Out-Law News 2 min. read
27 Jul 2010, 3:42 pm
The Chadwick report was commissioned by the Labour Government after the Ombudsman's extensive investigation into the near-collapse of Equitable Life identified 10 instances of maladministration in the way the company had been supervised by the authorities, resulting in six instances of injustice to policyholders.
In its response, the Government accepted only four instances of potential injustice. It also rejected the idea of an independent compensation fund in favour of a scheme that would make discretionary payments to individuals who had suffered a "disproportionate impact" attributable to those instances of maladministration it accepted had taken place.
Sir John Chadwick, a former Lord Justice of the Court of Appeal, was appointed to advise on the scheme. His final report, published on 22nd July 2010, rejects the Ombudsman's recommendation for assessing individual policyholders' relative losses (what the policyholder would have received had he invested elsewhere) as "impossible to implement within any realistic time frame."
Instead he recommends an alternative five-step calculation which includes a broad assessment of relative losses as well as the proportion by which the amount of new investments in Equitable Life would have been reduced had no maladministration taken place and the difference between what a policyholder would have received had no maladministration taken place and what they actually received.
Following this method, actuarial firm Towers Watson has calculated that the total payout to all policyholders would be between £400m and £500m, about one tenth of the amount campaigners say policyholders have lost.
"There is no perfect solution," Sir John Chadwick says in his report. "But I think, it is necessary to ensure that any solution – whatever its other imperfections – is fair, first as among policyholders; and second, as between policyholders on the one hand and taxpayers generally on the other hand."
In her letter to MPs, however, the Parliamentary Ombudsman states: "It seems to me that those proposals, if acted upon, would not in any sense enable fair and transparent compensation to be delivered.”
She goes on to say that Sir John Chadwick's terms of reference are no longer relevant because, in light of the new Government's commitment to implement her own recommendations, they have been "overtaken by events".
"In studying the Chadwick report I have noted that it misinterprets central parts of the conclusions outlined in my July 2008 report and has ignored others," her letter continues. "I find these flaws particularly concerning, providing as they do the basis for some of the central and more controversial proposals within the Chadwick report.
"For these reasons, the Chadwick proposals seem to me to be an unsafe and unsound basis on which to proceed".
The Treasury has said its response to the Chadwick report, including the amount of funding available, will be published on 20th October 2010 as part of its Autumn Spending Review. It has also confirmed the appointment of an independent commission, which will advise the Government on the final design of the scheme in early 2011.
In the meantime, The Equitable Life (Payments) Bill, which will provide the mechanism for compensation payments to be made, was introduced into Parliament on 22nd July and is scheduled to have its second reading on 14th September.