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| Anatomy of a Lawsuit A Failure to Provide Service. By Peter Maddocks, CFP, CLU, CH.F.C. |
Advisors often encounter legal problems because of things they don’t do rather than something they actually do. Oversights in procedures frequently surface only after many years when a client or beneficiary is concerned to the extent that they seek legal advice At that point an expert is called in to review the files and offer an opinion. We look at everything available and I do mean everything. Expert witnesses are nitpickers looking for anything that has been done that does not fit with their experience of prudent, ethical practices.
An example of a situation where a lawsuit arose follows: An advisor, Mrs. A was referred by her own spouse Bob to a female co-worker of Bob, Cathy. Contact was made and a sale of a $500,000 5 Year Renewable Convertible Term policy was made to Cathy’s husband Dan. Premiums were paid by PAC. Over time, contacts with the client decreased. The policy renewed after five years and the new premium continued to be withdrawn on the automatic chequing arrangement. About eight years after the initial sale, the cheque clearing centre would no longer honour cheques drawn on that particular bank. An advisory was sent by the clearing centre to the insurance company. The insurance company then sent a letter to all affected clients and copied the clients’ advisors. The letter to Dan was returned “Moved, address unknown.” The insurance company advised the Mrs. A to obtain a new mailing address for Dan. According to the advisor’s own documentation, she made one telephone call to 411. It did not yield a new address or phone number. As a result the client was not advised that premiums were no longer being deducted. A few months after the policy lapsed, Dan had a massive stroke and died. He was in his mid forties. Cathy filed a death claim which was denied by the carrier. A lawsuit was filed. I was consulted and initially wondered what the chances of prevailing were. After examining the documents, it was my opinion that Mrs. A had been much more diligent in pursuing the sale than she had been in attempting to prevent the lapse. She also continued to receive renewal commissions which were in the form of “service fees.” Prior to Dan’s death, both Cathy and Dan had not only moved but each had changed employment. Witnesses, including Dan’s former employer and co-workers of Cathy testified that they knew how to reach the couple but had never been approached by Mrs. A. As a consequence of the insurance company denying the insurance claim, Cathy, in order to meet family expenses, rolled Dan’s pension moneys to her own RRSP, but then had to withdraw the proceeds and pay the taxes due. The court determined that Mrs. A did not provide an appropriate level of service and held her responsible for payment of the death claim, interest, consequential damages due to the withdrawal of the RRSP moneys and legal costs. This was an expensive lesson, indeed. The lesson to be learned is that you are the professional and you are expected to provide service as well as appropriate professional advice. Are you concerned regarding your own procedures? |
| Republished with permission of the author: Peter Maddocks, CFP, CLU, CH.F.C., Fact & Opinion Matters, Inc. www.factandopinion.com |
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