Is there a fiduciary responsibility to discuss long-term care planning?
The report of planners being sued by heirs or family members for failing to discuss long-term care planning and protection options may currently be more hearsay than fact, but leading national experts report they are inevitable. “I haven’t seen many claims of this nature. That said, it’s conceivable that you’ll see claims against planners, and given the aging population, you’ll see them more often,” says Richard Rogers, JD, a partner at Traub Lieberman Straus & Shrewsberry. LLP. , a firm that monitors claims against insurance agents and financial professionals.” All it takes is one or two and the floodgates could open.
For that reason, it is important for planners to understand ways to minimize the exposure of facing a $640,000 liability claim (a potential cost of a single 3.5-year claim occurring 15 years from now). Most likely, the most dangerous lawsuit will come directly from the client or spouse whose financial plan has been affected by the cost of long-term care. It can also come from heirs.
How Courts View Fiduciary Liability
“It is not the responsibility of financial planners or advisors to sell or recommend insurance to every client, but it is becoming critical to have a conversation about long-term care planning with every client,” says Steve Cain, LTC practice leader, Marsh Private Client Services. “There’s a fiduciary responsibility to talk about risk, whether it’s the risk of investing in a portfolio or the risk of needing long-term medical care.”
Courts are likely to examine the relationship between the client and the professional. “A fiduciary duty typically arises when one person or organization is placed in a position of trust for the benefit of another,” explains attorney JC Mazzola, JD, a partner in the New York firm of Wilson Elser Moskowitz Eldeman & Dicker. .
“Courts have not given much thought to the fiduciary relationship between financial planners and their clients,” says Mazzola. “However, emerging case law points to the existence of such a relationship.” In 2007, the Texas Court of Appeals affirmed the trial court’s position that “a relationship of trust exists between a financial planner or investment adviser and his client.” [Western Reserve Life and Timothy Hutton v. David Gruban and Frank Strickler, 2007 Texas App. LEXIS 5121].
The definition of fiduciary varies from state to state. New York State Courts have ruled that “a fiduciary relationship may exist when one party relies on the other and reasonably relies on the superior experience or knowledge of the other” (WIT Holding Corp v Klein, 282 AD 2d Dept 2001 ). a fiduciary duty is stricter in Texas and even stricter in Maine,” Mazzola explains, citing court rulings.
“For a claim to result in a settlement, you first need a duty that was breached or breached with resulting damages,” explains Rogers. “If you’re talking about a broad financial planner who is presenting themselves as an advisor for retirement or estate planning, the liability exists.” The claim would be based on the fact that the planner omitted the long-term care discussion and the lack of proof to the contrary would be difficult to overcome in court.
The effective use of exemptions and documentation
Many experts recommend that planners take steps to avoid or mitigate exposure to future claims that may arise even from customers who have chosen not to pursue available options. In fact, an increasing number of companies recommend that their financial or investment planners and professionals use and retain disclaimers or disclaimers.
“I certainly agree with the lawyers who say that if you’re posing as a financial planner, then long-term care is part of your responsibility,” says Howard Kite, National Sales Manager for Genworth Financial Advisors. “When the demand comes around for long-term care, people often don’t have the ability to remember,” says Dave Wickersham, CEO of The Leaders Group. “Even if a planner isn’t licensed to sell long-term care insurance, there’s a problem. And since nothing was sold, there’s no E&O insurance to protect the practitioner.”
“Perfect documentation is anything that has the client’s signature on it,” says Kathryn D. Jacobson, CPCU, CIC, senior vice president at Seabury & Smith, experts in errors and omissions liability insurance. “Ideally, you should have a signed disclosure form acknowledging that coverage was offered and declined.” Second best would be documentation of the phone call or a printout of an email summarizing the offer and decision. The suggested wording would acknowledge the customer’s decision not to purchase and “their understanding that if they decide to purchase in the future, the cost may be higher and the health underwriting requirements must be met at the time the application is submitted.”
“A waiver will not automatically cause a judge to dismiss a case, but it is very good evidence, especially if it is supported by other documentary evidence,” explains Richard Rogers.
With the increasing number of aging Americans who will need long-term care, it is impossible to eliminate all risk of finding yourself facing a lawsuit or liability claim for not having the long-term care discussion. “If customers see you as an expert, then you have a fiduciary duty to them and should offer whatever products you feel are applicable,” says Jacobson. “If nothing else, you might even make some money.”
Insurance and financial professions seeking the most up-to-date information on long-term care planning can visit the American Association of Long-Term Care Insurance Producers Resource Center.