Life and benefits advisors need to watch what they say, be careful what they write and keep a robust paper trail of discussions with clients – or potentially face million-dollar lawsuits, a meeting of the Canadian Group Insurance Brokers (CGIB) has been told.
“It’s always the agent who gets blamed,” said Jim Bullock, a veteran life insurance advisor and consultant who acts as an expert witness in lawsuits involving agents. “And the reason for that is because the agent is the point of contact with the client.… That’s why you have to be mindful at every turn about what to say and what to write and what you don’t write because you are going to be held accountable for what happens.”
Bullock told an October meeting of CGIB that in Canada, there has to be a dollar loss for a lawsuit to be filed, most likely from a beneficiary who does not receive an expected inheritance.
He outlined one case in which a wife, who was the owner of a policy on her husband’s life, died. The wife had purchased the insurance policy and she had lent the husband a considerable sum of money for his struggling business. But since the money had been earmarked for her grown children from her first marriage, the wife bought and paid for the premiums for the husband’s life insurance policy. When she died the agent tried to convince the husband to take on the insurance policy but he said he couldn’t afford it. A few weeks later he died. The executor of the estate found papers indicating that a premium hadn’t been paid after the wife died and that the insurance company would cancel the policy if this continued. When the husband was unable to take on the premiums, the policy lapsed. The agent was sued by the estate.
Talk to the owner
The lesson from this, said Bullock is: “You don’t talk about someone else’s policy, you talk to the owner or executor of the owner.” Courts ruled that the agent knew the premium was overdue and had been told by the insurance company that the policy was going to lapse, but the agent failed to talk to the right person – the executor of the wife’s estate.
He gave another example of a large insurance policy that a parent was going to leave to the adult children of his first marriage. But when he died it was discovered that the insurance broker had not filled in the “contingent owner” line. The policy then followed the wishes of the man’s will, which meant the policy was bundled with the rest of his estate, which outlined that he wanted his estate to be left to his grandchildren of his second marriage.
“Sometimes the way we get in trouble as agents is through the simplest of oversights,” Bullock said of the case. “It was a simple little mistake. But it was a $5-million mistake.” As it turned out, a lawyer managed to convince the grandchildren to divvy up the estate as to the man’s wishes.
Bullock also cautioned advisors to be careful what to say to potential clients who call asking what most people would think are uncomplicated questions. Years later, an advisor can be sued for something she said to a potential client over the phone because she hadn’t taken the time to learn all the facts. “In law, you are considered a professional, an expert – that’s a given in law. The standard is: if anyone asks you a question because you are an insurance person, you are legally responsible for the consequences of that answer. And you are legally responsible even if the person who asked the question is not a client.”
He noted that the largest single cause of claims being denied is because of inadequate disclosure on an application. In this situation, the broker/agent is considered to be administering the application, so any inadequately disclosed facts are the responsibility of the insurance professional who can be held responsible later on.
During a discussion at the meeting, advisors were also made aware of wording at the bottom of some insurance company application forms. Potential clients are always asked to sign a declaration and authorization after filling in an insurance application, but the actual wording may mean the difference between having a claim approved or denied.
True and complete
For example, on some insurance forms the client certifies “that all the statements in this form are true and complete to the best of my knowledge.” However, some other insurers state that the clients certify “that all the statements in this form are true and complete.” It was noted that one insurance company denied a person’s claim because the insurer, in doing its follow-up medical due diligence, noted that a sibling in a foreign country had had a heart attack recently but the client had not mentioned it on the form. Even though the Canadian client said he hadn’t spoken to his sibling about the incident, and therefore didn’t even know it happened, his claim was denied. In this instance, the form did not include the words “to the best of my knowledge.”
Bullock also told the advisors that they have an obligation to their clients to explain the risks they face and the insurance solutions that exist to cover that risk – while leaving the decision of whether to buy the product up to the client. Any coverage offered and declined, he said, should be in writing. “If you don’t have it in writing, it doesn’t exist,” said Bullock. “You have to create the evidence to defend yourself,” he said. He suggested that advisors email a precis of the conversation they have had with a client, outlining what products the advisor sells. In the same email, state that the client may require other insurance products and recommend the client contact a broker of his choice who provides those products and services.
Elizabeth Forster, a lawyer with Blaney McMurtry, said advisors who work with group benefits should be aware of legal issues that may affect employers and or employees.
For example, Forster said breach of contract can occur if benefit packages within employment contracts or collective agreements are changed over time without informing employees.
“Make sure your clients’ collective agreements correspond with the actual benefit coverage,” she said.
Advisors might also want to tell these employers that they should carefully review the terms of all contracts and ensure they reserve the right to change the level of coverage and-or the insurance company at any time on notice to employees, she said.