The report of planners being sued by heirs or family members for not talking about long-term care planning and protection options may currently be more hearsay than fact, but leading national experts report they are unavoidable. “I haven’t seen many claims of this nature. That said, it’s conceivable that you’ll see claims against planners, and given an aging population, you’ll see them more often,” says Richard Rogers, JD, partner at Traub Lieberman Straus & Shrewsberry. LLP. , a firm that monitors claims against insurance agents and financial professionals.” All it takes is one or two and the floodgates could open.
For that reason, it’s important that planners understand ways to minimize the exposure of facing a $640,000 liability claim (a potential cost of a single 3.5-year claim occurring 15 years from now). Most likely, the most dangerous lawsuit will come directly from the client or spouse whose financial plan has been affected by the cost of long-term care. It can also come from heirs.
How Courts View Fiduciary Responsibility
“It’s not the responsibility of financial planners or advisers to sell or recommend insurance to every client, but it is becoming critical to have a conversation about long-term care planning with every client,” says Steve Cain, LTC practice leader, Marsh Private Client Services. “There’s a fiduciary responsibility to talk about risk, whether it’s the risk of investing in a portfolio or the risk of needing prolonged medical care.”
The courts are likely to examine the relationship between the client and the professional. “Typically, a fiduciary duty arises when one person or organization is placed in a position of trust for the benefit of another,” explains attorney JC Mazzola, JD, a partner at the New York firm of Wilson Elser Moskowitz Eldeman & Dicker. .
“Courts have not given much thought to the fiduciary relationship between financial planners and their clients,” Mazzola says. “However, emerging jurisprudence points to the existence of such a relationship.” In 2007, the Texas Court of Appeals affirmed the trial court’s position that “a relationship of trust exists between a financial planner or investment adviser and his client.” [Western Reserve Life and Timothy Hutton v. David Gruban and Frank Strickler, 2007 Texas App. LEXIS 5121].
The definition of a trustee varies from state to state. New York State courts have ruled that “a fiduciary relationship may exist where one party relies on the other and reasonably relies on the other’s superior experience or knowledge” (WIT Holding Corp v Klein, 282 AD 2d Dept 2001 ). a fiduciary duty is stricter in Texas and even stricter in Maine,” Mazzola explains, citing court rulings.
“For a claim to result in a settlement, you first need a duty that was breached or breached with resulting damages,” Rogers explains. “If you’re talking about a broad financial planner who presents himself as a retirement or estate planning advisor, the liability is there.” The claim would be based on the fact that the planner omitted discussion of long-term care and the lack of proof to the contrary would be difficult to overcome in court.
Effective use of waivers and documentation
Many experts recommend that planners take steps to avoid or mitigate exposure to future claims that may arise even from clients who chose not to pursue available options. In fact, an increasing number of companies are recommending their financial or investment planners and professionals to use and retain disclaimers or disclaimers.
“I certainly agree with the lawyers who say that if you present yourself as a financial planner, then long-term care is part of your responsibility,” says Howard Kite, National Sales Manager for Genworth Financial Advisors. “When the demand for long-term care comes, people generally don’t have the ability to remember,” says Dave Wickersham, chief executive of The Leaders Group. “Even if a planner isn’t licensed to sell long-term care insurance, there’s a problem. And since nothing was sold, there’s no E&O insurance to protect the professional.”
“Perfect documentation is anything that has the customer’s signature on it,” says Kathryn D. Jacobson, CPCU, CIC, senior vice president at Seabury & Smith, experts in errors and omissions liability insurance. “Ideally you would have a signed disclosure form acknowledging that coverage was offered and refused.” Second best would be documentation of the phone call or a printout of an email summarizing the offer and decision. The suggested wording would acknowledge the customer’s decision not to purchase and “their understanding that if they decide to purchase in the future, the cost may be higher and health underwriting requirements must be met at the time the request is submitted.”
“A waiver will not automatically cause a judge to dismiss a case, but it is very good evidence, especially if it is supported by other documentary evidence,” explains Richard Rogers.
With the increasing number of aging Americans who will need long-term care, it is impossible to eliminate all risk of finding yourself facing a lawsuit or liability claim for not having the discussion about long-term care. “If customers see you as an expert, then you have a fiduciary duty to them and should offer all the products you think are applicable,” Jacobson says. “If nothing else, you might even earn some money.”
Insurance and financial professions seeking the most up-to-date information on long-term care planning can visit the American Long-Term Care Insurance Association’s Producer Resource Center.
