A court decision in which an adviser and client were found jointly responsible for insurance non-disclosure has led the adviser to warn his peers that they can never be too careful when it comes to compliance records.
In the case of Richard Swansson (plaintiff) vs Russell Harrison (adviser) & Ors (others), the client sued the adviser and his licensee (Synchron) for damages of nearly $1.5 million, because an act of non-disclosure left him uninsured.
Mr Swansson was a client of Mr Harrison’s when the situation leading to the court case arose. In 2004, Mr Swansson took out a life insurance policy with AXA, with the help of Mr Harrison. In 2012, after receiving his renewal notice which indicated his premium would rise by around $800, Mr Swansson approached Mr Harrison to look for an alternative, less expensive option.
The biggest challenge we have out there as advisers is that clients do not take their duty of disclosure seriously
Mr Swansson met with his adviser, Mr Harrison, on 7 March 2012, where it was decided a replacement life insurance policy would be sought from AIA Australia. During the application process, Mr Swansson noted he had seen his GP two days prior for a stomach complaint, for which he was prescribed treatment for giardia. The application form reflected that this issue was ‘resolved’.
Mr Swansson’s application was submitted to AIA Australia shortly thereafter, but the policy was not issued until 23 March. During the intervening period, Mr Swansson sought additional medical attention for his stomach complaint, undergoing an ultrasound and MRCP scan. Mr Swansson was also in contact with Mr Harrison during this period, providing additional information requested by the insurer about his alcohol consumption. Mr Swansson did not advise Mr Harrison of the additional medical inquiries into his stomach condition. On 28 March, five days after the new policy was issued by AIA Australia, Mr Harrison forwarded a letter which had been pre-signed by the client to AXA, expressing the client’s decision to cancel the old policy.
On 3 May 2012, Mr Swansson was diagnosed with pancreatic cancer. He underwent treatment, however, a routine CT scan in mid-2013 revealed the cancer had metastasised into the liver and lungs. On 17 July 2013 Mr Swansson was provided with a terminal illness diagnosis, and on 30 July 2013 Mr Harrison lodged a claim with AIA Australia on Mr Swansson’s behalf.
The claim was denied by AIA Australia on the grounds that Mr Swansson had failed to comply with his ongoing duty of disclosure by not advising AIA of his ongoing symptoms, consultations and investigations before the policy commenced. Mr Swansson attempted to make a claim with his previous insurer, AXA, which was declined on the basis he had cancelled his cover with them prior to diagnosis.
Mr Swansson brought the case against Mr Harrison on the grounds that he negligently failed to exercise the skill and care reasonably to be expected of an insurance adviser (or broker) professing skill in that field, by failing to inform Mr Swansson of his duty of disclosure.
Judge Macaulay, who presided over the case in Victoria’s Supreme Court, found that:
“…Mr Harrison gave Mr Swansson advice, on one if not more occasions while completing the application, about his ongoing duty to disclose material facts to the insurer. He also explained the consequences of not doing so, including that within the first three years the insurer could avoid the policy for non-disclosure or misrepresentation that was not fraudulent. I accept that he gave advice, in substance, in conformity with his habitual practice as he explained in evidence.”
However, Judge Macaulay determined that both the client and the adviser were jointly negligent in their duties when it came to the cancellation of the AXA policy, for failing to ask (in the case of the adviser) or disclose (in the case of the client) anything further about the previously identified stomach condition and the additional medical treatment. Judge Macaulay therefore awarded the plaintiff damages in the sum of $738,727.35 (half of the claim benefit Mr Swansson would have received if his insurance was in place).
Mr Harrison spoke to riskinfo about the case, and expressed his sympathy for the client and his family, especially as they had to deal with the proceedings while the client was extremely ill.
He highlighted that the case had led to further changes within his own practice:
“We have actually included the duty of disclosure in full in our Statement of Advice (SoA) and that page requires separate signatures from the clients. So our SoAs now require two signatures – once against the duty of disclosure, to confirm that the client has read it, understood it and that we’ve discussed it – and the other one is the normal Authority to Proceed,” Mr Harrison explained.
This court case has highlighted that the demands on practice have evolved
In addition, his practice now sends an email to the client prior to the cancellation of an existing policy, telling the client they’re covered with another policy and warning that if there are any changes or anything they want to let the advice practice (and insurer) know, they have 48 hours to do so before the policy is cancelled.
“We have always been (and remain) confident in our processes. This court case has highlighted that the demands on practice have evolved and, naturally, we will continue to evolve to meet these demands.”
“Meticulously keep notes. Ensure that all discussions and comments to clients and prospective clients are documented. Ensure that everything is signed off and there is a paper trail for everything.”
Synchron Director, Don Trapnell, described Mr Harrison as an adviser who has great regard for process, is meticulous in his paperwork, and his clients are always foremost in his mind.
However, he told riskinfo that the judgement had prompted the licensee to look again at its compliance processes to “try and find more ways to protect clients from themselves”.
“The biggest challenge we have out there as advisers is that clients do not take their duty of disclosure seriously or understand the reality of disclosing everything that an underwriter may rely on when making their decision. Synchron has always had a very strong compliance regime in this area,” Mr Trapnell said.
“Part of Synchron’s standard processes – and every Synchron adviser does this – is that after the application form has been completed the adviser must send a copy of the application form back to the client, with a letter. The letter says, in part, please read the answers to your questions again, to ensure you have disclosed everything that an underwriter may rely on when assessing your application for insurance. That letter also reminds them of their duty of disclosure, which says they must let us know of anything that occurs up until the date the policy is issued.
“These are things that are part of our standard procedures. But this court case said to us that even with those things in place, we still have to try hard to protect our clients against themselves.”
As a direct result of the case, Synchron recently developed a video for advisers to use with their clients to explain the risks of insurance non-disclosure (see: Synchron Tackles Insurance Non-Disclosure).
To read a full copy of the Judge’s findings, click here.
Riskinfo thanks Mr Harrison and Mr Trapnell for sharing the details of this case with their peers.