Ward versus Manulife

InsuranceAbout the Canadian Council of Insurance Regulators

Trust and loyalty are important values in the insurance industry. While trust and loyalty between client and agent is highly regulated, trust and loyalty between agent and insurer sales representatives is a matter of faith and culture. The relationship between advisor and insurer can make or break an advisor’s career if there is a breach of faith on the part of the advisor while there are rarely any consequences when an employee of an insurer abuses the trust of an advisor. It is a very unequal relationship and as a result do you trust your insurer' sale representative and ultimately the insurer? Before you answer you should read this legal case: Ward against Manulife.

Ward versus Manulife is probably the best representation of the insurance culture viewed from an objective third party who is the judge. This judge having access to all documents, witnesses and information was able to form an opinion of Manulife. This is unique because usually an insurer would have settled the case before allowing the spillage of its secrets. With Manulife secrets in the open, the picture is not pretty... Consumers should be concerned...

On Financial Planning

Richard Proteau

The case of Ward against Manulife destroyed the restrained hand of wisdom and irrevocably moved the ethical scales towards what is wrong. Luckily in this case, justice correctly measured the actions of Manulife and reestablished the scales towards what was right. Does this mean we should not question the culture of the employees who were responsible for such reprehensible acts towards an advisor/agent/firm that had served faithfully this company and clients for more than 30 years? Ultimately it was the clients who suffered the most from the actions of these Manulife employees since they were prevented from receiving the right advice from the agent they had selected. There are many lessons to be learned from this story and many changes that should have occurred and have not occurred because silence is most often a quality in the financial industry. In this case, we see how employees tried to shift their errors and incompetence to an agent in regards to vanishing premium. The judge said it well:

[4] It is my opinion that the Plaintiffs/Defendants by Counterclaim can fairly be described as “scapegoats”. In other words, the Defendant seeks to persuade this Court to blame the Plaintiffs/Defendants by Counterclaim for the conduct of others and, in particular, for its own failings.

In Insurance Ward against Manulife, Insurance Ward was asking damages in the amount of about $1 million and punitive damages in the amount of $500,000. As stated by the judge here is a summary of the claims made by Insurance Ward:

[5] The Plaintiff, Reginald Ward Senior … (now 71) is a licensed life insurance agent and is president of the Plaintiff, Reg Ward Insurance... Reg Ward has been a licensed insurance agent since 1967 and later obtained his chartered life underwriter designation (CLU). His business was concerned with the sale of life insurance, RRSP’s and related products…Reg Ward is the father of his co-defendant by counterclaim, Steve Ward. Steve Ward, at all relevant times, was an insurance agent.

[7] In 1967, Reg Ward possessed a grade 12 education and had worked for approximately 15 years as a hydro lineman. At that time he decided to enter the insurance business as an agent. He had no experience in the insurance industry. He became associated with Monarch Life Insurance Company (Monarch) and was given between three and one-half and four days preliminary training by a Monarch unit manager situated in Oshawa. Within a few days of joining Monarch, Mr. Ward was licensed as an agent, given a rate book, some insurance applications, and, essentially, was on his own, although he did receive some mentoring and further training from time to time. Reg Ward, notwithstanding the lack of any meaningful training, quickly became a sales leader and, throughout his career, was the recipient of numerous awards and bonuses. The number is quite remarkable.

[11] Monarch’s assets and liabilities were purchased by North American Life Assurance Company (NAL) in 1983. On January 1, 1996, NAL merged with Manulife. In his early years with Monarch, Mr. Ward was provided with written information concerning various Monarch products. This included information concerning dividends payable to insureds, cash surrender value projections, and rates. All applications for insurance were required to be submitted for approval by Mr. Ward to the Oshawa office. The Oshawa regional office, under the branch manager’s direction, would then check and complete the application forms following which they would be sent to Monarch’s head office for final approval and policy issuance. This type of process, basically, was followed by the subsequent insurers with whom Mr. Ward was associated - i.e., NAL and Manulife. As the years passed, the insurance products available through Monarch became more sophisticated. Throughout his entire relationship with Monarch, and indeed, with NAL and Manulife, Mr. Ward and other agents or representatives were always under pressure to sell products that would result in the insured, or other product owner, leaving his/her money with the insurer. For instance, insureds were urged to allow policy dividends to accumulate and be used to purchase additional benefits or, where appropriate, to be used to reduce the costs of future premiums.

Vanishing Premiums: This was the first clue of the existence of a culture of deceit existing in the culture of insurance companies. The judge referred to the vanishing premium scandal from a public perspective and fraud from a consumer perspective. Insurers were held accountable monetarily for their actions through class actions but this did not result in a change of culture. Those who pressured agents in selling Vanishing Premium and those who knowingly provided the wrong information to agents were not held accountable for their actions.

[17] Initially, Mr. Ward worked from his kitchen table. Later he converted space in his home to office use in order to accommodate his expanding business… Although Ward Ltd. was incorporated in 1983, the agency licensing continued to be in the name of Reg Ward personally.

[19] Mr. Ward’s considerable success as a life insurance agent did not come easily. He worked very long hours during the day and frequently worked at night. He was devoted to all three insurers. He trusted them to act in his best interests.

[20] Steve Ward entered the insurance business as an agent in 1982. He signed an agreement with Monarch. His training, like his father’s, was somewhat ad hoc. At that time, Reg Ward Jr. worked with his father, but as a general insurance agent…

Class Actions: Do they work?

