Lawyer harold geller of Ottawa recently received a telephone call from an advisor who had sold long-term disability insurance to a client but had not discussed critical illness insurance with him, even though the advisor’s advertisements referred to it.

The client had since been diagnosed with cancer and was notified that he did not qualify for benefits under the long-term disability policy. Unfortunately, the form of cancer he has is typically covered under CI insurance. That started the advisor worrying about legal exposure for his failure to inform the client about CI insurance and prompted his call to Geller.

Second-hand stories about confidential out-of-court settlements make the rounds through the industry but, so far, there have been no court decisions that have determined legal liability in situations in which advisors failed to tell clients who fall ill with critical illnesses of the benefits of CI insurance.

Some industry veterans look to the property and casualty insurance sector for a precedent. In the 1977 Ontario Supreme Court decision in Fine’s Flowers Ltd. v.
General Accident Assurance Co., two of three presiding judges stated that the advisor’s role in handling products for specialized needs meant an obligation to ensure that a client has suitable coverage for those needs.

While some might suggest that the spectre of liability can be a convenient marketing tool for those looking for increased sales, the difference between legal exposure and absolute safety lies in the approach. “If the advisor says, ‘I offer only long-term disability insurance’ in his or her publication, this advisor has excluded other products and is not exposed for failing to discuss CI insurance,” Geller says.

On the other hand, an advisor who offers a broad range of products may be legally exposed for failing to offer CI insurance to a client who subsequently suffers a condition covered in CI contracts. “If you say you offer the product or that you offer general insurance, and you fail to offer a product widely known within the industry that has a specific use that would have covered off a loss, then arguably you may be negligent,” Geller adds.

The cautious advisor can prevent liability with a letter of engagement that itemizes services and products provided and specifically documents exclusions, especially those resulting from an advisor’s decision not to offer a specific product or a client’s decision to forgo a product.

Specifically excluding CI as a product offering in advertising material provides another safeguard from potential exposure.

Geller’s view is not universally held by executives at major critical illness insurance underwriters. “As far as we are aware, there is no established principle that, if you don’t advise buying CI insurance and clients end up getting a critical illness, you are liable,”
says Tom Reid, vice president of public and investor relations at Toronto-based Sun Life Financial Inc., which manufactures CI insurance under the Sun Life and Clarica brands. “The principle would be no different from saying: ‘If you don’t advise them to buy life insurance and they die, are you liable?’

“The answer is ‘No’,” he argues. But Sun Life does encourage advisors to document conversations with clients.

Being careful means reading the fine print in licensing requirements, says Kim Stanley, president of Brampton, Ont.-based The Canadian Living Benefits Centre Ltd. In Ontario, for example, these requirements stipulate that the advisor’s responsibilities include keeping clients apprised of any and all new developments. “If you don’t tell them about things such as CI insurance and long-term-care insurance, there could be some lack of [fiduciary] duty there,” she says.
Advisors can accomplish this at informal meetings, annual reviews, in newsletters and e-mailings.

Even a hint of a problem means playing it safe. Geller recommends reporting any problems to an errors-and-omissions insurer.

Depending on the circumstances, E&O insurance coverage at Mississauga, Ont.-based Independent Financial Brokers of Canada could provide E&O protection, according to executive director John Whaley:
“I’m not saying it would be covered, but it wouldn’t be excluded under the terms of the contract.”

Neglecting to offer CI insurance could cost advisors money as well as legal problems if clients turn to non-traditional suppliers, such as American Express and Canadian Tire Corp., Stanley says. “Clients are being told about [CI insurance] by non-traditional insurers,” she warns. “Why would you want someone else to get your commission by looking after your clients?”