Farooq owned a life insurance policy, which would pay Farooq $250,000 if his wife passed away. The policy was structured so that Farooq’s premium payments would stay steady for 5 years, then suddenly increase by a large amount.
Farooq was happy with his policy until the 5-year period ended, and his monthly premium payment jumped from $459 to $830. Farooq decided this premium was not affordable.
Farooq contacted his insurance adviser, and asked how he could reduce his premium payments. His adviser told him he could reduce his cover from $250,000 to $150,000, and said this would reduce Farooq’s premium payments to $497 per month.
Farooq was happy with this, and he signed a letter asking his insurer to reduce his cover to $150,000. However, when Farooq received his first premium invoice, he was surprised to find his insurer was charging him $567, not the $497 which he had been promised.
Around a month later, Farooq’s wife was diagnosed with a terminal illness, and given a matter of months to live.
Farooq said his insurance adviser given him an inaccurate premium estimate. Farooq said he never would have dropped the amount of his cover if he knew the payments were only going to decrease to $567.
Farooq also said he had called his adviser as soon as he had received his first premium invoice, and asked to have his cover reinstated to $250,000. He said he did not receive any contact from the adviser in the month between this call and his wife’s diagnosis. Farooq said that his full cover could have been reinstated if it were not for the adviser’s delays.
Farooq wanted the adviser to pay him $100,000 he felt he had lost.
The adviser acknowledged that his premium estimate was inaccurate. He said he had performed a pro rata estimate: Farooq’s cover was being reduced by 40%, so he calculated that the premium would be reduced by roughly 40% as well, but this did not turn out to be the case. The adviser thought he had made it clear to Farooq that the $497 figure was an estimate only, but he accepted that there was no evidence of that on his file.
Although the adviser acknowledged the premium estimate was inaccurate, he did not think he had caused Farooq a $100,000 loss. The adviser said Farooq’s real loss was the difference between the policy and premium Farooq had been promised, and the premium he had to pay. He said the loss was therefore the difference between the $497 premium payments that Farooq had been offered, and the $567 premium payments that Farooq was charged.
The adviser also said there had not been any delays. He said he did not have any record of a call from Farooq until after Farooq’s wife was diagnosed with her terminal illness.
While we sympathised with Farooq’s position, we agreed with the adviser’s calculation of Farooq’s loss. We found that Farooq’s financial loss was the difference between what he had bargained for, and what he had received. Farooq had made the decision to reduce his cover by $100,000, in exchange for reduced premium payments. The loss which was Farooq had suffered as a result of the adviser’s mistake was the difference between the total premium Farooq had been promised and the total premium he would actually have been charged over the following five years: $4,200.
We accepted that if the adviser had delayed reinstating Farooq’s cover for a month, there was a strong argument that the delay caused Farooq to suffer a $100,000 loss, because his wife had been diagnosed with her terminal illness within that month.
However, we did not find any evidence of the delay; Farooq could not establish he had called the adviser or asked to have his cover reinstated before his wife received her diagnosis. The adviser had provided us with a copy of his diary, which contained handwritten notes for every call he had received from his clients. The diary contained entries for all of Farooq’s earlier calls about reducing his cover, and all of his calls after his wife’s diagnosis. But there was no entry for a call after Farooq he received his first invoice. In the absence of any other evidence, we considered the diary was strong evidence that Farooq did not ask to have his cover reinstated until after his wife received her diagnosis.
We issued a preliminary decision, stating that the adviser should pay Farooq $4,200 as compensation for the difference between the premium he was promised and the premium he was charged. We also recommended the adviser pay Farooq $1,000 as compensation for the stress and inconvenience he suffered as a result of the incorrect premium estimate.
Both Farooq and the adviser accepted this recommendation.
Insights for participants
This case highlights the importance of keeping detailed and consistent records of all your calls with clients. In this case, the adviser’s diary notes helped him to avoid a potential $100,000 award.
This goes to show how important it is to keep a file note of all your calls with clients, even if no advice is given, or the call seems inconsequential. When you can show a comprehensive record of the calls between you and your client, it makes it very easy for you to establish a timeline for a complaint, and show exactly what advice you provided.