[21] Shortly after Steve Ward became an agent, Reg Ward began to assign some of his younger clients to him for servicing. In addition, Steve Ward would assist Reg Ward from time to time with visits to Reg’s clients.

[22] In on or about 1982-1983, “premium offset” (or vanishing premium) policies came into use. These policies became attractive to purchasers of life insurance and, in various forms, became the product of choice well into the 1990’s. Agents were encouraged to sell the premium offset products. owners/insureds were attracted to the premium offset formula because the result was that they would not have to pay insurance premiums forever.

[23] Agents, initially, were provided with “illustrations” prepared at Monarch’s head office. Later, these illustrations emanated from the branch offices of NAL and Manulife. The illustrations were to be used as a selling tool – to demonstrate to the potential client that he/she could purchase long-term life insurance coverage, but be required to pay premiums only during a restricted period. The agents were required to add some personal information and other details to the illustrations. Completed versions were then delivered to the client by the Wards.

Vanishing Premiums:Many insurers tried to blame the agents for this scandal and fraud. However the public still does not understand that the illustrations and therefore the deceit originated from Head Office and from employees of the insurer.

[25] Initially, as a result of information received from the insurance companies, agents such as Mr. Ward advised clients that they would probably have to pay premiums for more than 8 or 9 years before obtaining a premium holiday. This estimate of time, of course, was based, to a large extent, on expectations regarding how the general economy would perform. When the economy did improve, the estimate of time was reduced to 8 or 9 years. Later, this time projection was increased to 12 or 14 years because of economic conditions.

[26] I find that Reg and Steve Ward appreciated the fact that these estimates were not guaranteed because anticipated dividends could not be forecast with absolute certainty. However, I find that the Wards, and other agents, were the recipients of representations from the insurance companies, which they believed, that there would be no difficulty for insurance companies to meet these non-guaranteed projections notwithstanding that some of the relevant written information that prospective purchasers would be given contained written qualifications. A very positive environment existed – an environment created by the insurance companies which was passed on to insurance purchasers through the agents.

[27] The agents were provided with computer-generated documentation that appeared to confirm the reasons for the optimism. These projections were quite sophisticated and were the result of work by actuaries and other professionals at head office. The Wards, like other agents, were not the authors of this optimism nor were they advised about the details leading to the justification for it.

[28] Exhibit 2(a), tab 27, is a document from Manulife’s productions. There is some dispute in the evidence whether this is a Manulife document. However, the evidence is that it came from Manulife’s productions. I find that it is an example of a sales tool used by insurers in the 1980’s. The document is entitled “SALES TRACK EXPLAINING PREMIUM OFFSET ILLUSTRATION”. It reads as follows:

Mr. Prospect, we are going to look at an exciting concept which will help you solve both the siphons [sic]we discussed road blocks while alive AND Cash needs at death. The concept is called premium offset and it is a unique way to pay for your insurance for only a short time yet provide a lifetime of protection Sound interesting ? Mr. Prospect, by setting aside $402.00 per month or a total of $4,471.35 per year you create an immediate insurance estate of $250,000. Would this look after the right hand siphon of cash needs at death ? (The dollar amounts, varied from transaction to transaction). Mr. Prospect, in 8 (# of years to P.O.P.) years you will have contributed $35,770.00 into your plan (total the premium column on the illustration). That is the total you will ever have to put into your plan as the past and future dividends based on our present scale will look after all future premium payments. Mr. Prospect, the total cash value of your policy at the end of the 8th year (offset year) is $52,000. Comparing what you have put in with what the plan is worth, how much has your insurance cost you to that point ? Can you think of a more economical way to ensure your families financial future ? Let’s look at your plan at the end of 20 years and again at age 65. Twenty years from now even though you have contributed nothing beyond the end of the 8th year (offset year) your insurance coverage has grown to $303,804. The total cash available to you is $91,135. Mr. Prospect this means that your premium contribution of $35,770 has compounded to $91,135 and in addition youhave been insured for a minimum of $250,000 for 20 years. Would you agree it is hard to improve on this ? Mr. Prospect, in 20 years you will be 55 years old and obviously the cost of life insurance has risen dramatically over age 35 (original age) you may be thinking that with your increasing age your plan values may start to diminish. On the contrary ! Let us look at age 65. By the time you reach retirement age, your insurance protection has grown to $433,311. If you have done very well financially you have this amount of insurance available for estate planning purposes. If on the other hand you wish to use your policy to supplement your retirement the total cash value of your policy at age 65 is $223,555. ALL THIS MR. PROSPECT DESPITE NO ONTRIBUTION FROM YOU BEYOND THE END OF THE 8TH YEAR. Would you agree this is the finest and most complete plan you have ever seen ?

Objections to the illustrations:
(1) How much did this plan really cost you?
- this plan cost me the interest that I would have earned;
Yes. (AGREE) (a) if you had invested it consistently(b) and it is just like using the interest to fund insurance.
(2) How much money would I get back if I quit in the first year? (A) Usually nothing, the first year basically covers the cost of your policy (exc: FUTURE ENHANCE)
(3) Why do I have to pay interest on my own money?
(A) Because the insurance is still in force, and if you died, the company would still have to pay out the face amount, less the loan.
(4) The dividends are not guaranteed. Insurance companies are veryconservative on their projected rate of return due to us being a mutual company, and being restricted by the government to a conservative nature, we have always paid more than our projected dividends and I’ll show you a copy of an old policy. (our past record)
(5) What is the interest that you are paying on this policy?
There is no interest rate on this W.L. policy, however, the return grows every year through the increase in guaranteed cash values, which are calculated by the actuaries when they price your policy. Also you share in the profits of the company through dividend..

