The qualifying conditions for compensation

Part

COMP Compensation Sourcebook

Chapter

The qualifying conditions for compensation

Printed on: 13/12/2024

Rulebook at: 23/07/2013

COMP 3

The qualifying conditions for compensation

COMP 3.1

Application and Purpose

01/12/2004

Application

COMP 3.1.1

This chapter applies to the FSCS.

01/04/2013

COMP 3.1.2

It is also relevant to claimants.

01/04/2013

Purpose

COMP 3.1.3

The purpose of this chapter is to set out in general terms the conditions that must be satisfied before the FSCS can make an offer of compensation, or secure continuity of insurance cover, or provide assistance to an insurance undertaking to enable it to continue insurance business.

01/04/2013

COMP 3.1.4

The qualifying conditions for paying compensation are set out in greater detail in COMP 4 - COMP 7.

01/04/2013

COMP 3.2

The qualifying conditions for paying compensation

01/12/2004

COMP 3.2.1

The FSCS may pay compensation to an eligible claimant, subject to COMP 11 (Payment of compensation), if it is satisfied that:

(1) an eligible claimant has made an application for compensation (but see COMP 3.2.1A R);

(2) the claim is in respect of a protected claim against a relevant person who is in default;

(3) where the FSCS so requires, the claimant has assigned the whole or any part of his rights against the relevant person or against any third party to the FSCS, on such terms as the FSCS thinks fit; and

(4) in the case of a claim under a protected contract of insurance:

(a) it is not reasonably practicable or appropriate to make, or continue to make, arrangements to secure continuity of insurance under COMP 3.3.1 R; or

(b) it would not be appropriate to take, or continue to take, measures under COMP 3.3.3 R to safeguard policyholders of an insurance undertaking in financial difficulties.

01/04/2013

Treating a person as having claimed

COMP 3.2.1A

The FSCS may treat persons who are or may be entitled to claim compensation as if they had done so.

01/04/2013

Claims on behalf of another person

COMP 3.2.2

The FSCS may also pay compensation (and any recovery or other amount payable by the FSCS to the claimant) to a person who makes a claim on behalf of another person if the FSCS is satisfied that the person on whose behalf the claim is made:

(1) is or would have been an eligible claimant; and

(2) would have been paid compensation by the FSCS had he been able to make the claim himself, or to pursue his application for compensation further.

01/04/2013

COMP 3.2.3

Examples of the circumstances covered by COMP 3.2.2 R are:

(1) when personal representatives make a claim on behalf of the deceased;

(2) when trustees make a claim on behalf of beneficiaries (for further provisions relating to claims by trustees, see COMP 12.6.1 R to COMP 12.6.7 R);

(3) when the donee of an enduring power of attorney or a lasting power of attorney makes a claim on behalf of the donor of the power;

(4) when the Court of Protection makes a claim on behalf of a person incapable by reason of mental disorder of managing and administering his property and affairs;

(5) when an eligible claimant makes a claim for compensation but dies before his claim is determined.

01/04/2013

COMP 3.3

Insurance

01/12/2004

Securing continuity of long term insurance cover

COMP 3.3.1

The FSCS must make arrangements to secure continuity of insurance for an eligible claimant under a protected contract of insurance which is a long term insurance contract with a relevant person, if:

(1) the relevant person is the subject of any of the proceedings listed in COMP 6.3.3 R(1)-(5);

(2) it is reasonably practicable to do so;

(3) in the opinion of the FSCS at the time it proposes to make the arrangements, it would be beneficial to the generality of eligible claimants covered by the proposed arrangements, and, in situations where the cost of securing continuity of insurance might exceed the cost of paying compensation under COMP 3.2, any additional cost is likely to be justified by the benefits; and

(4) where the relevant person is a member, the FSCS is satisfied that the amounts which the Society is able to provide from the Central Fund are or are likely to be insufficient to ensure that claims against the member under a protected contract of insurance will be met to the level of protection which would otherwise be available under this sourcebook.

01/04/2013

COMP 3.3.2

In order to secure continuity of insurance under COMP 3.3.1 R the FSCS may take such measures as it considers appropriate to:

(1) secure or facilitate the transfer of the business of the relevant person in default which consists of carrying out long-term insurance contracts or any part of that business, to another firm; and

(2) secure the issue of policies by another firm to eligible claimants in substitution for their existing policies.

01/04/2013

COMP 3.3.2A

The FSCS's duty under COMP 3.3.1 R and COMP 3.3.3 R in respect of a long term insurance contract is limited to ensuring that the claimant will receive at least 90% of any benefit under his contract of insurance, subject to and in accordance with terms corresponding (so far as it appears to the FSCS to be reasonable in the circumstances) to those which have applied under the contract of insurance.

01/04/2013

COMP 3.3.2B

If the FSCS secures less than 100% of any benefit of a claimant under a contract, then FSCS must ensure that any future premiums that the claimant is committed to paying under the contract will be reduced by an equivalent amount.

01/04/2013

COMP 3.3.2C

(1) In any period when the FSCS is seeking to secure continuity of insurance under COMP 3.3.1 R, it must secure that 90% of any benefit under a long term insurance contract which:

(a) falls due, or would have fallen due, to be paid to any eligible claimant; or

(b) had already fallen due to be paid to any eligible claimant before the beginning of that period and has not yet been paid;

is paid to the eligible claimant in question as soon as reasonably practicable after the time when the benefit in question fell due, or would have fallen due, under contract.

(2) Any payment under (1) is made subject to and in accordance with any other terms which apply or would have applied under the contract.

