E&O Claims Scenario: Did the Agent Misrepresent a Long Term Care Policy?

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.

Facts

An agent sold his client a long-term care policy, after representing that it would provide comprehensive protection in the event that he was confined to a nursing home. The client, who was 75 years old, became ill and needed to be confined to a nursing home. The insurer paid benefits under the policy, but terminated the benefits after a year. The client thereafter learned that the maximum amount of benefits allowed by the policy was $65,000 for nursing home or assisted living facility care.

The client retained an attorney, who initially pursued the insurer alleging that the insurer failed to adequately disclose the limits of benefits under the policy and that it was otherwise ambiguous. The insurer nevertheless refused to pay more than $65,000 toward the fees incurred by the client in connection with his nursing home care. The client subsequently commenced litigation against the insurer and the agent. As to the insurer, the client alleged that it was engaged in a general conspiracy to market inadequate long-term-care insurance. The agent allegedly failed to advise the client that the policy would not provide coverage for more than a limited nursing home confinement. The agent maintained that he merely referred the client to the insurer’s product, and was otherwise unaware that coverage thereunder would be inadequate.

The Court Decides

The client’s attorney focused the case against the insurer, and aggressively pursued the conspiracy theories against it. The insurer countered these arguments, by presenting evidence that its policy was approved by state regulators. Nevertheless, the client’s attorney argued that the insurer’s promotions and sales presentations were misleading. He then focused the case on the agent, who conceded that he did not investigate the client’s possible needs for long-term-care insurance with limits in excess of $65,000. The agent asserted that such an investigation would have exceeded the scope of his duties owed to the client. However, the court disagreed with the agent and denied his motion for summary judgment. The insurer resolved this matter with the client by agreeing to continue payments for his nursing home care, in light of potential negative publicity and an adverse ruling by the court. The agent also contributed $85,000 toward the settlement.

What the Agent Should Have Done

The agent’s file lacked any documentation that the only representations made about the product were provided by the insurer. The agent should have obtained a signed acknowledgement from the client stating that the only representations made concerning the policy were those contained in the insurer’s promotional materials. The agent should have been aware of his client’s needs and researched which product would have best satisfied those needs.

 

DISCLAIMER:

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.