A South Australian court has found in favour of a client who claimed his adviser failed to implement the appropriate insurance on his behalf.
In the case of Ravesi v National Australia Bank, the plaintiff, Paul Ravesi, argued that he was entitled to damages because his adviser, Peter Moore, failed to take out the correct insurance policies on his behalf. Mr Ravesi suffered a serious accident, for which he was entitled to claim on his insurance, at which time he said he discovered that only half the cover he expected had been put in place.
Mr Ravesi and his business partner and de facto, Candace Torres, took out an overdraft loan for their business (Affinity) from NAB in July 2006. At the time, Mr Ravesi and Ms Torres were then referred to a financial adviser to arrange insurance cover to secure the loan, and protect the interests of the business should either party become seriously ill or injured.
The court heard that the adviser, Mr Moore, originally recommended Mr Ravesi take out a personal policy of life, TPD, income protection and trauma cover totalling $175,000, and a further policy to benefit Affinity, being $150,000 life and TPD cover. A similar recommendation was made for Ms Torres.
However, the policies that were actually issued to Mr Ravesi and Ms Torres were:
- A policy in favour of Affinity, on the life of Mr Ravesi, and providing life cover standard of $150,000 and critical illness plus cover including total permanent disability cover of $140,000. The same policy covered the life of Ms Torres for both life cover and critical illness plus cover including TPD cover in the sum of $100,000 each.
- A personal protection policy in favour of Mr Ravesi with an individual income protection benefit of $3750 per month, with a waiting period of one month and a maximum benefit period of five years
- A personal protection policy in favour of Ms Torres, with an individual benefit of $200,000 life and trauma, including TPD cover of $200,000 and income protection plus of $3750 per month
The court was asked to determine whether Mr Moore was at fault (and therefore liable for damages) for not issuing the personal life, TPD and trauma cover originally recommended to Mr Ravesi.
As reported by Judge Mansfield, the Statement of Advice (SoA) provided to Mr Ravesi was submitted as evidence of the instructions to be carried out by Mr Moore. The SoA was not fully completed, but did contain a note in the Authority to Proceed section indicating that Mr Ravesi had requested a change to the original recommendation, in which the cover was to be changed so that no personal life, TPD and trauma cover be issued on his life. Mr Ravesi argued he had made no such request. No reason for the request was noted on the SoA and Mr Moore said he did not question his client’s decision.
The Judge found in favour of Mr Ravesi, ordering Mr Moore and NAB to pay an amount of $140,000 damages to Mr Ravesi, being the claim payment he would have been entitled to if the correct insurance policy had been implemented.
Mr Ravesi and Ms Torres clearly relied on Mr Moore’s expertise
The Judge stated that regardless of whether the request had been made by the client, the adviser had a duty of care towards the client to question whether they fully understood the consequences of their decision.
“A cautious adviser was likely to have recorded such an instruction, being a significant departure from the advice…” Judge Mansfield said.
“…despite their experience, Mr Ravesi and Ms Torres clearly relied on Mr Moore’s expertise and were prepared to adopt his recommendations, subject to checking the quantification of the needs which he had identified as required to be covered.”
Lawyers for NAB and Mr Moore argued that Mr Ravesi had received a policy schedule for his personal cover from MLC on three separate occasions between the time the policy was issued and the date of the accident. The Judge confirmed that all three schedules clearly showed Mr Ravesi’s personal cover was limited to income protection benefits only. In light of this fact, the Judge reduced the damages payable by Mr Moore and NAB by 40% to account for the plaintiff’s personal negligence in not reviewing his schedules closely enough.
While not specifically called out during the proceedings, no annual reviews are understood to have taken place between the adviser and his two clients.
This adviser was obviously a dill, or under starters orders, or both. If the adviser is telling the truth, his file notes and SOAs are rubbish. I wonder, as in the CBA case, did the adviser actually prepare the SOA.
BUT the continuing underlying theme whereby the courts have a natural tendency to believe the client remains a worry. In any “he said-they said” court argument, the client always wins
I also wonder whether this case would have gone to court if a PI insurer, and not a self-insuring bank with big pockets, was involved
It only goes to show that it is sometimes impossible to cover every scenario. I have no doubt the adviser was aware of his Fudiciary duty and would have tried to ensure he had covered all “bases”.
Not necessarily in this case but clients seem to have a convenient memory whem push comes to shove and file notes annual reviews and documentation of all correspondance is your only protection in case of being challenged.
No matter how small the event or discussion may be document it and if in doubt about its appropriateness have the client sign off on it.
A tragic and unfortunate experience for all in this case.
A note in the Authority to Proceed would assume it was not in the client’s handwriting. If it was in response to the client’s later telephone instruction because of a change of mind it should have been scanned and emailed to the client for a second signature. Better still to have the client write the instruction on a fresh Authority. I ask clients to email me with instructions when they don’t want to follow recommendations that they had formerly agreed on. I tend to believe the adviser. Why would he not want his client to be fully insured? After all, that’s how he is paid, on results. If a drowning man might stand his own mother’s head to survive, then why wouldn’t a desperate client lie on oath to double their benefit, brought about by their own stupidity. Trust no one, particularly when they are short cut merchants or flighty and hum and har about sums insured, premiums and so forth.
Just cannot understand how this could have happened with all the documentation and paperwork required these days. Didn’t the plaintiff read and understand the SoA and the policy document. Unfortunately a lot of clients do not.
It would be unusual for there to be not enough cover as most advisers would generally recommend more than what the client usually wants as determined by the financial needs analysis. I recommend every cover now and let the clients decide what they don’t want or can’t afford. Of course you never have enough cover at claim time!
As mentioned above, unfortunately it will be the adviser who will always be in the firing line with the benefit of the doubt given to clients and we, the advisers are guilty until found innocent.
Classic scenario of why ‘instruction only’ SOA can potentially be more dangerous. In the eyes of the court the client is not qualified nor expected to understand how much insurance he or she needs to have. Advisers need to ALWAYS make every provision to research and understand the clients needs and deter from the instructions given from their client so the SOA covers all basis. As a young adviser i fear for the future of advice legislations; hence why my file notes are literally 3 pages long.
I wonder how this client would have reacted if the original recommendations and sums assured had been implemented against his wish to have the modified cover? I would almost guarantee that he would be contacting the adviser immediately to complain that the instructions he had clearly provided had not been followed!
If the client has put his signature to a modified Authority to Proceed, a policy application and been provided with new illustrations, had 14 days to review his policy documents and received multiple renewals where is the responsibility of the purchaser? I hope that NAB and the adviser appeal this ruling.
Boy there will be quite a few nervous Advisers based on some of the SOAs I see.
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