Court judgement casts doubt on endowment warnings

Vincent Cunningham sued Friends Provident for compensation on the shortfall of his endowment policy, despite failing to make a claim three years after he received a ‘red letter warning’ informing him of a potential shortfall.

In his case, Cunningham argued the ‘red letter warning’ issued by Friends Provident made no mention of time limits and did not highlight that he had been mis-sold a product, or had suffered a financial loss, a statement Friends Provident disagreed with. He received £1,500 in a ruling that could have serious implications for the endowment market. Alan Lakey, senior partner at Highclere Financial Services, explained: “This is the first time in my knowledge that a client has gone to court over a judgement, and won. The implications for firms could be drastic as it is impossible to appeal if records are not kept. Most brokers will keep records for 20-25 years, but this may not be the case for some.”

He added: “Time-barring may be an issue for lenders and providers, but it doesn’t mean advisers should not look deeper into the matter.”

Sandra Grandison, media communications manager at Friends Provident, said: “We believe this case to be a one-off and unlikely to be applied to others. We have no plans to change our procedure.”

Following the ruling, speculation has mounted that lenders may be forced to rethink their endowment strategies, but Louise Soulsby, media relations manager at Norwich Union, said it had no plans to make changes to its policy. She said: “We are not expecting this decision to have any impact on our endowment policies. We only started issuing time-bar letters in 2004, after new rules about wording had come into action. Norwich Union will, however, be reviewing the transcript of the judge’s decision when it is made available.”