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A broker I know, I’ll call him "Stan," is a money-management guy for a well-known financial services firm. His company offers a broad range of services — not just investments, but also retirement, tax and estate planning.
Stan was good at what he did, and he made his client a lot of money in stocks and bonds. But when the client died, the sizable estate slipped into probate and a huge chunk went to the government. Because his firm provided estate planning, but Stan failed to offer it, the heirs sued and won. Stan’s mistake was a result of "errors and omissions" (E&O), wrongful acts in rendering — or failing to render — professional services.
This true story is unfortunately one that’s repeated all too often. We live in the most litigious country in the world. About 94 percent of the world’s litigation happens right here in the United States.1 In 2004 alone, investors won a record $194 million in arbitration against brokerage firms.2
If you’re licensed to sell life insurance (and other products) — and a lot of property and casualty firms bill themselves as full-service providers of auto, homeowners, life insurance and investments — you could be held liable if you don’t offer everything you have available that is appropriate for your client.
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Here are two simple things you can do to help avoid E&O litigation.
One: Develop procedures that make clients aware of all the products and services you offer.
You may specialize in auto and homeowners, but if your company flyer and Web site say you sell life insurance and investments, make sure you offer them.
Explain the role of life insurance in an irrevocable trust. Show clients how the policy’s benefits provide liquid assets at death and are exempt from federal income tax for the beneficiary. Let them know that assets in an annuity or life insurance have the highest level of protection should they themselves be sued.
Two: Make sure clients truly understand the product and that it’s suitable.
If you’re selling a variable annuity product, for example, your client is probably looking for a tax-deferred investment tool. But it’s up to you to make sure the client also understands the surrender charges, enhanced death benefits and other features.
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What Is E&O Coverage?
If you sell personal services, whether that’s as a CPA, a lawyer, a real estate professional or a financial advisor, you need to protect yourself from the risks of litigation stemming from inadvertent mistakes. The insurance that provides this protection is errors and omissions coverage (E&O).
Most frequently, broker reps and independent insurance agents obtain coverage under a policy provided by their broker/dealer or agency.
An E&O carrier may impose requirements on the covered agents, such as specific customer agreement wording with clauses pertaining to how claims will be handled. Most common is the requirement for an arbitration clause, which is meant to attempt to settle claims out of court and thereby reduce the costs of settlement.
As claims continue to rise, E&O coverage is becoming more difficult to obtain. Small- and mid-size broker/dealers typically find coverage through specialty brokerage firms.
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Also, be aware that a sale to an elderly client could be reviewed by adult children. Your file should include notes that indicate the sale was suitable. This is especially true if the product includes rolling surrender charges or costly riders, and if the client is unable to explain the benefits to his or her children.
This brings to mind a recent lawsuit resulting from a 73-year-old client who purchased a life insurance annuity policy, and had paid in about $43,000 in premiums when he died 17 months later. Suitability was hard to show as he was not due to receive payouts until he turned 115 years old.3
Make sure the product is easy to explain and understand, that it’s priced competitively, and that it’s truly suitable.
How SymetraSM Can Help
By now you’ve got the picture. It’s not enough to advertise you sell life insurance, you must offer it to every client who needs it. Explain that you feel it’s your personal responsibility to make them aware of the different tools available to protect their financial interests. Make a checklist of every product and service your company offers, review the list with your client, note whether each item was accepted or rejected, have the client sign it, and file the list for safekeeping (see our E&O Template).
Symetra Life can help you effortlessly reach out to clients through its new direct mail campaign: Awareness Through Marketing (ATM). ATM is a consistent and cost-effective way to continually prospect within your current client base. There are no reply cards to follow up on and no outbound solicitation calls for you and your staff to make. Check out the ATM Web site for topics, mailing schedules and program costs.
If life insurance isn’t something you currently sell a lot of, you’ll appreciate how fast and easy we’ve made sales with Symetra Express. With a few clicks of the mouse, you can help your client get a quote, apply for and temporarily bind a term life or universal life policy in less than 10 minutes, for qualified clients.
Even agents and advisors who wouldn’t dream of hurting a client can get caught in the Catch 22 of today’s sue-happy environment. When you offer your company’s full line of products you’re taking important steps toward safeguarding your business. More importantly, you’re providing a valuable service to clients, strengthening your relationships with them, and increasing sales.
If you’d like to discuss these options in detail, or if you’d like additional support, contact our Sales Center at invest@symetra.com or 1-800-706-0700.
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1Joseph, Mathews, "The Lawsuit Survival Guide: A Client’s Companion to Litigation," June 2001, (accessed online from a
June 1, 2001, press release at Nolo.com).
2Journal for Financial Planning, May 2005, "Stat Bank (National Association of Securities Dealers)."
3Financial Planning, Jan. 31, 2005, Lawsuit Seeks to Prohibit Sale of Insurance Annuities to Senior Citizens.
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