Compensation and time limits

Slightly different limits and rules apply if you have a claim against an insurer or a bank that was insolvent before the FSCS became operational on 1 December 2001, or if your claim is against an investment firm that was declared in default before the FSCS became operational.

For deposits with banks or other savings institutions, limits have changed frequently over the years, most recently at the end of December 2010. Most other limits have been in place since January 2010, with different thresholds applying before this date.

The maximum levels of compensation are:

1) Deposits: Savings are protected up to £85,000 per person per firm, for claims against firms declared in default from 31 December 2010. This means the first £85,000 of any loss is protected in full, but losses are not covered by the compensation scheme above this level.

Depositors may still receive a share of their savings above this limit following any distribution of assets as part of the insolvency process for a failed bank. A spokesman for the FSCS says this would be a matter for the insolvency practitioner to determine and any recovery would, by necessity, vary according to the circumstances of the specific failure.

For claims against firms declared in default prior to 31 December 2010:

• between 30 June 2009 to 30 December 2010: the higher of £50,000 or €50,000;

• between 7 October 2008 and 29 June 2009: £50,000;

• between 1 October 2007 and 6 October 2008: £35,000; and

• before 1 October 2007: 100 per cent of the first £2,000 and 90 per cent of the next £33,000, to a limit of £31,700.

2) Investments and home finance: Investments and losses related to mortgage advice are subject to a £50,000 per person, per firm limit - again, this means 100 per cent of the first £50,000 is covered - for claims against firms declared in default from 1 January 2010.

The maximum level of compensation for claims against firms declared in default before 1 January 2010 is 100 per cent of the first £30,000 and 90 per cent of the next £20,000 up to £48,000 per person per firm.

3) Insurance: Compensation is unlimited.

For long-term insurance such as life or other protection policies, as well as general insurance and losses relating to advice and arranging of policies, the FSCS protects 90 per cent of any claim against a firm declared in default from 1 January 2010 with no upper limit.

The maximum level of compensation for claims against firms declared in default before 1 January 2010 is 100 per cent of the first £2,000 plus 90 per cent of the remainder.

Compulsory insurance, for example third party motor insurance every driver is required to take out, is 100 per cent protected with no limit.

Time-barring of claims

In terms of time limits, a claim must not be time barred under the Limitation Act 1980.

Under this Act, a claim must be made within 15 years of the original advice or sale event, subject to it being:

• within six years from the date the firm gave advice or arranged the policy; or

• within three years of the date an investor realised they might have a claim against the firm, if it was unreasonable to expect them to know there was a problem before that date.

However, for claims made in connection with protected investment business, protected home finance mediation or protected non-investment insurance mediation, the FSCS may disregard a defence of limitation where it considers that it would be reasonable to do so.

A spokesman for the FSCS says this means the scheme has discretion to disregard time limitation “where we think it is appropriate to do so.” Each claim is considered on its merits, the spokesman adds.

If a person had sufficient knowledge and opportunity to bring a claim within 15 years, the FSCS spokesman states the scheme staff would observe the rule in the Act and reject the claim, “but if this is not the case then we may use our discretion to still consider the claim.”