The stand down period
Sanjay had a $557,000 life insurance policy and a $334,000 trauma policy. Sanjay’s budget was a little tight and Sanjay was interested in whether he could get a similar level of coverage with a lower insurance premium from another insurer. If that was not possible, Sanjay would look at reducing his total level of cover so as to reduce costs.
Sanjay met with his insurance adviser and instructed the adviser to obtain premium quotes for similar cover with other insurers. The adviser presented Sanjay with several quotes for life, trauma and medical insurance, all with lower levels of cover than Sanjay’s current cover, and with lower premiums. Sanjay asked the adviser to leave the quotes with him and said he didn’t need any further advice or recommendations.
Sanjay read through the quotes and decided to proceed with a new insurer’s policies for life insurance at $300,000 and trauma and medical insurance for $200,000. Sanjay contacted the adviser to tell him his decision and completed and signed an application and proposal form including specific declarations about his current and past health.
Sanjay did not declare any previous health issues and his new policies were issued with no exclusions in July. The adviser then cancelled Sanjay’s old policies.
About two weeks after cover was placed, Sanjay filed a claim with his new insurer for a haemorrhoids operation. The new insurer was surprised at this, especially given Sanjay’s declarations of good health.
The new insurer obtained and reviewed Sanjay’s medical records. The new insurer told the adviser in late August that it was going to cancel Sanjay’s insurances because Sanjay’s application didn’t disclose that he had sought treatment or advice from his doctor for:
- reduced respiratory function
- post-concussion syndrome
- cardiovascular investigation
- haemorrhoids, and
- musculoskeletal issues.
The adviser was concerned and disappointed by both Sanjay’s extensive non-disclosure and the insurer’s decision to cancel. The adviser tried to re-establish cover with the new insurer however, given the non-disclosure, the new insurer refused to place cover.
Sanjay met with the adviser in September and October and explained that he felt he had made full disclosure to the adviser and that the new insurer should have reviewed his medical records before offering terms. Unfortunately no resolution was able to be reached and Sanjay complained to FSCL.
Sanjay felt that the adviser had failed to adequately advise him about the new insurer, the new insurance products, and his duty of disclosure. Sanjay said there was no comparison done for him between the insurance products and he only received quotes. Sanjay felt the service he had received showed that the adviser had ‘churned’ his insurance policy, changing insurers solely so the adviser could earn commission with no meaningful benefit to Sanjay.
Sanjay said he had disclosed his cardiac investigations to his insurance adviser who advised him not to worry about it. Sanjay also said he understood that his new insurer would look at his medical records as a matter of course and would offer him terms on that basis.
Sanjay wanted to have his insurance cover reinstated with the new insurer, or have his former cover re-instated with his old insurer.
We spoke to the adviser who explained that first he met with Sanjay to define the insurance adviser / client relationship. The adviser recalled that Sanjay was very clear he was not interested in financial advice about replacement insurance, and wanted to make his own choices. Sanjay declined advice but asked for quotes from several insurers for a similar level of cover at monthly premiums of $300 – $400 per month.
The adviser said he was happy to work with Sanjay on those terms.
After reviewing the full file we considered that the contemporaneous file notes from meetings and all the other available evidence all supported the adviser’s view. The contemporaneous file notes recorded Sanjay’s specific instructions that he did not want financial advice about replacement insurance, and was only interested in obtaining quotes so as to make his own decision.
On the evidence, we found that there had been an agreement between Sanjay and the insurance adviser to restrict the scope of services.
We found that the adviser had reasonably complied with Sanjay’s instructions by providing the quotes to Sanjay that met with his budget parameters. We noted that the insurance quotes also specifically included a disclaimer which stated that nothing in the quote reports constituted financial advice or an endorsement or recommendation of any insurance product.
However, we felt that it could have been made more explicit to Sanjay that he was agreeing to a reduced service and considered that Sanjay had been inconvenienced by the reduced scope of services not being expressly recorded in writing.
The adviser disputed Sanjay’s version of events concerning advice about the obligations of disclosure and said he had encouraged Sanjay to fully disclose any and all medical issues.
In the circumstances, we preferred the adviser’s evidence, as he was able to recall specific details from the meetings and these were recorded and supported in his contemporaneous file notes.
We also considered that the duty of disclosure is a personal duty to each applicant. Even if Sanjay had disclosed his health conditions to the adviser, which was disputed, Sanjay was bound by his duty to also provide true and complete information to the new insurer.
Sanjay should not have signed his insurance application without disclosing his cardiac investigations and his full medical history. We found that the information that Sanjay had provided to his insurer was not true or complete and that Sanjay had withheld material information about his medical history from the new insurer.
In our view, Sanjay’s non-disclosure of his pre-existing medical conditions had led to his insurance policies being cancelled.
We recommended Sanjay discontinue his complaint against the financial adviser. However, we also recommended that the adviser should pay Sanjay $500 in recognition of the inconvenience caused to Sanjay by not expressly recording in writing that the scope of services had been reduced.
Sanjay and the adviser accepted the settlement we recommended and the complaint was resolved.
The terms of the agreement and scope of services set out the contract for services between you and your adviser. The service can be limited and extended by agreement. If you request a narrow or specifically defined service then your customer experience may differ from those who are governed by the standard scope of services.
It is worth discussing with your insurance adviser at the outset of your relationship if you have any questions about the services you want.