Is There a Fiduciary Responsibility to Discuss Long-Term Care Planning

Jack Prot

The report of planners sued by heirs or family members for failure to discuss long-term care planning and protection options may currently be more hearsay than reality but leading national experts report they are inevitable. “I haven’t seen many claims of this nature. That said, it’s conceivable you will see claims against planners and given the aging population that you will see them more frequently” says Richard Rogers, JD, partner with 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 floodgates could open.

For that reason, it’s important that planners understand ways to minimize the exposure of facing a $640,000 liability claim (a potential cost of a single 3.5 year claim occurring 15 years from now). The more dangerous lawsuit will most likely come directly from the client or spouse whose financial plan has been impacted by the cost of long-term care. It may also come from heirs.

How Courts View Fiduciary Responsibility

“It’s not a financial planner or advisors responsibility to sell or recommend insurance to every client, but it’s becoming critical to have the long-term care planning conversation with every client,” states Steve Cain, LTC Practice Leader, Marsh Private Client Services. “There is a fiduciary responsibility to talk about risk, whether that be investment risk to a portfolio or the risk of needing extended health care.”

Courts will likely look at the relationship between the client and the professional. “A fiduciary duty typically arises when a person or organization is placed in a position of trust for the benefit of another,” explains attorney J. C. Mazzola, JD, partner with the New York firm of Wilson Elser Moskowitz Eldeman & Dicker.

“The fiduciary relationship between financial planners and their clients has not been considered much by the courts,” Mazzola says. “However emerging case law points to the existence of such a relationship.” In 2007, the Texas Court of Appeals affirmed the trial court’s position that “a relationship of trust and confidence exists 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 fiduciary varies from state to state. New York State courts have ruled that “a fiduciary relationship may exist where one party reposes confidence in another and reasonably relied on the other’s superior expertise or knowledge” (WIT Holding Corp v Klein, 282 A.D. 2d Dept 2001]. “The test to establish a fiduciary duty is more stringent 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 a resulting damages,” Rogers explains. “If you are talking about a broad financial planner who holds himself or herself out as providing advice for retirement or estate planning the liability exists.” The claim would be based on the fact that the planner left out the discussion about long-term care and failure to prove otherwise would be difficult to overcome in court.

The Effective Use Of Waivers and Documentation

Many experts recommend planners take steps to avoid or mitigate exposure to future claims that may arise even from clients who chose not to pursue available options. Indeed, a growing number of firms are recommending their planners and their financial or investment professionals utilize and retain waivers or liability releases.

“I certainly agree with those attorneys who say that if you do hold yourself out as a financial planner then long-term care is part of your responsibility,” says Howard Kite, National Sales Manager for Genworth Financial Advisors. “When the long-term care related lawsuit comes people typically don’t have the ability to recall,” says Dave Wickersham, CEO of The Leaders Group. “Even if a planner is not licensed to sell long-term care insurance there’s an issue. And, because nothing was sold there isn’t any E&O insurance to protect the professional.”

“The perfect documentation is anything with the client’s signature on it,” says Kathryn D. Jacobson, CPCU, CIC, Senior Vice President with Seabury & Smith, errors and omissions liability insurance experts. “Ideally you’d have a signed disclosure form that acknowledged that coverage was offered and declined.” Second best would be a documentation of the phone call or printout of an E-mail recapping the offer and decision. Suggested wording would acknowledge the client’s decision not to purchase and “their understanding that if they decide to purchase in the future the cost may be higher and health underwriting requirements must be satisfied at the time an application is submitted.”

“A waiver won’t automatically cause a judge to throw out a case but it’s a very good piece of evidence to have particularly if it is supported by other documentary evidence,” explains Richard Rogers.

With the number of aging Americans who will need long-term care growing, it is impossible to eliminate all risk of finding yourself facing a lawsuit or liability claim for failure to have the long-term care discussion. “If clients see you as the expert, then you have the fiduciary obligation to them and you should be offering every product that you feel is applicable,” states Jacobson. “If nothing else you might even make yourself some money.”

Insurance and financial professions seeking the most current information on long-term care planning can visit the Producer’s Resource Center of the American Association for Long-Term Care Insurance.

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