What went wrong between Ward and Manulife?

[66] However, in the spring of 1995, NAL discovered that Steve Ward had been involved in a number of questionable selling and servicing issues with clients dating back at least three years. The malfeasance included, among other things, forged signatures and the payment of premiums on behalf of clients. As a result of the discovery of these issues, Steve Ward resigned. His resignation was accepted. NAL withdrew its sponsorship of Steve Ward’s life insurance license and filed a Notice of Termination of Agent…A letter of resignation was received from Steve Ward, effective May 3, 1995 in light of discussions with North American Life concerning his paying premiums for clients and signing documents on their behalf.

[67] On May 15, 1995, NAL sent a memo to “All Members of the Central Ontario Financial Centre”, as follows: Steve Ward has elected to leave North American Life in order to pursue other responsibilities within Ward Insurance Services Ltd.

[68] On May 19, 1995, a notice was sent to policyholders for whom Steven Ward was responsible. This memo said, among other things: You are a valued customer and we are pleased to tell you that your account will be serviced by Mr. Reg Ward of Reg Ward Insurance Services Ltd. in Cobourg

[69] Notwithstanding the revocation of Steve Ward’s licence, he, to NAL’s knowledge, continued to work as an employee of Ward Ltd. In fact, in 1996, Reg Ward had discussions with Phillip Farley, General Manager of NAL, concerning the possibility of designating Steve Ward as a Schedule “B” producer of Ward Ltd. in order to submit business to Manulife.

Manulife infractions: We can see here that the infractions of Steve Ward which are serious were never reported to the regulator and this was dealt in-house. This is a serious infraction and this is still done today. I would state that only 50% of the infractions committed by advisor are reported by the insurer to the regulator. This cast doubts on the ability of the insurer to be given more responsibilities in regards to compliance.

[71] I also note that when Steve Ward’s wrongdoing came to the attention of NAL as a result of complaints, Steve Ward was asked to make full disclosure of all wrongdoings. The evidence supports a finding that Steve Ward cooperated fully with NAL in its investigation. When confronted with these complaints, Steve Ward admitted his guilt and offered to resign. Following his resignation, the bulk of his income was earned in the general insurance area. In July 1995, Steve Ward applied to the Province for a licence known as a level 2 licence in July 1995. His former licence was a level 1 licence, which required a sponsoring company. Notwithstanding that there was a considerable delay in the issuance of the level 2 licence, Steve Ward was under the impression that he could continue to sell general products because he had prepaid the licence fee. He told Reg Ward that he had applied for a level 2 licence; however, he did not bring him up-to-date on the delays that were encountered in the issuance of the licence.

Events leading to the Termination of the Producer’s Agreement between Insurance Ward and Manulife

[72] Blair Anderson, Manulife’s in-house legal counsel, in early 1997, when dealing with the claims’ process arising out of a class action against Manulife, focused his attention on some complaints received from policyholders with respect to the Wards. In an internal memo, dated March 5, 1997, (exhibit 8(a), tab 4), Mr. Anderson said: I understand you are investigating Reg Ward. I have spoken [sic] to Lynda Campbell in audit and it appears that Steve Ward was selling whole life policies on a POPbasis when there was no such option to do that. In addition it appears we have had some knowledge for some time that even though Steve resigned he continues to place business with us through his father. This case appears to have implications for the class action litigation. Gord and I would like to discuss this situation with you and Eric. Are you on calenders? If you are I will get Sheila to set up a meeting to discus

[73] Mr. Anderson learned shortly thereafter from the Ontario Insurance Commission that Steve Ward was not currently licenced. A detailed internal investigation was pursued.

[74] The investigation team consisted of several people at Manulife. By April of 1997, there were four issues: “(a) was Steve Ward “fronting” business?; (b) what is the level of churning?; (c) when was Steve Ward’s licence pulled and was he improperly placing business through Ward Ltd.?; and (d) did Reg Ward exercise sufficient supervision over Steve Ward?”

[75] In my opinion, this investigation took on a life of its own. At a very early stage, Reg Ward was unjustly condemned.

The opinion of the judge here is interesting. The reason the investigation took a life of its own is because Manulife took the role of the regulator. This was a conflict of interest. Steve Ward infraction should have been investigated by the regulator and it illustrates the danger of an insurer taking on that role because in the end what will be decided will be based on what is good for the company without any regards as to the safety of the public.

[76] By mid-April, without seeking an explanation from Reg Ward, it was determined that Manulife should file a complaint against both Reg and Steve Ward with the Ontario Insurance Commission… The following is a quote from an April 14, 1997 memo from Lynda Campbell of Manulife to several people within the company: Subject: Urgent – Ward. I don’t think that we should stall our decision making process by waiting for written complaints – I think that we could take action based upon well documented telephone conversations, but I can see a future need for written confirmation. If we do decide to sever our relationship with Reg, would it not be a statement that we find him to be “unsuitable”? In that case, OIC will eventually investigate, they would likely ask our policyowners similar questions. What I’m struggling with is, if the OIC would accept our “evidence”, will our Corporate reputation be better served by setting written complaints now. If it takes the OIC 18 months to investigate, will be policyowners realize that the backlog is with the regulator not that the Company failed to take prompt action.

