Advisers have been spreading the word about the importance of disclosure after a recent case where an adviser and his client were found jointly responsible for insurance non-disclosure.
A number of advisers have taken to professional network website LinkedIn to share the story of the adviser and his licensee, Synchron, who were taken to court by their client after an insurance non-disclosure left him out of pocket almost $1.5 million.
In a rare move, the judge found the adviser and his client jointly responsible for the non-disclosure and awarded the plaintiff damages of $738,727.25 – half the amount he claimed for.
In response to the unusual case, the adviser, Russell Harrison, has decided to warn his peers about the importance of taking extra care with compliance records. He’s also changed his practise to require two signatures on any statement of advice, rather than the commonplace one.
The judgement has prompted Synchron to develop a video for advisers to show to their clients that explains the paramount importance of ongoing disclosure.
A large number of commenters on the LinkedIn forum link say they too have changed their practise, or will recommend that their practise is amended, after reading about Harrison’s case.
The judge’s findings reveal the crux of the case started when the client (plaintiff) Richard Swansson received a renewal notice for his life insurance policy with AXA that indicated a rise of about $800.
In response, he approached his adviser, Harrison, to find a cheaper but similar product. On 7 March 2012 they met at Harrison’s office to discuss the life insurance policy, which was being sought from AIA Australia.
Two days earlier Swansson had visited a doctor about a stomach ailment and had been prescribed medication for giardia.
Conversations that took place in the meeting at Harrison’s office are in dispute; however the stomach problem was discussed and subsequently noted as “resolved” on the application form for the new life insurance.
Shortly afterwards, the application was submitted to AIA, and was approved on 23 March. In the intervening time, Swansson had received more medical attention for his stomach problem, including an ultrasound and a scan. It was diagnosed as pancreatitis.
He didn’t mention this to adviser Harrison, even when he was called by Harrison’s office with a query regarding alcohol consumption - extra information required by AIA to process the application.
However nor did Harrison seek to ask Swansson about whether there had been any new developments surrounding his stomach complaint.
On 28 March, five days after the new policy was issued, Harrison cancelled the policy with AXA on behalf of his client.
In May, Swansson was diagnosed with pancreatic cancer, and after a variety of treatments he was advised it was terminal.
On 30 July Harrison lodged a claim with AIA Australia on Swansson’s behalf, but it was denied on the basis he hadn’t met his ongoing duty of disclosure by failing to advise AIA of his subsequent symptoms and consultations.
He also attempted to lodge a claim with previous insurer AXA, which was declined because he had cancelled cover with them prior to diagnoses.
Swansson brought the case against Harrison on the grounds that he negligently failed to inform of the duty of disclosure.
After presiding over the case, Judge Macaulay stated; “turning to a comparison of their respective culpabilities, again I find little to separate them.”
Harrison as a professional adviser has the particular and specialist knowledge and experience in insurance matters that should lead him to be especially alert to the danger of inadvertent non-disclosure by intending insureds, the judge said.
“On the other hand, Mr Swansson was the one uniquely aware of the developments in his own medical situation. He ought to have, but evidently did not, reflect on the facts that he had recently informed his insurance adviser that he was feeling better, his medical condition had been described in his insurance application as being “resolved”, and yet he was undergoing a sequence of further tests with a degree of urgency which were revealing a more troubling diagnosis.”
Harrison now includes the duty of disclosure in full in the statement of advice, and each page requires separate signatures from the clients.
John Prossor, a director of Synchron, told Wealth Professional
that licensee Harrison is a top-class adviser who always does everything he can to follow procedure.
“This puts the industry on notice as to how far things can go. All we can do as an industry is add more procedures,” he said, adding that Synchron had already been ahead of the game prior to the case with its post-application letter that required clients to review their answers and the duty of disclosure and send it back.
Synchron are now thinking about how they can use the disclosure warning video they developed in response to the case more widely.
It is also looking to implement more changes, including sending out an email before cancelling a policy urging the client to disclose immediately if they have any need to visit a doctor at any point.