, of Beresfords, believes the industry will wish to avoid precedents being set in court. 'At the moment we are talking of industry-imposed time bars,' he says.

'But if a judge got into it, a can of worms could open up for the industry. It would be the first time a judge ran the rule over it. And the industry could find that, in some areas, they might not be able to use time bars at all.'