[80] On May 20, 1997, Manulife executives, Barry Hall and Phil Farley, arrived unannounced at Ward Ltd.’s office in Cobourg. They met alone with Reg Ward and began by questioning him concerning the need for an insurance licence. They advised him that Steve Ward was unlicenced. Reg Ward initially replied that this was not so. I find that, at this time, Mr. Ward genuinely believed that Steve Ward was, in fact, licenced. As noted above, Reg Ward was aware that an application had been submitted and his understanding was that there had been some red tape delaying the process, but that Steve Ward was legally permitted to sell policies. There is evidence to substantiate that delays such as this occur frequently. In any event, RegWard immediately spoke to Steve Ward who was at the office at that time. Steve Ward admitted that he had still not received a licence whereupon Reg Ward told him to immediately follow-up.Reg Ward had been under the impression that, by allowing Steve to meet with the clients, neitherwas doing anything wrong because of the controls Reg Ward had set in place concerning thesigning of the applications, explaining matters to clients, and submitting the applications to Manulife.

[86] In early July, Manulife contacted the Ontario Insurance Commission by telephone and advised it of its “grave concerns around the selling practices of both Reg and Steve” and that Manulife would be making a report to the Commission so that it “will have the information when she is considering the issuance of a licence to Steve.” (“She”, meaning Joanne Fortin of the Commission)

[87] The complaint that was subsequently sent to the Commission was the result of the input of a number of Manulife officials. At the time it was sent, Manulife was aware that since 1996 it had received only five complaints about the Wards and that four of these were concerning Steve. I find that the evidence that was subsequently produced at trial with respect to this particular complaint against Reg Ward did not reveal any wrongdoing on his part that was deserving of some sort of discipline or sanction.

[88] On July 2, 1997, a decision was taken by Mr. Anderson and others to terminate “Reg Ward’s contract with Manulife.” In a memo from Jacqueline Mitchell to Mr. Hall on July 3rd she confirmed that decision and then said, “…We felt that we have given him ample opportunity to answer the allegations that we had made about his business practices.” In my opinion, this is a ridiculous statement, one that is in no way borne out by the facts. It is indicative of Manulife’s disregard for Mr. Ward’s welfare. She went on to say: Our customer survey clearly revealed that Steve Ward was fronting business for him. Steve Ward is an employee of Reg Ward and Associates and as such Reg had a duty to know that this employee was unlicenced to sell in the province of Ontario since May of 1995. We also have a brochure produced by Reg Ward and Associates that implies that Steve Ward is associated with Manulife, which he is not. In summary, there are numerous provable infractions and violations of provincial law. In addition, we have our own problems with Steve Ward dating back to his association with NAL which you are working to clean up. I strongly recommended at the meeting that we terminate Reg Ward’s contract FOR CAUSE. It was suggested that I get your input on this since you will be most likely person to deal with any fallout from such an action. We need to know your opinion in a hurry so that we can expedite the termination process.

[89] Mr. Hall responded immediately as follows: My bias is to terminate with normal contractual notice and not mess around with any “breach of contract” argument. We have the ability to alert OIC of the extent of the issues and encourage a “suitability” Hearing. We have a ton of clients to deal with in the Cobourg area, and I see little value in the “cause” position. Just my view. …

[90] Mr. Anderson replied to the same effect. He said:I would prefer that the termination letter not mention that the termination is for cause but rather provides the contractual notice period for. I assume you will not allow Reg Ward to continue to service the block of business. Please give me a copy of the termination letter for my file.

[91] On July 16, 1997, a termination letter was hand delivered to Reg Ward by Mr. Farley and another Manulife employee. The letter is addressed to both Reg Ward and Reg Ward Insurance Services Ltd… No less than five new agents were assigned to the Ward block of business. Obviously, Manulife wanted to preserve for itself 30 years of Ward efforts.

[96] On July 17, 1997, Steve Ward wrote to Mr. Hall to draw certain facts to his attention. Reg Ward was not aware of the existence of this letter until much later. Among other things, Steve Ward said: … First of all I can honestly say that at no time prior to your visit to our office, along with Mr. Farley, did my father have any idea that my licence was no longer in force. Indeed neither had I been so informed until I contacted the O.I.C. after your visit. To punish him for something he did not know anything about would be like saying that Mr. Farley and the rest of the management team in Oshawa are also at fault simply because they run the office through which the business in question flowed, and of course, it is obviously not their fault either. At this point in order to understand the chain of events that brought us to this situation I should begin at the beginning. In May 1995 I resigned from North American Life following a customer complaint to the O.I.C. which NALACO was quite upset about. At that time I applied to change my licence to a Level 2 as I qualified under the new rules having been in the business over 10 years and having attained my CLU. The O.I.C. provided me with the necessary forms to go ahead and apply for the change while they completed their investigation of the complaint. I completed the forms and returned them along with my cheque for the fee of $139.00 as required and awaited their decision. A few weeks later my cheque was cashed. About a month later, having not received a licence yet, I called the O.I.C. and asked what was going on. I was told that because the new rules had caused many agents to change the Level 2 there was a huge backlog and that it could take months so I should not be concerned. (After all my cheque had been cashed) Several more times during 1995 and 1996 I called again and was always told the same thing – there was a backlog and I would eventually hear something. After your visit to our office I contacted the O.I.C. to complain about the trouble that this was causing and was told that it was up to me to RENEW (that was the word they used) my licence in February of 1997. In other words it sounded as if, although I never received an actual licence after my cheque was cashed in May 1995, apparently I was licenced until February 1997. She explained that it was up to me to remember to renew in 97 as they are not obligated to send any notice. She did agree, however, that it sounded like a mix-up with the original application in 95 had certainly “snowballed” into a much bigger problem. At the present time I am awaiting an appointment with the O.I.C. next week to re-apply for my licence. Even the lady at the O.I.C. said that canceling my father’s contract sounded like awfully harsh punishment for such an oversight given the unusual circumstances. While I will concede that most of the blame must lie with me as I am the one that had the initial complaint against me, and I should have been more diligent in my efforts to get the licence in my hands this all sounds more like a convenient way of dumping yet another former Monarch Life, and Nalaco agent who is nearing retirement with a vested contract that is too good. I’m sure that the courts would also see it this way. In closing I would like to ask that you, at the very least, reconsider this action against my father who had absolutely nothing to do with any of my past mistakes. An exemplary 30 year career with numerous N.Q.A and the M.D.R.T. qualifications not to mention literally thousands of very happy clients deserves that much consideration.

