In June 2019, Graeme met with an insurance adviser to discuss his personal and business insurance needs. The adviser prepared an illustration document for a business disability insurance policy with an insurer. Graeme said the adviser told him that he would arrange ACC CoverPlus Extra, which would offset the cost of the insurance policy.
In August 2019, the insurer offered cover to Graeme with an exclusion for claims relating to back issues. Graeme accepted the offer, and the policy was set up.
Graeme assumed the adviser had also arranged CoverPlus Extra.
ACC CoverPlus is standard ACC cover for self-employed people, where ACC will pay compensation up to 80% of a person’s income. CoverPlus Extra is optional cover that allows the self-employed person to choose how much of their income they want covered if they have an accident, and ACC pays up to 100% of the agreed amount. This gives people the option to reduce their ACC levies if they choose a sum insured amount that is lower than 80% of their income.
In 2020, Graeme injured his arm. ACC paid him a sum for loss of earnings. The insurer also paid a sum under the disability policy.
Graeme said he contacted the adviser in January 2021, because his ACC levy was higher than expected. He said the adviser told him that all the necessary cover was in place, and he would check and come back to him if there were any issues. The adviser did not get back to him.
In August 2022, Graeme received another ACC levy that was higher than expected. He decided to approach another adviser. The new adviser contacted ACC and found no application for CoverPlus Extra had been submitted.
In September 2022, Graeme contacted his original adviser for information. The adviser said he had made all the arrangements he had been asked to make. Graeme did not agree and asked for compensation for the overpaid ACC levies. The adviser did not respond to further communications from Graeme, and so Graeme contacted FSCL.
Dispute
Graeme said the adviser promised to arrange CoverPlus Extra to offset the cost of the insurer’s disability policy. He wanted compensation for the higher ACC levies paid as a result of the failure to arrange CoverPlus Extra, which he calculated at $3,467.
The adviser agreed he had discussed CoverPlus Extra with Graeme when arranging the disability policy. However, he said that, once Graeme was advised of the exclusion on the disability policy, Graeme decided to stay with ACC’s standard cover. The adviser said Graeme made this decision because he did not want there to be a shortfall on his income if he injured his back and was not covered by the disability policy.
Review
We asked the adviser for his records of his dealings with Graeme. While a copy of the disability policy was supplied, and some brief notes, there was no record of the advice given to Graeme. There was no reference to CoverPlus Extra at all.
Under the scope of engagement document signed in June 2019, the adviser undertook to present Graeme with a written report on his recommendations. However, he did not do so.
Despite the lack of evidence, we considered the adviser had initially said he would arrange CoverPlus Extra. Both Graeme and the adviser said that CoverPlus Extra had been discussed. In the absence of evidence showing the adviser became aware of the exclusion on the disability policy prior to 8 August 2019, a decision about leaving ACC on standard cover could not have been made until that time.
While the adviser said he verbally advised Graeme about the exclusion, and that Graeme decided not to proceed with CoverPlus Extra, there was no written record of this conversation. We noted that, at a minimum, the adviser should have kept file notes of the conversation given that there was a meaningful change to the advice he had given previously.
Taking into account all the circumstances, including the adviser’s professional record-keeping obligations, we were not persuaded that Graeme had decided not to go ahead with CoverPlus Extra.
Resolution
We then looked at what would be a fair outcome. We did not think it would be fair to require the adviser to pay the full amount Graeme was seeking of $3,467. We took into account the fact that Graeme’s ACC claim in 2020 would have been paid at a reduced amount if the CoverPlus Extra had been in place. Further, while Graeme said he had contacted the adviser in January 2021 about the amount of the ACC levy, the records for that time showed he contacted the adviser for another purpose.
We considered that a fair outcome was for the adviser to compensate Graeme $1,750, which was about half the loss he was seeking. This was an appropriate amount to recognise the shortcomings in the adviser’s service.
Graeme and the adviser agreed to accept our preliminary decision, and the case was settled on that basis.
Insights for participants
It is critical for insurance advisers to meet their obligations concerning record-keeping. Records of advice are essential to assist clients to understand the advice they are getting and making informed decisions. Further, they assist both parties in understanding what has been agreed between them.
