Sharpen Your Skills With Our E&O Claim Scenarios
We believe that insurance professionals can improve the service that their clients receive by sharpening their professional skills by looking over case studies and scenarios that have led to E&O claims.
An agent sold a fixed annuity, specifically a Single Premium Immediate Annuity (“SPIA”), for Three Hundred Thousand Dollars ($300,000) to a 69-year old woman who died unexpectedly after receiving only two distributions totaling just under Three Thousand Dollars (<$3,000). The client tripped and fell, leading to her death, potentially due to her inebriation. The SPIA did not include any legacy features. Had the client lived for fifteen (15) years, she would have outlived her premium and received a substantial benefit from this product by way of monthly distributions.
The client was seeking guaranteed income for the rest of her life due to a contentious divorce, in which she was seeking to shield her assets from her controlling ex- husband, who she did not believe would provide financial support required by the divorce decree. After the client’s death, her Estate (consisting of the client’s minor grandchildren) pursued a lawsuit against the agent alleging that the SPIA was unsuitable due to the client’s inexperience in investing, age, and alleged poor physical and mental health due to alcoholism and her history of “falls.” The evidence revealed there were no misrepresentations made by the agent to the client. It appears the driving force behind the lawsuit was one of the client’s estranged children, who sided with her father in the divorce, and is not a direct beneficiary of the Estate.
- Upon point of sale, it is important to understand the rationale for the client’s decisions and ensure there is a clear understanding of the risks and rewards involved. In this regard, the agent should have ensured that proper disclosures were executed, in which the client acknowledged based on the payout option elected, the value of the annuity would not “break even” unless and until the client reached life expectancy. When a death benefit is not offered on a life product, it should be acknowledged in writing. Make sure that the acknowledgment is sent to the client, and a copy maintained in the agent’s file.
- It is imperative to take detailed notes at point of sale regarding the client’s state of mind, particularly as they are or approach retirement age. Here, it was critical that the agent was able to testify that the client drove herself to the purchase meeting, had a recent history of conducting her own investment transactions, and appeared to understand how various different investments work. If possible, the client should sign the notes, which should be kept in the agent’s file.
- Although not necessarily required for a fixed product, using a suitability questionnaire will always be useful in the event suitability is challenged at a later point in time. A questionnaire should include income, assets, the type of benefits sought, and also, an acknowledgement as to whether death benefits are being sought or not. The source of the premium should be recorded as well as risk tolerance.
- If there are any apparent medical issues revealed, whether by subjective impressions or in documentation provided, the agent should be diligent in investigating further. Certain situations may call for additional disclosures or even lead to an indication that a different product may be more suitable. The client should be provided with alternative products in such a situation, and careful records kept in the agent’s file which evidence that such products were offered.
- Understanding who a client ultimately intends to benefit from their assets is helpful such that the agent could have requested that the client’s non-estranged other children be present at the point of sale. The children should be asked to acknowledge in writing that they were present at the point of sale, and witnessed the decisions made by the client.
This material is provided for informational purposes only and should not be construed as legal advice. The information contained herein 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 this information.