[103] In August and September 1997, Reg Ward wrote to his clients advising that he was no longer under contract with Manulife, but that he was still in the insurance business. He asked them to sign an “agent of record” letter. This resulted in about a 95% return rate. By this time, many of his clients had already been contacted by other Manulife agents to whom the Wards’ clients had been assigned. Manulife objected to Mr. Ward’s attempts to remain in business and, on September 17, 1997, wrote to Mr. Ward as follows: It has come to my attention that you are sending a letter to Manulife policyowners suggesting that you can service their policies if they sign an enclosed letter. In the last paragraph of my letter sent to you dated July 16, 1997 it clearly states “As of August 15th, 1997 Reg Ward Insurance Services Limited will be removed as servicing agent on all business placed by the producer with Manulife and a new servicing agent will be assigned”. In fact a new servicing agent has been assigned to all of the business that you placed with Manulife! This letter that you are sending to Manulife policyowners may confuse these policyowners. We do not want you to service any Manulife policyowners. If you do not stop attempting to service any Manulife policies immediately we will freeze your commission account.

New Manulife infraction: It is illegal for Manulife to tell and advisor he can’t talk and provide advice to his clients on any life insurance policies. To blackmail an advisor with freezing his commission account is a heinous and criminal act.

[104] Manulife further responded with a series of letters addressed by it to Mr. Ward’s clients. Among other things, the purpose of these letters was to advise the clients of Mr. Ward’s status and to introduce the newly assigned servicing agents. Obviously, the Ward clients were in a state of confusion. Many of the clients wrote to Manulife indicating that they wished to keep Reg Ward as their agent. This led to the following series of internal e-mails: Date: Tuesday, 21 October 1997 11:40 am ET
… Thought I would sent [sic] an Email out to give some news concerning the Customer Confirmation forms that have been returned. To date, we have 21 cases where the client has advised us in writing that they wish to keep Reg as their agent. This is a pretty high total in relation to the total number of responses that we have received. I am wondering if we should take the time to develop one standard letter for these clients. Should legal be involved in this at all? Also, are we going to stand firm on not letting Reg service these p/h’s, even if there is a chance that we may lose their business? …

The judge commented here: “The self-serving nature of this and other messages is startling.”

Date: Wednesday, 22 October 1997 8:38 am. ET
… Just my thoughts, but if we do not stand firm on no servicing for even one person we open up to having to make that exception for everyone who requests it,because once Reg knows he can do it once it won’t end.
Date: Wednesday, 22 October 1997 9:08 am ET

[107] Exhibit 8(a), tab 53, is a November 12, 1997 memo from Mr. Anderson to a number of executives, including John Fessenden, a senior Manulife Finance Officer. The memo is an indication of the unwarranted conclusions that were being reached within Manulife with respect to Mr. Ward. The memo reads as follows: We have had a flurry of activity on Reg’s block of business. Susan Kauntz and Barb Hunter will be providing summaries ASAP. 3 issues arise: 1. Reg is clearly trying to disturbe [sic] his inforce block 2. We have evidence of sales practices that must be reported to the OIC 3. We have evidence of sales practices that probably should be reported to the police. Reg is in breach of the terms of Barry’s letter of July 25, 1997. There are likely to be chargebacks. We should be immediately suspending his pay and invoke the 36 month hold back provision of his contract. John, can you please advise if you are prepared to do that? We should be writing to the OIC and persuing [sic] the OIC vigorously to get his licence suspended. We should alsdo [sic] be putting together a package and contacting the police to see if they are prepared to investigate. Jacqueline, I trust you will coordinate this? I will gladly help you with this. Please refer to Barb Hunter and Linda Campbell for details of our concerns. This letter should be going ASAP. Coburg is a small community. Reg has his clients rallying around him at this point. However, I don’t think it would take much to expose Reg given what information we already have.

