Is there a fiduciary responsibility to discuss long-term care planning?
The report of planners sued by heirs or family members for not discussing long-term care planning and protection options may be more hearsay than reality, but leading national experts report that they are unavoidable. “I have not seen many claims of this nature. That said, it is conceivable that you will see complaints against planners, and given the aging population, you will see them more often,” says Richard Rogers, JD, partner at Traub Lieberman Straus & Shrewsberry. LLP, a firm that monitors claims against insurance agents and financial professionals. “All you need is one or two and the gates could be opened.
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 within 15 years). The most dangerous claim will likely 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 advisers to sell or recommend insurance to all clients, but it is becoming critical to have the long-term care planning conversation with each client,” says Steve Cain, LTC Practice Leader, Marsh Private Client Services. “There is a fiduciary responsibility to talk about risk, whether it is investment risk for a portfolio or the risk of needing extended medical care.”
Courts are likely to examine the relationship between the client and the professional. “A fiduciary duty generally 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 at the New York firm Wilson Elser Moskowitz Eldeman & Dicker.
“The courts have not given much consideration to the fiduciary relationship between financial planners and their clients,” says Mazzola. “However, emerging jurisprudence points to the existence of such a relationship.” In 2007, the Texas Court of Appeals affirmed the trial court’s position that “there is a relationship of trust between a financial planner or investment advisor and his client.” [Western Reserve Life and Timothy Hutton v. David Gruban and Frank Strickler, 2007 Texas App. LEXIS 5121].
The definition of trustee varies from state to state. The New York State courts have ruled that “a fiduciary relationship may exist when one of the parties places its trust in another and is reasonably based on the experience or superior knowledge of the other” (WIT Holding Corp v Klein, 282 AD 2d Dept 2001). “The test for establishing 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 is violated or breached with the resulting damages,” explains Rogers. “If you’re talking about a broad financial planner posing as a retirement or estate planning advisor, there is responsibility.” The claim would be based on the fact that the planner omitted the discussion about long-term care and the lack of proof to the contrary would be difficult to overcome in court.
The effective use of exemptions and documentation
Many experts advise planners to take steps to avoid or mitigate exposure to future claims that may arise even from clients who chose not to follow the available options. In fact, a growing number of companies are recommending that their planners and their financial or investment professionals use and maintain exemptions or disclaimers of liability.
“I certainly agree with those attorneys who say that if you present yourself as a financial planner, long-term care is part of your responsibility,” says Howard Kite, National Sales Manager for Genworth Financial Advisors. “When there is a demand related to long-term care, people usually don’t have the ability to remember,” says Dave Wickersham, CEO of The Leaders Group. “Even if a planner is not licensed to sell long-term care insurance, there is a problem. And, since nothing was sold, there is no E&O insurance to protect the professional.”
“Perfect documentation is anything the client’s signature has on it,” says Kathryn D. Jacobson, CPCU, CIC, Senior Vice President, Seabury & Smith, experts in error and omission liability insurance. “Ideally, you would have a signed disclosure form acknowledging that coverage was offered and declined.” The second best option would be a documentation of the phone call or a hard copy of an email recapping the offer and the decision. The suggested wording would acknowledge the customer’s decision not to buy and “their understanding that if they decide to buy in the future, the cost may be higher and the health underwriting requirements must be met at the time the request is submitted.”
“A waiver will not automatically dismiss a case by a judge, but it is very good evidence, especially if it is supported by other documentary evidence,” explains Richard Rogers.
With the increasing number of older Americans who will need long-term care, it is impossible to eliminate any risk of facing a lawsuit or liability claim by not having the conversation about long-term care. “If customers see you as an expert, then you have a fiduciary obligation to them and you have to offer all the products that you think are applicable,” says Jacobson. “If nothing else, you might even earn some money.”
Insurance and financial professions looking for the most up-to-date information on long-term care planning can visit the Producer Resource Center of the American Long-Term Care Insurance Association.
