The mere fact an issue is raised before a court can be enough reason to pay it attention. Win or lose, someone was willing to undertake the costly and taxing journey through the legal system, and the court’s findings frequently provide clarity as to where the boundaries of liability lie.
This was my reaction to the Gish v. Hooper Insurance and Financial Services Inc. case recently decided by the British Columbia Court of Appeal. The key issues on the appeal were whether a life insurance policy was actually cancelled, and whether there was a duty of care owed to a beneficiary to allow for the policy to continue.
Be careful what you ask for
Robert and Margaret Gish ran a jewelry business for over 20 years, winding it up in 2004. On October 7 of that year, they met with their insurance broker, Bernard Hooper, to discuss their five-policy insurance portfolio with Transamerica, which included two life insurance policies on Mr. Gish. Hooper suggested they maintain the coverage, and the couple directed him to pull together more policy details for a follow-up discussion.
On October 22, Mr. Gish called Transamerica directly to cancel his two life insurance policies, but was advised that written notice of cancellation was required. Shortly after this phone call Mr. Gish faxed Transamerica a handwritten cancellation notice. Transamerica followed up with letters dated October 23, 2004, confirming the two policies had been cancelled as requested. On becoming aware of her husband’s actions, Mrs. Gish called Transamerica and learned the policies had been cancelled — much to her displeasure.
Unaware the two policies had been cancelled, on October 28 Hooper faxed a request to Transamerica for information concerning the premiums on all policies held by Mr. and Mrs. Gish. It was in a November 3, 2004 email response to this inquiry that Hooper learned the two life insurance policies on Mr. Gish had been cancelled on October 22. The email also noted the cancellations were effective November 15 and 22, respectively — the paid-to dates of the policies.
In subsequent consultations with the Gishs, Hooper did not discuss the cancellation of the two life insurance policies, nor note the effective date of the cancellations. The Gishs discussed their other insurance policies with Hooper during these meetings, but didn’t raise the issue of the two cancelled policies, let alone express concern over their cancellation.
Robert Gish died in the spring of 2005.
Beneficiary claims against broker
After her husband’s death, Mrs. Gish commenced a lawsuit against Hooper, his brokerage and Transamerica, claiming there had been a breach of duty to her as beneficiary.
Under the Insurance Act, certain parties, including a beneficiary, may pay premiums when the insured fails to do so — provided the payments are made within a specified late-payment grace period — to avoid the policy lapsing and being terminated for the non-payment of a premium. In this case, the assumption is the policy has not been intentionally cancelled by the policyholder, but rather is terminated or at risk of being terminated due to non-payment.
Mrs. Gish claimed there was a duty to inform her, as the beneficiary, of this aspect of the governing legislation, which she thought she could use to keep the policies in force.
The trial judge rejected Mrs. Gish’s argument, stating that the policies were not terminated because of the non-payment of a premium; rather, Mr. Gish cancelled the policies, which was his right as their owner. The appeals court confirmed this finding.
Should brokers be concerned?
This seems like an easy case for the judge to decide, as the facts show Mr. Gish cancelled the coverage. But what if the facts lined up differently?
As the appeals court judge commented, an insurer’s relationship with an insured is generally constrained to the terms of the policy and the governing legislation. The position of an insurance agent or broker is not so clearly delineated.
There is case law under which lawyers have been found liable to disappointed beneficiaries due to an error or omission in drafting wills or some other aspect of estate planning. Similarly, financial advisors have been found liable to disappointed beneficiaries where there was a failure to properly complete a registered plan beneficiary designation. In both cases, the professional was engaged in providing a service to a client, and the beneficiary’s claim would have required the services of that professional.
But would the law go so far as to impose an obligation on an advisor to seek out and advise a beneficiary of a right to pay a premium on a lapsed policy? I don’t know the answer, but if I am an advisor with knowledge of a potential lapse situation, I’d have the compliance department on speed dial.