[127] On October 13, 1998, the Ontario Insurance Commission reported to Manulife with respect to Steve Ward. Steve Ward was charged with selling insurance without a licence, pleaded guilty, and was fined $500. The Commission and Steve Ward entered into an agreement whereby he would remain out of the insurance business as far as life, disability, accident and general insurance were concerned for a period of five years. Four years later, on November 8, 2002, the Commission wrote to Reg Ward as follows: As you are aware, the Financial Services Commission of Ontario (FSCO) conducted an investigation into your activities to determine whether or not you were involved in “fronting” practices, using your son Stephen Ward. During the course of the investigation, it was determined that you did allow your son to [sic] Stephen Ward to engage in the business of taking life insurance applications on nine (9) occasions during which his life insurance agent’s licence was not valid, and that you signed as agent of record for the applications. The foregoing is certainly reason for concern and constitutes a breach of the Insurance Act. In this instance, we do not intend to institute any further proceedings against you. However, should any further complaints be received against your activities, legal proceedings may be initiated against you. This letter will remain in your file within this office for a period of five years. It is anticipated that your future activities in dealing with insurance clientele will be in accord with the provisions of the Insurance Act. However Manulife totally ignored the decision of the regulator as the employees involved were so bent on destroying Mr. Ward as proved by this heinous message:

[129] On March 17, 1999, Mr. Ward’s then solicitor, David Jewitt, wrote to Barry Hall of Manulife objecting to Mr. Fessenden’s July 21st letter. Mr. Jewitt’s position was that Mr. Ward’s persistency had remained at approximately 90%. Legal action was threatened. Mr. Jewitt also took exception with the earlier correspondence to the effect that Mr. Ward was not entitled to renewal commissions on policies issued prior to April 1, 1991. Despite Mr. Jewitt’s letter, Manulife did not reverse its position. Manulife advised Mr. Jewitt that, it “had determined that your clients had been engaged in a sustained pattern of misselling.” Mr. Jewitt wrote again on November 1, 1999, requesting details regarding the alleged deterioration in persistency.

[130] Mr. Anderson, on behalf of Manulife, replied to Mr. Jewitt under cover of his letter of March 31, 1999, (see Exhibit 8(b), tab 100). The tone of his letter is quite aggressive, especially the following paragraph: We are also planning, upon receipt of several of the current outstanding settlements, to pursue a meeting with the Commercial Fraud Unit of the RCMP to determine whether or not it would be appropriate to have criminal charges laid against your clients in relation to their activities in the sale of these policies.

[131] One of the agents approached by Manulife to take over part of the Ward business was Alexander Rutherford. Mr. Rutherford, in a letter dated July 13, 1999 to Manulife, summarized the relevant history as follows: (see Exhibit 8(b), tab 104) … I was approached by Mark Lomow – Sales Manager of Manulife in September 1997, to do a marketing plan to contact 1500 policy owners. He explained what a great opportunity this would be for me to take over a block of business from another agent, Reg Ward, with whom Manulife no longer had business dealings with as they were investigating into his dealings. Mark made big commitments to assist with the transfer of the business and he said Reg Ward would not be in business much longer. I would be paid a servicing fee of $2000 per month until Reg’s licence was revoked and then I would receive the renewal commissions.

At this point Manulife had lost view of what is right. Someone was standing up to them and they had to be destroyed. As a result, employees of Manulife hatched a scheme to destroy Mr. Ward. To destroy him, Manulife had to generate client complaints against Mr. Ward. Manulife following a class action in regards to vanishing premium was in the process of settling this class action. All of Manulife agents had sold this product under the recommendation of Manulife. As a result, all advisors of Manulife were facing client complaints in regards to the sale of these products. Manulife decided that it would isolate Mr. Ward from other advisors by refusing to settle some of the claims of his clients and by stating that Mr. Ward was personally responsible and liable for the sale of this concept and product. Here is what the judge had to say about this:

[147] As a result of the claims made against Manulife in the class action with respect to premium offset or vanishing premium insurance products, Blair Anderson was delegated by Manulife to set up a policy review process (PRP) in order to deal with claims that would be forthcoming from Manulife policyholders. The program was launched on July 23, 1997 by a memo addressed to “all field personnel”. This meant that the memorandum was addressed to, among others, all active agents or representatives. The Wards were excluded from the distribution. The purpose of the program was to standardize a process that was already in place at Manulife for dealing with alleged misrepresentations in the sale of Manulife policies.

[232] Manulife argues that written and oral representations made to policyholders by the Wards were wrong, misleading, and were a fundamental misrepresentation regarding the nature of the insurance policies in question. In my opinion, Manulife is, in any event, estopped from seeking contribution from the Wards notwithstanding that it paid substantial monies to members of the class. Manulife was clearly complicit in the overselling techniques that were used to sell policies; was aware, or should have been aware, of what had been transpiring over several years; and, most importantly, encouraged the sales tactics which it presently challenges. Manulife, and it would seem, other insurers, had an early optimistic view of the potential for premium offset policies because of the overly optimistic opinions they obtained from their own experts. The Wards were inspired by this optimism. I have not been persuaded that Manulife has demonstrated any deliberate wrongful or negligent conduct on the part of the Wards; however, as aforesaid, if there is any negligent conduct on their part, Manulife was a major contributor.

[233] Manulife, having encouraged and invited the Wards to aggressively market its products, cannot now look to them to compensate it for the consequences of such conduct. Some of the allegations of wrongdoing pleaded against Manulife in the class action, although not conceded by Manulife in the class action settlement, were apparent in the evidence which I heard during the course of this trial. Manulife cannot now be heard to say that the agents/brokers/representatives should have conducted themselves differently. Even if I am incorrect in my opinion that Manulife is estopped from pursuing its set-off or counterclaim, it is my further opinion that the evidence upon which Manulife relies to prove its claims of misrepresentation falls far short of satisfying the burden on it to prove such wrongdoing on a balance of probabilities. In particular, Manulife’s evidence falls far short of supporting its allegation or argument that “Reg Ward and Steve Ward made these representations with wanton disregard for their accuracy and lack of truth.”