(3) A payment made under (1) is not subject to the FSCS deciding that the cost of the making the payment would be likely to be no more than the cost of paying compensation under COMP 3.2

(4) Where a payment is due under (1), FSCS may:

(a) make payments to or on behalf of eligible claimants on such terms (including any terms requiring repayment in whole or in part) and on such conditions as it thinks fit (subject to (1)); or

(b) secure that payments (subject to (1)) are made to or on behalf of any such eligible claimants by the liquidator, administrator or provisional liquidator by giving him an indemnity covering any such payments or any class or description of such payments.

01/04/2013

COMP 3.3.2D

For the purposes of COMP 3.3.2A R to COMP 3.3.2C R, "benefit" does not include:

(1) any bonus provided for under the contract unless it was declared and vested before the insurance undertaking became the subject of one or more of the proceedings listed in COMP 6.3.3 R (1) to (5); or

(2) any reduction which the FSCS has determined, or any benefit which the FSCS has decided to disregard under COMP 12.4.14 R, to the extent that the FSCS has decided so to treat it.

01/04/2013

COMP 3.3.2E

Unless the FSCS has decided to treat the liability of the relevant person under the contract as reduced or (as the case may be) disregarded under COMP 12.4.14 R, it must not treat as a reason for failing to secure, or for delaying the securing of, payments under COMP 3.3.2C R at the level prescribed in that rule the fact that:

(1) it considers that any benefit referred to in COMP 3.3.2C R is or may be excessive in any respect; or

(2) it has referred the contract in question to an independent actuary under COMP 12.4.13 R; or

(3) it considers that it may at some later date decide to treat the liability of the relevant person under a contract as reduced or disregarded under COMP 12.4.14 R;

save where the FSCS decides to exclude certain benefits to the extent that they arise out of the exercise of any option under the policy and for this purpose the option includes, but is not restricted to, a right to surrender the policy.

01/04/2013

COMP 3.3.2F

In making arrangements to secure continuity of insurance the FSCS must use its reasonable endeavours to seek the most cost-effective arrangements available.

01/04/2013

Insurance undertakings in financial difficulties

COMP 3.3.3

(1) The FSCS may take such measures as it considers appropriate for the purpose of safeguarding the rights of eligible claimants under protected contracts of insurance which are:

(a) general insurance contracts with a relevant person which is an insurance undertaking in financial difficulties (see COMP 3.3.6 R); or

(b) long-term insurance contracts with a relevant person which is an insurance undertaking in financial difficulties (see COMP 3.3.6 R) but in respect of which the FSCS is not securing continuity of insurance within COMP 3.3.1 R;

if, in the opinion of the FSCS at the time it proposes to make the measures, it would be beneficial to the generality of eligible claimants covered by the proposed measures, and, in situations where the cost of taking those measures might exceed the cost of paying compensation under COMP 3.2, any additional cost is likely to be justified by the benefits.

(2) Measures under (1) may be taken on such terms (including terms reducing or deferring payment of any liabilities or benefits provided under any protected contract of insurance) as the FSCS considers appropriate.

01/04/2013

COMP 3.3.4

The measures contemplated in COMP 3.3.3 R include measures to:

(1) secure or facilitate the transfer of the insurance business of the relevant person, or any part of the business, to another firm;

(2) give assistance to the relevant person to enable it to continue to effect contracts of insurance or carry out contracts of insurance; and

(3) secure the issue of policies by another firm to eligible claimants in substitution for their existing policies.

01/04/2013

COMP 3.3.4A

If it thinks appropriate, the PRA may in relation to any insurance undertaking which is in financial difficulties:

(1) give the FSCS assistance in determining what measures under COMP 3.3.3 R are practicable or desirable;

(2) impose constraints on the measures which may be taken by the FSCS under COMP 3.3.3 R;

(3) require the FSCS to provide it with information about any measures which it is proposing to take under COMP 3.3.3 R.

01/04/2013

COMP 3.3.6

For the purpose of COMP 3.3.3 R, a relevant person who is an insurance undertaking is in financial difficulties if:

(1) a liquidator, administrator, provisional liquidator, administrative receiver or interim manager is appointed to the relevant person, or a receiver is appointed by the court to manage the relevant person's affairs; or

(2) there is a finding by a court of competent jurisdiction that the relevant person is unable to pay its debts; or

(3) a resolution is passed for winding up of the relevant person, unless a declaration of solvency has been made in accordance with section 89 of the Insolvency Act 1986; or

(4) the PRA determines that the relevant person who is an insurance undertaking is likely to be unable to satisfy protected claims against it; or

(5) approval is given to any company voluntary arrangement made by the relevant person; or

(6) the relevant person makes a composition or arrangement with any one or more of its creditors providing for the reduction of, or deferral of payment of, the liabilities or benefits provided for under any of the relevant person's policies; or

(7) the relevant person is dissolved or struck off from the Register of Companies; or

(8) a receiver is appointed over particular property of the relevant person; or

(9) any of (1) to (8) or anything equivalent occurs in respect of the relevant person in a jurisdiction outside England and Wales; or

(10) in the case of an insurance undertaking which is a member, the FSCS is satisfied that any of sub-paragraphs (1) to (9) apply to the member, and the amounts which the Society is able to provide from the Central Fund are or are likely to be insufficient to ensure that claims against the member under a protected contract of insurance will be met to the level or protection which would otherwise be available under this sourcebook.

01/04/2013

Assessing the costs of paying compensation

COMP 3.3.7

For the purposes of COMP 3.3.1 R (3)and COMP 3.3.3 R (1), when assessing the cost of paying compensation under COMP 3.2 FSCS may have regard to the likely total cost of paying compensation arising out of the default, not just the compensation amounts likely to be payable to particular eligible claimants covered by the proposed arrangements for continuity.

01/04/2013