This is the first of what we hope to be many articles that will give tips to life insurance advisors on how to avoid professional liability claims. By way of introduction, we are Cita Insurance Services, a subsidiary of Brown & Brown, Inc., the seventh largest insurance intermediary in the world. Cita is a managing general underwriting facility for a number of insurance carriers specializing in professional liability for insurance agents. The situations that we will write about in this and other articles are based on real claims with some facts being altered to protect the people and organizations involved.
The incident
An insurance advisor was asked to procure life insurance policies for two business owners who were in the process of obtaining an SBA loan. As a prerequisite for the policies to be put in place, both clients would need to submit to examinations with coverage contingent upon the exams outcome. The application also required the advisor to confirm by checking a box "YES" that his clients had been advised of the conditional nature of the binder and that no coverage was in force until exam results were approved by the insurer. The agent checked the "NO" box. The clients signed the application, paid the initial premium and were provided copies of the Conditional Receipt.
A month later, one of the applicants suddenly died before the medical examination was completed. The insurance company denied the claim for the $250,000 life benefit citing the terms of the "Conditional Receipt." In short order, a suit was filed against the advisor.
The claim
When being questioned by attorneys, the advisor was adamant that he advised his clients about the required examination. He also distinctly remembered telling them that no coverage was in force until the exam was complete and approved by the carrier. He could not prove this as there was no documentation in his file that this discussion had occurred. His verbal recollection was all the support he had and the surviving client did not recall him explaining the Conditional Receipt of coverage. And while there were attempts made to schedule the exams, it was insufficient evidence to prove otherwise. Second, the advisor could not explain his "NO" response to the Conditional Receipt question on the application casting greater doubt on his credibility.
The outcome
The claim was settled for nearly $140,000. Ultimately, the plaintiff was able to raise strong credibility issues due to the application error coupled with the lack of documentation of the advisor's discussions with his clients.
How it could have been avoided
The advisor should have fully disclosed all required conditions for coverage and made sure he accurately completed the application to reflect that discussion. He also should have documented what was said in his conversation with his clients. His failure to do these simple things became a costly error.
Lisa Rush, is AVP and Program Leader for Cita Insurance Services. She has been in the insurance industry for more than 28 years. Lisa's experience with Professional Liability includes well over a decade of sales, servicing and underwriting programs including insurance agents, accountants, dentists, lawyers, architects and engineers, real estate as well as many miscellaneous professional liability programs.