What can learn from this story? First in a 30 year career, an advisor is entitled to making one mistake in good faith and this is what happened to Mr. Ward. The Ontario Commission understood this. It understood that a father may not be as careful with his son a in his supervisory activities. This is a risk when you are dealing with family. Warning signals that would be apparent for a stranger may not be apparent when you are dealing with family. Mr. Ward failed to adequately supervise his son but there were no fraud.

What is amazing is how far a company like Manulife can go to prove that it is right even if this means committing all of the wrong possible. Stealing the work of 30 years from an advisor is wrong. Making false allegations against an advisor is wrong. Manulife should be required to apologize to the whole industry.

In the end, this case raises a lot of concern about sale employee knowledge and ethics. Vanishing premiums would never have happened if sales employees had not devised and taught this concept to advisors.

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Class Actions: Do they provide results

The findings of judge Power of the Ontario Superior Court against Manulife in favor of Reginald Ward should have raised a lot of questions in the insurance industry. It raises ethical issues with the conduct of Manulife and its employees and advisors where Manulife tried to steal someone life work. However the big question raised by this judgment is: “Are class actions providing any benefits to the consumers and public?”

Judge Power: “Obviously, Manulife wanted to preserve for itself 30 years of Ward efforts.”

Judge Power: “Clearly, this letter is overkill to a very high level. It constitutes bad faith on the part of Manulife. I do not accept as credible Mr. Fessenden’s evidence on cross-examination when he said that the reason for filing the complaint was to protect some of the policyholders. I find that the letter, in part, was motivated by the request of two of the Manulife agents who were designated to take over Mr. Ward’s clients and, as well, to advance Manulife’s interests making it impossible for Mr. Ward to continue in the insurance business. To use the colloquial, the sending of this letter was a “low blow”.

Aside the unethical behavior of Manulife, the biggest question that this case is raising is about our regulatory and legal system.

Regulatory System:

Judge Power: “The agents were provided with computer-generated documentation that appeared to confirm the reasons for the optimism. These projections were quite sophisticated and were the result of work by actuaries and other professionals at head office. The Wards, like other agents, were not the authors of this optimism nor were they advised about the details leading to the justification for it.”

Judge Power: “Jim Rogers BA, MBA, CLU, CFP gave expert testimony on behalf of the Defendants concerning a number of items… Mr. Rogers confirmed that “illustrations” were developed by senior staff to aid in making sales with the goal of increasing sales.”

This leads to an important question. It is quite obvious that the actuaries did not respect their code of ethics which requires them to use prudent assumptions. However none of these actuaries were sanctioned by the Canadian Institute of Actuaries. It is therefore not surprising that these actuaries used the same practices to mislead advisors and the public in order to promote the sale of Universal Life.

Judge Power: [28] Exhibit 2(a), tab 27, is a document from Manulife’s productions. There is some dispute in the evidence whether this is a Manulife document. However, the evidence is that it came from Manulife’s productions. I find that it is an example of a sales tool used by insurers in the 1980’s. The document is entitled “SALES TRACK EXPLAINING PREMIUM OFFSET ILLUSTRATION”. It reads as follows: Mr. Prospect, we are going to look at an exciting concept which will help you solve both the siphons [sic] we discussed road blocks while alive AND Cash needs at death. The concept is called premium offset and it is a unique way to pay for your insurance for only a short time yet provide a lifetime of protection Sound interesting?...

Is there a problem with the self regulation of a profession? Should the public look at a different alternative?

Legal System

Corporations are selling the message that class actions are a threat to them. Is that the truth? In fact when we review class actions, they usually favor the corporation.

Judge Power: “Class actions were commenced in British Columbia and Quebec. In 1996, a class action was commenced against Manulife in which members of the class alleged misrepresentations in the sale of participating life insurance policies. The timing of the commencement of this class action is, in my opinion, very relevant. The policies, it was alleged, were sold on the basis of a “premium offset” feature known as “vanishing premiums”.

Class actions in the vanishing premiums case allowed the insurers to:

1) Reduce the legal cost for the insurer by having to deal with one lawyer. If the insurer was faced with thousand of individual civil actions, it is clear that the cost to the insurer would have been astronomical.

2) Never having to acknowledge their wrongdoing.

3) Never having to go into discovery and having the proof go public.

4) The people responsible for the wrongdoing (usually high level executives) are never sanctioned.

This is why FSCA has been hesitant in proceeding with a Class Action on Universal Life. We want different results and this means doing things differently. As a result we are looking at linking a individual civil case to social media with the main goal of making discovery a public right owned by the members of the social media which would allow individuals to proceed with individual lawsuits not having to worried with high and time length associated with discovery.


Broker versus agent?

The term broker represents little value to the consumer. The real question is whether using an autonomous agent is better compared to using a captive agent who can sell many insurers as well. When we look at the ability to access better products, we feel the autonomous has the advantage. There are less possible conflicts of interest for the autonomous agent if that agent does not deal directly with one insurer and if the agent uses one MGA only. With captive agents, because it is the norm for the sponsoring insurer to pay less if the captive agent sells the product of other insurers, the potential for a conflict of interest is greater. In terms of training, service and compliance, the captive agent has the advantage. In the end, it comes down to choosing the right advisor and we can help you do this through our ADVISORIGHT program


Mortgage Life Insurance versus traditional insurance...

