Down To Cases

Ordinarily, agents can’t become fiduciaries without their consentThe Ohio Court of Appeals, at the end of last year, handed down a decision important to every agent and broker, especially those doing business in Ohio. Insureds whose coverage does not apply to a particular loss will often sue their agent or broker for failure to obtain the coverages they needed. To make their case, the insureds will invariably try to hold the agent or broker to a higher duty of care than he or she ordinarily has under the law. Specifically, they will attempt to prove that a fiduciary relationship exists between the parties. If they succeed, the case becomes easier for them to win.A fiduciary duty is the highest standard of care imposed at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he or she owes the duty. The fiduciary must not put personal interests before the duty and must not profit from the relationship, unless the principal consents. The fiduciary relationship is characterized by good faith, loyalty and trust. Fiduciary relationships include those between a trustee and beneficiary, a director and company, a lawyer and client, a stockbroker and client, and a doctor and patient.To establish a fiduciary duty owed by an insurance agent or broker, the party claiming breach must show evidence of some special trust or confidence placed in the broker or agent by the insured and recognized by the agent, preferably in writing. The prudent agent or broker will make clear that the relationship with the insured is a business relationship.The agent who successfully defended the following suit protected himself by clearly communicating with the insureds.On April 30, 2001, a man was injured when a motorcycle he was operating was struck by a vehicle. The injured man recovered the maximum available under the other driver’s auto policy, $100,000, then sought to collect underinsured motorists benefits under an auto policy written for a business he and his wife owned. The policy covering the business originally provided $1 million of business auto coverage for hired and nonowned autos, and included uninsured/underinsured motorists coverage with the same limits.Prior to the renewal of coverage on June 5, 1999, the couple’s insurance agent sent them a letter that stated: “Please note that uninsured motorist coverages (are) no longer available on hired and nonowned vehicles. If you would like to make any changes, you can either call in or write us a note, whatever is most convenient for you.” The June 5, 1999, declarations page, unlike previous ones, did not include UIM coverage or reflect a premium for such insurance.No one at the business contacted the agent or agency to request alternative insurance, including UIM coverage. According to the agent, UIM coverage for hired and nonowned vehicles was not available in the marketplace at that time.After the insurer rejected the injured man’s claim for UIM benefits, he, his wife and his business filed suit against the agent, agency and carrier. A trial court granted summary judgment in favor of the insurer.Subsequently, the plaintiffs refiled their complaint against the agent, alleging claims for breach of fiduciary duty, negligence, and misrepresentation, as well as a claim of vicarious liability against the agency. The defendants moved for summary judgment, which a trial court granted. The plaintiffs appealed.The appeals court first took up the claim for breach of fiduciary duty. It noted that the Ohio Supreme Court, quoting another case, had defined a fiduciary relationship as one “in which special confidence and trust is reposed in the integrity and fidelity of another, and there is a resulting position of superiority or influence, acquired by virtue of this special trust.”A fiduciary relationship may be created out of an informal relationship “only when both parties understand that a special trust or confidence has been reposed,” the high court had said, in quoting another case. Thus, “a fiduciary relationship cannot be unilateral; it must be mutual.”The Ohio Supreme Court also had noted that although the facts of a particular case might demonstrate that a fiduciary relationship exists between an insurance agent and his or her client, the state’s courts had ruled that in general such relationships are ordinary business relationships.“While the law has recognized a public interest in fostering certain professional relationships, such as the doctor-patient and attorney-client relationships, it has not recognized the insurance agent-client relationship to be of similar importance,” the high court said, in citing another case.The injured man, in his deposition, had testified that whenever the business coverage came up for renewal, “we always (got) together with the insurance agent and discuss(ed) the renewal of the policy to make sure that insurances were up to speed with what we were doing.” When asked in his deposition whether he thought a fiduciary relationship existed between the parties, he responded:“We paid them for their services to recommend the proper coverages for the business, and we didn’t dictate coverage. We depended on them for our needs and values. We trusted (the agent) with our confidential and proprietary business information, as well as a great deal of private, personal information, based upon our belief that he would use all such information in our best interest and in the best interest of our business ventures.”The appeals court, however, failed to find that the deposition testimony demonstrated the existence of a fiduciary relationship.