An experienced life agent met with a client to sell him a health insurance policy. The agent allegedly assured the client that the new health policy would provide the same or better coverage than his prior policy for a lower premium. When completing the application, the agent had the client sign a notice to acknowledge any pre-existing conditions may not be covered under the new policy.
Four months into coverage, the client went to the doctor for a back examination and was later informed by the insurance carrier that they would not cover the claim as his back condition was pre-existing. The client alleged that the agent told him the new policy would cover his pre-existing back problems. The agent stated he was not made aware of his client’s pre-existing back issues in the process of applying for coverage.
The client filed suit against the agent for fraud and misrepresentation and further alleged that the signatures on the health policy documents were forged by the agent. The damages claimed were $36,549 plus attorney fees and compensation for the client’s mental anguish.
During mediation, the client did admit to signing the documents; however, he alleged that his agent advised him not to take the time to read them and to simply sign where indicated. It became a war of words and the client won. The claim was settled for a total of $177,500 with the agent’s E&O carrier contributing $65,000 and the health carrier contributing $112,500.
How it may have been avoided
It doesn’t matter if you’ve done everything correctly, you can still be sued. Documentation is always the best way to put you in a defensible position. In this situation, a quick e-mail to the applicant confirming the conversation about the issues in changing coverage, including the possibility of the pre-existing condition being excluded, would have gone a long way in the insured’s defense.
Lisa Rush is AVP and Program Leader for Cita Insurance Services (www.broprog.com), which specializes in E&O insurance for insurance agents. Lisa has been in the insurance industry for more than 28 years. Her experience with Professional Liability includes well over a decade of sales, servicing and underwriting programs including insurance agents, accountants, dentists, lawyers, architects and engineers, real estate as well as many miscellaneous professional liability programs. Lisa can be contacted via email at firstname.lastname@example.org, or by phone at 800-280-7250 ext. 440.
Previous “Claim of the month” articles:
“The case of contested contestability period“
“The case of the disappearing commission“
“The case of the ‘questionable answer’“
“The case of the faulty conditional receipt“