We think that every industry can help improve the service that the client receives by sharpening the skills of the professionals who do the work on a daily basis. This is part of our series for Life and Health Insurance Agents that looks in depth at E and O claim scenarios.
An Errors and Omissions Case Study
Susan, a 60-year-old client with a history of medical problems, owns 3 small life insurance policies and one $500,000 policy. She also has a $250,000 annuity.
Over the years, Susan has been actively involved in the decisions regarding these policies. On occasion, she has even made beneficiary changes on her own. When Susan purchased the $500,000 policy 5 years earlier, the original beneficiary designation was 50% for her current (2nd) husband and 50% for her daughter from her first marriage.
Her agent was aware that Susan’s daughter had some personal and financial troubles. Susan mentioned to the agent during their most recent portfolio review meeting that she needed to change the beneficiary designation on the $500,000 policy to 100% for her husband.
She noted that the daughter was already going to receive 50% of the annuity proceeds. She commented that based on her daughter’s age and her tendency to spend recklessly, $125,000 was plenty.
The meeting ended with no clear understanding of who should be making the change to the beneficiary designation on the $500,000 policy.
Beneficiary Issue Invites Breach of Duty Claim
Six months later, Susan passed away. The $500,000 policy still showed the beneficiary designation as 50/50% for the husband and the daughter. The death claim was made to the insurance carrier and they issued $250,000 to the husband and $250,000 to the daughter. The daughter took the proceeds (and the annuity proceeds) and left town. The husband contacted the carrier and the agent to complain that he was supposed to be the 100% beneficiary on the policy.
The insurance carrier took the position that they were legally obligated to pay out the death benefit based on the latest beneficiary designation, which they did.
Ultimately, the husband filed suit against the insurance agent for negligence and breach of fiduciary duty. The husband claims that Susan intended to change the beneficiary designation to reflect him as the 100% beneficiary and it was the agent’s job to change it.
The husband alleges that Susan went to the meeting and asked the agent to make the change and trusted him to do it. The agent states that while he knew Susan wanted the change made, she did not specifically ask him to do it and he thought she was going to complete the change form since she had done that on her own in the past.
To win at trial, you would have the difficult task of convincing a jury to side with an agent who admits that he knew his client wanted to make the change but argues that she did not specifically ask him to do it.
What Lessons Can We Learn?
- CLEAR UNDERSTANDING: Make sure you have a clear understanding of your client’s instructions and goals. If you are not sure what the client wants or expects, be proactive to make sure you are on the same page. In this case, when Susan mentioned that she wanted to change the beneficiary of her policy to her husband, the agent should have confirmed whether she wanted him to take care of that change for her. If she wanted to handle it on her own, he should have followed up with her in writing to confirm.
- GOOD SERVICE: The importance and benefit of conducting periodic review meetings with clients is to ensure that your clients’ insurance and investment products are as they intended them to be and are what they currently need. This would include double-checking beneficiary designations and updating them as required. Some designations may have been made years before and may need revisiting. These meetings also offer a sales opportunity to discuss additional products based on changes in each client’s financial circumstances.
- DOCUMENTATION: Make notes of your meetings and confirm the takeaways in writing to the client after you meet. This will ensure that you are doing all that was agreed upon at the meeting. If you follow up in writing, the client has the opportunity to review and contact you if you left something out or stated something inaccurately.
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