so. AGENT LIABILITY IN THE LIFE INSURANCE MARKET: A SAMPLING OF RECENT CASES LAGOS WEALTH ADVISORS Advisor’s Bulletin – July 2015 ADVISOR USE ONLY. NOT FOR CLIENT DISTRIBUTION Page 2 Costigan v. John Hancock Ins., No. 14-CV-1002 (N.D. Ohio March 26, 2015) An Ohio federal court dismissed a policy owner’s claims that the agent tricked him into buying a UL policy on the life of his father as part of a buy-sell arrangement. The policy owner, the insured’s son, alleged that the carrier and the agent made misrepresentations about aspects of the UL policy’s future performance. Specifically, the policy owner alleged that the carrier failed to inform him that the policy premiums “would increase substantially in year 21” and instead represented that “as the insured aged, the premiums would remain relatively level and affordable.” The court dismissed the policy owner’s misrepresentation claims on statute of limitations and technical pleading grounds, leaving the policy owner to pursue only a breach of contract claim against the insurance company for its failure to provide annual policy notices required by the insurance contract. As with other cases in this category, a better explanation of how UL works at the front end might have allowed the parties to avoid misunderstanding and litigation. Jacoby v. AXA Equitable Life Ins. Co., No. 13-CV-6511 (U.S.D.C., E.D.P.A. Dec. 15, 2014) In 1984, AXA Equitable Life Insurance Company issued a $450,000 life insurance policy to Richard A. Jacoby. The policy owner claimed the policy was marketed and sold as a vanishing premium policy and alleged that he was told after nine annual payments that the dividends earned would be used to pay all future premiums. The carrier responded that the policy was not a vanishing-premium policy because the premium period was defined in great detail within the policy contract itself. Furthermore, while the policy owner had the option to request that any accumulated dividends be used to help pay premiums, the owner had decided to use dividends to buy paid-up additions instead. A federal court in Pennsylvania ruled that the policy language was sufficiently ambiguous to permit the parties to engage in discovery to determine what the parties’ true intentions were when the contract was formed. The court ruled that since the policy was unclear as to the source of premium payments once the policy reached its expected vanishing point, the plaintiff-trustee’s complaint for breach of contract and bad faith could proceed to trial. It is unclear from the pleadings in this case whether the agent who sold the vanishing-premium concept in this case was sued. It seems unlikely that the policy owner would have gained an understanding of the “vanishing premium” idea on his own. Agents who have presented vanishing premium illustrations to policy owners—much like those who have presented UL illustrations of the type in the Costigan and C&C Family Trust cases—should clearly stay in regular touch with their clients in order to monitor the policy’s actual performance compared to that which was illustrated when the policy was purchased. Purported Bad Advice Cases While the first set of cases underscored potential agent liability in the event the agent fails to work with the client to monitor policy performance, this second set shows the kinds of liabilities that can arise when the agent is actively involved during the policy management phase.
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ReplyDeleteAGENT LIABILITY IN THE LIFE INSURANCE MARKET:
A SAMPLING OF RECENT CASES
LAGOS WEALTH ADVISORS
Advisor’s Bulletin – July 2015
ADVISOR USE ONLY. NOT FOR CLIENT DISTRIBUTION
Page 2
Costigan v. John Hancock Ins., No. 14-CV-1002 (N.D. Ohio March 26, 2015)
An Ohio federal court dismissed a policy owner’s claims that the agent tricked him into buying a UL policy on the
life of his father as part of a buy-sell arrangement. The policy owner, the insured’s son, alleged that the carrier and
the agent made misrepresentations about aspects of the UL policy’s future performance. Specifically, the policy
owner alleged that the carrier failed to inform him that the policy premiums “would increase substantially in year
21” and instead represented that “as the insured aged, the premiums would remain relatively level and affordable.”
The court dismissed the policy owner’s misrepresentation claims on statute of limitations and technical pleading
grounds, leaving the policy owner to pursue only a breach of contract claim against the insurance company for its
failure to provide annual policy notices required by the insurance contract.
As with other cases in this category, a better explanation of how UL works at the front end might have allowed the
parties to avoid misunderstanding and litigation.
Jacoby v. AXA Equitable Life Ins. Co., No. 13-CV-6511 (U.S.D.C., E.D.P.A. Dec. 15, 2014)
In 1984, AXA Equitable Life Insurance Company issued a $450,000 life insurance policy to Richard A. Jacoby. The
policy owner claimed the policy was marketed and sold as a vanishing premium policy and alleged that he was told
after nine annual payments that the dividends earned would be used to pay all future premiums.
The carrier responded that the policy was not a vanishing-premium policy because the premium period was defined
in great detail within the policy contract itself. Furthermore, while the policy owner had the option to request that
any accumulated dividends be used to help pay premiums, the owner had decided to use dividends to buy paid-up
additions instead.
A federal court in Pennsylvania ruled that the policy language was sufficiently ambiguous to permit the parties to
engage in discovery to determine what the parties’ true intentions were when the contract was formed.
The court ruled that since the policy was unclear as to the source of premium payments once the policy reached its
expected vanishing point, the plaintiff-trustee’s complaint for breach of contract and bad faith could proceed to
trial.
It is unclear from the pleadings in this case whether the agent who sold the vanishing-premium concept in this
case was sued. It seems unlikely that the policy owner would have gained an understanding of the “vanishing premium”
idea on his own.
Agents who have presented vanishing premium illustrations to policy owners—much like those who have presented
UL illustrations of the type in the Costigan and C&C Family Trust cases—should clearly stay in regular touch with
their clients in order to monitor the policy’s actual performance compared to that which was illustrated when the
policy was purchased.
Purported Bad Advice Cases
While the first set of cases underscored potential agent liability in the event the agent fails to work with the client to
monitor policy performance, this second set shows the kinds of liabilities that can arise when the agent is actively
involved during the policy management phase.