As foretold and covered many times in this newsletter, litigation involving the standard of care surrounding life insurance advice and management continues to rise. While the most recent case covered here before involved a claim of breach of fiduciary duty against an irrevocable life insurance trust (ILIT) trustee (see the ABA tele-briefing-Case Law Guidance (Finally) for Trust-Owned Life Insurance), a new case alleges breach of fiduciary duty against the agent/broker who sold the policies.
According to the complaint, “[i]n early 2003, plaintiff … attended a seminar … put on by defendant [agent/broker], who presented himself as a seasoned expert in life insurance and life settlement investments. … Before leaving that seminar, [agent/broker] spoke to [client] and requested that [client] send him information regarding all life insurance policies currently in place, so that he could analyze whether there might be better options available …”.
The complaint alleges that “[t]o induce a sale, [agent/broker] presented [their] recommendation as being in the [client]’s best interest because it would eliminate all future premium payments until the expiration of their actuarial life expectancies and would substantially raise the face value of the policies” and that “the [client] would always have the ability of selling the policies for a profit in the life settlement market.” The complaint further states that “[r]elying on the representations and expertise of [agent/broker], and believing that [agent/broker] was acting in their best interest, the [client] … followed [agent/broker]’s direction and recommendation [by] surrendering [inforce] policies and using the proceeds thereof to purchase the two [new] policies.”
According to the complaint, “many years later, the [client] … became concerned … that defendants had not acted in their best interest, but instead had only recommended the [new] policies in order to generate inflated commissions and premiums.” The plaintiffs allege that to induce them “to purchase the [new] policies at issue, the [agent/broker] defendants falsely represented material facts to plaintiffs, including but not limited to … that cashing in the [inforce] policies was in the [client]’ best interest [and] that the [new] policies being recommended were the best option for the [client] under the circumstances [and that the exchange] … was in the [client]’s best interest.”
The complaint includes allegations of fraud, negligent misrepresentation, negligence, breach of fiduciary duty and violation of the [State] Securities and Investor Protection Act. This complaint was only recently filed and it is, therefore, too early to know whether this is a case of A) fraud, negligent misrepresentation, negligence, breach of fiduciary duty or violation of securities law or B) a dissatisfied client seeking restitution for a bad decision on their part. However, the “moral of the story” here is that litigation involving the standard of care surrounding life insurance advice and management continues to rise and that it is preferable NOT to be sued in the first place than to have to defend oneself against accusations like the above.
As such, agents/brokers who are or may be perceived by clients as life insurance experts who are serving the best interests of the client would be well served to provide independent research that supports such recommendations. Similarly, independent advisors who owe a fiduciary duty to the client would also be well served to suggest/insist that product recommendations/proposals include independent research as to the suitability of the recommended product to the client’s situation relative to peer group product alternatives.
Veralytic is simply the fastest, easiest, and most credible, comprehensive and cost-effective way to independently prove to clients and particularly their advisors whether or not the pricing and performance of existing or proposed life insurance is suitable. Only Veralytic is accepted by the AICPA, endorsed by the New York Bankers Association (NYBA) and compliant with the leading regulatory agency.
Use the Veralytic Report to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for you(r) clients' policies based on the 5 factors of suitability.