Insurance programs for financial services representatives and firms

Yes. We will have to add an endorsement to include fraud in your policy. This endorsement may require an additional premium.

No. He must have his own policy. Your policy covers your employee representatives, except those with a mutual funds licence.

Yes, because the policy is based on filed claims. We need to receive an updated proposal every year. If your situation hasn’t changed, your policy will simply be reconfirmed.

No, we don't need the originals. An emailed or faxed copy is fine.

No, that’s not necessary. If your account hasn't changed, we'll use the information already on file.

Disagreement with a client, even over small amounts, can prove to be very costly.

A client retained a financial services representative to purchase life insurance for a partnership that would: 

1. enable his estate to redeem the company shares owned by the deceased partner; and
2. act as a tax-free pension plan. 

The financial services representative sold two $2 million life insurance policies and realized a substantial commission in the process. 
 
Other advisors then informed the client that life insurance benefits were not tax-free. The client then asked the representative to cancel the policies, which he did. The insurance company accepted the cancellation and reimbursed all the premiums, except for $9,000 as payment for the coverage while the life insurance policies were in effect. 

The client initially claimed this amount from his advisor, alleging that the life insurance policies had never met his requirements. He then upped his claim to $250,000 in damages as compensation for alleged trouble and inconvenience. 

The actual value of the claim should not exceed $15,000, which includes capital, as well as interest and costs associated with litigation involving $9,000. Even if competing financial advisors add fuel to this claim and the damages are grossly exaggerated, the advisor must still defend himself against allegations of malpractice. 

To date, the financial services representative's professional liability insurer has paid $66,000 in court costs because the disgruntled client has totally committed to the lawsuits by filing a continual succession of applications and expert reports with the court. No agreement is on the horizon because the plaintiff is totally determined to plead his case.

You could be held professionally liable even if the facts show that you did not make a mistake.

A client applied for disability and critical illness insurance. The financial services advisor informed her that she would not be covered until the effective date of the insurance policy, unless she immediately submitted a cheque to pay the first month's premiums in exchange for a cover note. The client unequivocally understood that the coverage would only come into effect after the cheque had been provided. 

During the following weeks, the advisor requested a medical report from the client. When the client's doctor failed to prepare it on time, the insurer notified both the advisor and the client to this effect. The problem was resolved nine months later. The insurer then issued the insurance policy. 

Upon receipt of the policy, the client immediately filed a claim, stating that she had been diagnosed with a critical illness. The insurer dismissed the claim after determining that the illness was a pre-existing condition, which the client had failed to disclose. The client then sued both the advisor and the insurer, claiming $50,000 in damages, plus interest. 

Even though the advisor did not make an error, did not overlook anything and was not negligent, and despite the fact that the dispute was actually between the client, who clearly did not disclose her pre-existing condition, and the insurer, which may very well have not conducted a full risk analysis before accepting the application, the case will end up in court because the client is seeking to make her case at any cost. 
 
To date, it is estimated that the professional liability insurer will have to pay a total of approximately $43,000 before the court comes to its decision.

The confidentiality of the files you manage can become a sensitive subject.

A client sued her life insurance agent, the managing general agent (MGA) and the insurance company for damages and interest for breach of privacy. The client claimed that the life insurance agent had discussed her medical records with the client's father.  

In reality, the client's father had always handled his daughter’s life insurance affairs (applications, follow-up, etc.). When the insurer in this situation refused to modify one of the rating conditions because of information contained in the medical report (without disclosing its contents), the agent informed the father and explained that his daughter would have to provide written permission to the insurer if she wanted the medical report information to be shared with her doctor. The MGA merely served as a channel of communication between the life insurer and the agent. 

Despite no medical details being released, the client is seeking $300,000 in damages from all parties for breach of privacy, stress and exemplary/punitive damages. The client wishes to have her day in court and refuses to acknowledge that her claim is without merit. 

The MGA's professional liability insurer expects to pay more than $60,000 to take the case to court.  

Taking over another financial services representative’s clientele carries risks.

A financial services representative, who operated his own company, acquired another mutual fund agent’s book of business. That person retired and subsequently died. 

Five years later, one of the new agent’s clients asked to make a withdrawal from her investments, as she had done several times in the past with her former agent. She was in desperate need of money and decided to proceed even though she was told that the transaction involved transfer fees. When she later learned that the transfer fees totalled $9,000, she decided to sue her current agent and his firm, claiming that they had failed to adequately inform her of the consequences of her decisions. 

The client refused any attempt to compromise and settle out of court. She even turned down an offer of $5,000. The current agent, who acted reasonably and professionally, insisted on his full defence on the grounds that he could not be held liable for the original agent’s erroneous information. 

The client took the matter to court and was awarded the amount claimed, plus interest and costs. The reasoning was that even if the client insisted on getting the money quickly, it was up to the current agent to warn her of the potential consequences, including the cumulative effect of the withdrawals made by the original agent. In other words, the current agent should have protected the client from herself. 

The full defence of the case resulted in legal expenses of $17,800 for the professional liability insurer, plus compensation of $15,555. 

Your forgetfulness can be very costly in the case of a lawsuit.

During their annual meeting, a client and his advisor agreed to make three changes to various financial products (life insurance and mutual funds). The required forms were duly completed and signed for two of the three transactions. The third transaction was put on hold until the client's chartered accountant determined whether the payments should be made from the client's personal account or the company's bank account.

The agent received the accountant's instructions a month later, on the eve of the Christmas holidays. He later completely forgot to notify the insurer of the changes to the bank information. Since the client was abroad, he did not receive letters from the insurer informing him that the insurance policy was expiring, nor subsequent letters advising him that it had expired. Unable to reactivate his insurance policy or find another policy with similar premiums, the client commenced a lawsuit against the agent for $1 million (the value of the life insurance policy he lost).

After four years of litigation, this case resulted in an out-of-court settlement of $250,000 plus legal fees of over $70,000. Fortunately, the client did not die in the meantime. If he had, the agent’s forgetfulness would have cost an additional $1 million.