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Insurance Agent Cannot Be Sued For Breach Of Fiduciary Duty


Resolving an inherent conflict between insurance law and agency law, the California Court of Appeal held unequivocally that an insurance agent cannot be sued for breach of fiduciary duty. Although Workmen’s Auto Ins. Co. v. Guy Carpenter & Co., Inc., 194 Cal.App.4th 1468 (2011), involved an insurer’s claims against its authorized agent, the Court held that an insurance agent cannot be sued for breach of fiduciary duty, leaving little doubt that an insured similarly has no such claim against its insurance broker.

Insurer alleged that it had an agreement with Agent, a reinsurance intermediary, for Agent to act as Insurer’s agent on reinsurance agreements, including authority to place risks and negotiate terms. In addition to breach of contract and negligence, Insurer alleged that Agent breached its fiduciary duty to Insurer and caused over $35 million in damages. The breach of fiduciary duty claim was dismissed following several demurrers. Trial resulted in judgment for Agent on the breach of contract and negligence claims.

After discussing in detail case law on an insurance broker’s duties, the Court concluded that while an insurance broker is liable to a client in tort for intentional acts or failure to exercise reasonable care, the broker does not have a special duty of care to its client that rises to the level of a fiduciary duty. The Court noted that while a broker can be, in a technical sense, charged with certain fiduciary duties (such as receiving and holding premiums), the insurance broker does not have a fiduciary relationship with a client.

On the other hand, under general agency law, an agent must disclose to the principal every fact known to him and any fact the concealment of which would lead to injury to the principal. Agents are fiduciaries to their principals. Indeed, an agent has an obligation of “diligent and faithful service the same as that of a trustee.”

Noting the irreconcilable conflict between insurance law and agency law, the Court gave primacy to insurance law. First, the Court discussed stare decisis - once a ruling is declared in an appellate decision, that rule should ordinarily be followed by other courts considering the same legal issue. This leads to consistency and predictability. The Court found that to impose new duties on brokers would conflict with decades of case law on broker’s duties.
Second, the Court found that the breach of fiduciary duty claim to some extent mirrored the negligence cause of action, which Insurer was allowed to argue to the jury. Thus, the Court reasoned, there was no prejudice to Insurer.

After Workmen’s, insurance agents and brokers can take comfort that they are not held to a heightened standard of care owed by fiduciaries. The decision draws a bright line - no breach of fiduciary duty claim lies against an insurance agent or broker. However, agents and brokers still must exercise ordinary due care under the circumstances and are subject to negligence and breach of contract claims.

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