kite in a blue sky

The Incident

An agent writes a $1 million life insurance policy on his then 36-year-old male client. The client requests a premium waiver in case he ever gets disabled. The agent assures the client the policy will be issued with the rider. However, the policy is issued without one. The client receives the policy, never looks at it, and places it in a drawer for safekeeping.

Years go by and the client pays his premium faithfully. One day, on his way home from work, he loses control of his car on the highway due to an oil tanker spill. He’s seriously injured. Ultimately, he loses use of an arm and goes on long-term disability.

Months pass and the client still can’t work. Since he can no longer afford to pay for his life insurance, he tells the company he wants his premiums waived. The company responds that the policy has no such rider. The policy lapses due to non-payment of premium.

Eventually, the client dies from his injuries. The client’s beneficiaries file a death claim with the insurer, which is denied because the policy is no longer in force.

The Claim

The client’s beneficiaries sue the agent and the carrier for negligence, breach of contract, bad faith, misrepresentation, and violation of consumer protection laws.

The Outcome

The agent insists the client never requested a premium waiver. But he has no proof of this.

The client’s beneficiaries claim their loved one asked for the rider in the initial sales interview and that he always believed he had one.

Because the claim is a he-said/she-said scenario, backed by conduct consistent with the client’s believing he had the rider, the insurance company is unable to defend the agent. It settles the claim out of court.

The Takeaway

Agents can avoid such E&O claims by:

• Documenting all client requests in writing.

• Filling out the application line by line during the sales interview.

• At the end of the meeting, confirming what the client bought.

• At policy delivery, reviewing the policy benefits one more time.

• Always encouraging clients to ask questions about their coverage.