“An insured’s reliance on his insurance agent is not sufficient, by itself, to establish a fiduciary relationship,” the appeals court said. “In Nielsen [Nielsen Ent. Inc. v. Ins. Unlimited Agency Inc. (May 8, 1986), Franklin App. No. 85AP-781], this court rejected a claim of fiduciary duty between an insurance agent and his client, despite an admittedly ongoing business relationship between the parties and justifiable reliance by the client upon the agent’s advice, stating that the record failed to show that the relationship was other than ordinary.”In support of their position that a client’s reliance on his insurance agent’s advice is sufficient to overcome summary judgment on a claim of breach of fiduciary duty, the plaintiffs had cited the appellate court’s decision in another case, Ashworth v. Lincoln Natl. Life Ins. Co., Franklin App. No. 95APE09-1181, but the appellate court said the two cases were distinguishable.“In Ashworth, the evidence demonstrated that the client relied on the insurance agent as his financial advisor and that the agent specifically instructed the client on how to complete an application for a disability insurance policy, telling the client to consider every source of income and to estimate high. Thus, the record in Ashworth contained evidence distinguishing the relationship at issue there from the ordinary insurance agent-client relationship.”The appeals court also cited another case it had decided in which a plaintiff claimed his insurance agent breached a fiduciary duty by allegedly failing to advise him about UIM coverage. “The evidence did not demonstrate the bilateral understanding required to convert an arms-length business relationship into a fiduciary one,” the court had ruled in that one. “Although the plaintiff testified that he relied upon the agent to advise him of the appropriate coverage for his needs, we noted that the plaintiff never communicated his reliance to the agent.” Later, the court added, “To show a fiduciary duty owed by an insurance agent, the party claiming breach must show evidence of some special trust or confidence placed in the agent by the insured and recognized by the agent.” (Emphasis added.) [Gillin v. Indiana Ins. Co. (Oct. 30, 1998), Montgomery App. No. CA 17108.]In the case at hand, the court said there was no evidence that the agent recognized such a trust or confidence. His testimony was that he had nothing more than an ordinary business relationship with the plaintiffs. They contended that the agent’s understanding of the relationship was a factual issue for a jury to decide, but the appellate court said they had “presented no evidence to create such a question of fact.”“Simply put, the record contains no evidence that appellants communicated their alleged special confidence or trust to appellees,” the court said. “Thus … the record does not demonstrate a bilateral understanding, as is necessary to convert an ordinary business relationship into a fiduciary one.”The court next turned to the negligence claim. The plaintiffs had contended that the agent breached a duty by failing to procure replacement UIM coverage or by failing to advise them about obtaining such coverage. The trial court, however, had found no evidence that the plaintiffs had asked the agent to replace the coverage after their carrier had declined to renew it. Thus the agent could not have been deemed negligent.Citing a number of cases, the appellate court laid out the basics: To establish actionable negligence, a plaintiff must establish the existence of a duty, breach of that duty and an injury resulting proximately from the breach. An insurance agency has a duty to exercise good faith and reasonable diligence in obtaining insurance that its customers request. Additionally, if an insurance agent knows that a customer is relying upon his expertise, then the agent owes a further duty to exercise reasonable care in advising the customer. However, the insured has a corresponding duty to examine the policy, know the extent of its coverage and notify the agent if said coverage is inadequate.The appeals court noted the agent’s May 11, 1999, letter to the plaintiffs informing them that their insurer was about to drop their UIM coverage, and asking them to contact the agency if they wanted to change coverage. There was no evidence the plaintiffs did so.“In the absence of a request from appellants for replacement coverage, reasonable minds could only conclude that (the agent and agency) did not breach a duty to exercise good faith and reasonable diligence in obtaining the insurance that appellants requested,” the court said. Citing another case, the court added, “An insurance agent owes no duty to seek replacement coverage for an insured in the absence of a request by the insured to do so.“Moreover,” the court said, “given (the agent’s) undisputed testimony that UIM coverage for hired and non-owned vehicles was not available in the marketplace after (the plaintiffs’ insurer) ceased offering such coverage, appellants cannot demonstrate that their injuries proximately resulted from appellees’ failure to procure such coverage or to orally discuss the elimination of such coverage with appellants.”The plaintiffs also alleged misrepresentation, claiming the agent and agency concealed their insurer’s elimination of UIM coverage. The appeals court dismissed this claim too.“The undisputed evidence demonstrates that (the insurer, the agent and the agency) notified appellants of the change to the coverages provided under the policies. Despite the invitation to do so, appellants did not request that appellees seek the eliminated coverage from other insurance companies.”To summarize, all aspects of the trial court’s ruling in favor of the agent and agency were affirmed.Nichols v. Schwendeman, 2007-Ohio-6602 (Ohio App. Dist.10 12/11/2007, 2007.OH.0006664).Barry Zalma, Esq., CFE, is a California attorney. His practice emphasizes the representation of insurers and others in the business of insurance. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He provides expert witness testimony and consults with plaintiffs and defendants concerning insurance coverage, insurance claims handling and bad faith. He has qualified as an expert in state and federal courts in California, Mississippi, Texas and New Mexico, as well as in the Grand Caymans. He can be reached at [email protected]. His consulting practice’s Web site is www.zic.bz.