Claim Scenario: “Boilerplate Language Not Always Best Defense”

Sharpen Your Skills With Our E&O Claim Scenarios

We believe that insurance professional can improve the service that the client receives by sharpening their professional skills by looking over case studies and scenarios that have lead to E&O claims.

This is part of our series for Life and Health Insurance Agents that looks in depth at E and O insurance claim scenarios.

An Errors and Omissions Case Study: The Facts

Dr. Johnson came to the Agent’s office to discuss his disability insurance. At the time, Dr. Johnson was a 50 year old surgeon who had an existing disability policy that would pay him a maximum benefit of $6,000 per month until age 65, if he became totally disabled.

There was no benefit beyond age 65. Dr. Johnson told the Agent that he wanted more coverage. As a result, the Agent recommended a new policy that provided a maximum benefit of $10,000 per month to age 65.

The Agent also discussed the availability of an additional “lifetime total disability” benefit option that would provide coverage under the new policy beyond age 65. The Agent explained to Dr. Johnson that if he wanted a $10,000 per month benefit beyond age 65, the premium would be an additional $1,150 per year.

Dr. Johnson did not think he would need that much of a monthly benefit after age 65 so he opted for a $4,000 per month benefit after age 65 for an additional annual premium of $325. The Agent provided Dr. Johnson with a copy of his application, the new policy and the schedule of benefits that was attached to the policy.

Several years later, Dr. Johnson had a significant back injury and became totally disabled. As promised, the policy provided a $10,000 per month benefit after the applicable waiting period expired. The policy continued to pay $10,000 per month until Dr. Johnson reached age 65.

The next monthly check Dr. Johnson received was for $4,000. Dr. Johnson called the Agent and asked why his benefit dropped to $4,000. Dr. Johnson believed that if he became disabled prior to age 65, the monthly lifetime benefit would continue to be $10,000. Only if he became disabled after the age of 65 would the benefit be $4,000 per month.

The Agent explained that whether the disability began prior to age 65 or after age 65, the maximum benefit after age 65 was $4,000 per month. While the Agent provided the disability policy and schedules to Dr. Johnson after the sale was completed, he did not send any other correspondence that may have memorialized their discussions and mutual understanding at the time of the transaction.

Also, his file did not reflect the fact that he offered Dr. Johnson the higher $10,000 lifetime benefit but Dr. Johnson elected to go with the cheaper $4,000 benefit instead.

Dr. Johnson filed a lawsuit against the Agent and the issuing Insurance Company, alleging that the Agent represented that the policy provided a benefit of $10,000 per month for life if the disability occurred prior to age 65. Dr. Johnson argues that the Agent represented that the $4,000 per month benefit would only apply if he first became disabled after age 65.

Dr. Johnson points to language in the schedule of benefits which he believes supports his position or is, at a minimum, ambiguous and should be construed against the Insurance Company. The Insurance Company has threatened a cross claim against the Agent for not clearly explaining the product to Dr. Johnson which is now triggering this claim.

At trial, the testimony about what transpired during the sales process will be a “he-said – he-said”between Dr. Johnson and the Agent. While the Agent can point to the specific policy language to try and support his position, the alleged ambiguities could work against his defense.

LESSONS LEARNED:  

• Make sure the clients have the same understanding of the product being sold as you do. Take your time in explaining the product and how it is intended to work. In this case, the Agent needed to make sure his client understood that once he hit age 65, whether he was disabled or not, the maximum benefit available under the policy would $4,000 per month.

• Documentation: Clearly and accurately document your conversations and interactions. Here, a letter accompanying the new policy that congratulates the customer on his purchase, clearly outlines the key terms of the new policy and advises the customer to carefully read the new policy would be good customer service as well as clear documentation in support of their mutual understanding.In addition, a file memo indicating that the Agent offered Dr. Johnson a $10,000 per month lifetime total disability benefit but that the client elected to take the lower benefit would also be helpful in the event of a claim. In all cases, proper documentation is the best defense to a professional liability claim.
  

DISCLAIMER:

This article/blogpost is provided for informational purposes only, does not necessarily represent Aspen’s views, and reflects the opinion of the authors in light of market, regulatory and other conditions which may change over time. Aspen does not undertake a duty to update the article/blogpost.