There is a lot of misinformation regarding mortgage life insurance. Let's first deal with the myths:

1. My mortgage insurance will be cancelled if I change lender. This is false. If you buy the mortgage life insurance through a bank, the mortgage life insurance is usually NOT portable to another lender. However, if you buy the mortgage life insurance through a mortgage broker, the mortgage life insurance will remain in place even if you renew with a different lender. Mortgage life insurance should be considered to be group insurance. Portability will depend on who signed the master group insurance contract. If the bank signed and owns the master contract, then the insurance will not be portable to another bank. If the brokerage firm signed the master contract, then the insurance is portable because the ownership of the master contract is independant of the lender.

2. Mortgage insurance is subject to post claim underwriting. This is true but it is also true for all insurance. If you buy traditional insurance, the insurer will do post claim underwriting if the insured dies in order to review the information provided by the insured. There are countless cases where a claim was refused by an insurer in regards to traditional insurance. There are no data that supports the belief that claim denials is higher for mortgage life insurance than traditional life insurance.

3. The bank has denied the insurance claim. This is incorrect. A bank does not process a death claim. it is the insurer that processes the death claim. In that instance the bank or lender is only the messenger.

4. The main drawback with mortgage life insurance is that the amount paid on death is tied to the amount of the outstanding mortgage. Since the mortgage balance declines over time, the insurance is also declining while the premium remaims the same. The second negative is that you are unable to name a benificiary and choose who will receive the death benefit that will be paid.

5. Should I buy mortgage insurance? The answer is YES unless you have all the insurance that you need. First take the mortgage life insurance while ensuring that you take the time to read and answer carefully the questions found on the application. In the following months, you will have acclimatized to your purchase, and you should be ready to apply for traditional insurance based on the right amount determined through a rigorous need analysis. Use our need analysis web application to do this. If you are accepted as a standard risk without any forms of rating you can proceed in replacing the mortgage life insurance. If you are rated, your mortgage insurance is now valuable. Do not replace it. Keep it while considering adding to it by taking the traditional insurance that is rated.


Term or permanent insurance?


Most Canadians do not have enough insurance to cover their need and as result they should not be buying permanent insurance. Permanent insurance is only a need in very specific situations such as in business planning.

You should not consider permament insurance unless you have purchased all of the life insurance calculated in your need analysis. If you have enough life insurance, the life agent should have reviewed your need for disability and critical illness before talking about permanent insurance. Permanent insurance should only be used for estate planning. It should NOT be used for investment purposes or for supplementing retirement income. When shown as an investment, permanent insurance is a scam as revealed in the book Uraveling the Universal Life Scam


Life, disability or critical illness?

The first need is always life insurance. This is the need that you don't recover from. It is also the cheapest need to address.As a result, buy the life insurance that you need before buying any other type of insurance

Disability is the second need. If your employer is not offering you group disability, this need become almost as important as life insurance. Please note that if you are single without dependants, a need analysis would show your need for life insurance to be very small. While disability would still be secondary to life insurance, most of your insurance premium would go towards disability.

If your employer is offering you group disability insurance, then you have a choice to make. You may decide to top-up your disability insurance with an individual disability policy in order to extend the own occupation clause beyond 2 years. You may also believe that critical illness represents a greater risk. you would therefore buy critical illness insurance instead. While I prefer critical illness, at this point it is a matter of family history and preferences. Uncertain whether your agent is showing you the right solution. We offer you peace of mind with SolutionsRightwhere we will review the insurance solution proposed by your agent if you require a second opinion. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.


Should I replace my insurance?

If an agent is proposing to replace your insurance, you should consider first what type of product you are replacing.

Replacement of term policies: Term insurance is considered a commodity. As a result, the replacement of a term policy will be driven by cost. A few years ago, during the term pricing wars, the cost of term insurance went down 10% every year. So you could literally replace a term policy every few years to save the policy owner a lot of money. Those days are gone. Therefore if a term is replaced, it is because it is approaching renewal and the premium will increase by a factor of two or three. The consumer should ask why he is faced with a renewal. Did the agent sell the right term with the right duration? If the agent sold him a Term 10 instead of a Term 20, the agent should be held accountable for his error.

Replacement of permanent insurance: There is a reason why it is called permanent insurance. There are no reasons that exist that could justify the replacement of a permanent insurance policy unless it has been incorrectly sold to you at the beginning or the current agent is trying to take advantage of you by replacing a good policy to generate commissions. If the cost is increasing on your permanent insurance it is probably because it is a YRT policy. Most YRT policies have a right of conversion to level cost of insurance. So you would convert the policy instead of replacing. However that conversiion does not generate commission while the replacement does. We offer you peace of mind with SolutionsRight where we will review the insurance solution proposed by your agent if you require a second opinion. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.

Replacement form must be completed by the agent and presented to you prior a replacement. Please read these forms carefully to determine if surrender charges will apply to the replacement, will there be a taxable gain, will there be a loss of future benefits? A new policy will have a new 2 years suicide and misrepresentation clause.


What should I be getting from the agent ?

1. Need analysis: you should be getting a need analysis showing clearly why you need this insurance and what amount of insurance you need.

2. Quote of the 10 best companies for the cost of the product you are considering buying showing the premium for each company and the underwriting requirements for each company. Attached to this sheet should be the recommendation of the agent clearly explaining why he thinks you should select one particular company.

3.A list of the insurance companies that the agent authorized to act for.

4. The commission that the agent will receive from the insurer including bonuses. This should indicate if this commission differs by insurer and whether the agent will receive a higher commission by placing with the insurer he recommended. Uncertain as to who to select for an advisor?Let us do this selection for you by using AdvisorsRight . Our program will match you to the right advisor. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.