In a decision handed down today, a three-judge bench of the NSW Court of Appeal has dismissed the appeal brought by Commonwealth Financial Planning – a subsidiary of the Commonwealth Bank – in response to a previous decision in the case of Commonwealth Financial Planning Ltd v Couper, ordering the bank to pay legal costs.
The dispute originated when a former client of Commonwealth FP, Noel Stevens – who has since died from pancreatic cancer – brought a suit against his former financial adviser, Commonwealth FP-authorised representative Andrew Galloway.
According to court documents, Mr Stevens switched insurance providers from Westpac Life to CommInsure in 2010, upon the advice of Mr Galloway.
However, Mr Steven’s medical history was “not disclosed accurately to CommInsure” and upon making a claim the following year “CommInsure avoided the policy from inception”.
Mr Stevens initiated proceedings against Commonwealth FP, with the judge in that matter finding the bank’s financial planning arm was “liable for the negligence and misleading and deceptive conduct of Mr Galloway”.
The bank opted to appeal the decision, which has now been upheld in the Court of Appeal.
“The judgement should stand and the appeal should be dismissed because the written advice given by Mr Galloway was misleading and deceptive even if fully explained orally, and it caused Mr Stevens to cancel his Westpac Life policy,” the decision said.
The bench also made broader comments about appropriate advice, arguing that “for the advice to be appropriate, we incline to the view that it was necessary to do much more than say that the new policy was, like for like, dollar for dollar, better value.”
James you make a good point about poor questions from the planner and file notes, but again the client completed a personal questionnaire. And if they had answered the questions honestly the cover would not have been replaced. Should it really matter if the questions are asked verbally or in writing?
Honest answer at either point would mean the cover would have stayed in place
It was accepted that the client had not disclosed and that CommInsure therefore did not have to pay him.
What was in question was whether the advice was appropriate for the client. Some points were that the alternate strategies offered were not viable (i.e. the strategy of staying where he was wasn’t offered). There was also a lack of disclosure regarding the 3 year non-payment period for innocent non-disclosure which started again in the new policy but no longer affected the client in the old policy. It was also pointed out that the Adviser could not recommend the client to remain where he was as the policy was not on their recommended product list. For this reason a proper comparison was not done. The reason to move (cheaper premiums) was not necessarily the case in future years depending on the use of stepped or level premiums. They went through the documents with a fine tooth comb! Adviser (and Licensee) beware!
A reason why the client may not have disclosed the medical condition is that he might not have known about its importance associated with insurance. Hence why he sees a planner.
The planner can’t rely on client disclosure alone. In this case, it looks as if there were further steps the planner could have taken e.g. obtain a third party authority from the client and inquired himself about the existing policy. He certainly would be in a better position to know what questions to ask the existing product provider than the client.
Alex,
The point is that prior to providing the advice, the adviser only very cursorily asked the client “how would you rate your health – poor-fair-good” and ticked a box.
That’s it. That was the extent of the health question and the file note. Not only is this too brief, it is not factual and left totally to the client’s interpretation of what “poor-fair-good” is.
Experienced insurance advisers know how to pre-screen a client for health issues prior to an SoA, using questions that require factual answers and without undergoing a full personal statement.
If the client underwent such a procedure AND answered honestly, then the advice would have been different.
If the client had answered dishonestly, then the adviser could have relied on their file notes demonstrating as such.
In my view this case is about INADEQUATE PROCESS and INADEQUATE FILE NOTES.
Am I missing something here? The client did not disclose! A planner can only ask so many questions regarding a clients health and that’s why we have a personal statement.
No planner in their right mind would have moved this client to another insurance policy (and I am a bank planner) if he had told the truth. So out of this the insurance company does not have to pay, the client gets their money and the planner is left in the middle.
Alex this article names the planner
I am not defending CBA FP, however it is a policy of all Financial Institutions selling policy and bonus structure.
Branch Manager and staff who generates a lead and Practice Manger who manages that sale will in title have a big Bonus as commission is a dirty word for big financial institutions.
This structure makes FP to act in way that justify monthly bonus.
If you’ve got time to read the case, it’s also a cautionary tale on the dangers of relying on highly templated SOAs without tailoring them to specific client circumstances.
Ian
I am not defending CBA FP – no way. BUT – I think the first critical paragraph in this short article commences “However, Mr Steven’s medical history was “not disclosed accurately to CommInsure””. The adviser is not duty bound to know the client’s medical history. They are duty-bound, however, to warn the client about the implications of non-disclosure. Without knowing the full facts of the case I wouldn’t believe that the adviser would have completed the PMS for and on behalf of the client (stranger things have happened). Based on the facts presented I empathise with CBA FP – I would have thought that the client shoulder as much of the blame. But then the article goes on to say the party was guilty of negligence, misleading and deceptive conduct. I just hope that the many messages and lessons in this article are noted by those who re-write old risk policies. Strangely, history does tend to repeat itself. And unfortunately, bad apples are still falling out of our FP tree.
Sir,
I agree entirely with the Court’s decision.
The problem of Legacy Products does not rest with advisers alone. Unfortunately, nowadays it seems “Cross-sales” and “Direct Marketing Take-up Rates” take precedence over business retention or how sales are achieved.
There are millions of Legacy Life policies in existence that are open to misuse or abuse by individuals who do not understand how these policies work or the benefits they may have accrued.
Until the Industry or the Regulators step in to protect these Policyholders, they will continue to be open to the risk losing accumulated rights, benefits and even their cover.
In my view this case appears to be a result of the “Silo Mentality” where each segment of a huge operation concentrates only on their scope of responsibility, with little understanding of the Business in which they are employed.
Yet another instance of a CBA planner acting unscrupulously.And instead of the CBA doing right by these victims, they are trying to get off the hook!!! Bravo to the judge who saw past the lies and upheld the verdict.
**Justice for Noel Cooper and his family!!!
This judgement blatantly exposes CFP’s current joke of an operating model that heavily relies on flogging in-house product. One section of the advice industry is paddling like crazy upstream for ‘across industry professionalism’, whilst the big fish continue on their merry way, product ticket clipping with disregard for the client’s interests. When is ASIC going to shut them down?