Workmen’s Auto Ins. Co. v. Guy Carpenter & Co., Inc. (Cal. Ct. App. May 4, 2011)
An appellate court in California held last week that an insurance broker does not owe a fiduciary duty to its client. Rather, “an insurance broker’s duties are defined by negligence law, not fiduciary law, and the agency of a broker must be viewed only through the lens of insurance law, which is a constellation of rules and policies all its own.” The court acknowledged the inherent conflict between insurance law and agency law on the issue, but refused to expand the scope of an insurance broker’s duties, noting that “the profession would be thrown into limbo because the exact scope of broker’s duties would have to be defined through years of litigation.”
The lawsuit arose when a reinsured company, Workmen’s Auto Insurance Company, sued its reinsurance broker, Guy Carpenter, alleging that the broker failed to secure the best available terms of reinsurance and acted with the intent to injure the company by incurring inflated commissions. The lower court granted the reinsurance broker’s motion for summary adjudication on the initial breach-of-fiduciary-duty claim. The reinsured company then asserted breach-of-fiduciary-duty claims in its second and third amended complaints, both of which the reinsurance broker demurred to. The lower court sustained the demurrers without leave to amend. Ultimately, a jury decided the negligence and breach-of-contract claims in favor of the broker.
On appeal, the court affirmed the lower court’s decision to dismiss the reinsured company’s breach-of-fiduciary-duty cause of action. To this end, the court stated that it was “unaware of even a single California precedent permitting a client to sue an insurance broker for breach of fiduciary duty.” Noting that the appeal required it to “decide whether to give insurance law or agency law primacy,” the court relied on the doctrine of stare decisis, holding that, “to achieve certainty, predictability, stability and convenience in the insurance industry, [it] was compelled to preserve the status quo” and refused to expand the doctrine of fiduciary duty to include insurance brokers. The court noted that “[d]ecades of case have drawn a policy line between what brokers must do and need not do. Because that line has been drawn, we decline to revisit the issue.”
For a copy of the decision, click here
Carrie Appler and Michael Saltzman
https://www.goldbergsegalla.com/attorneys/carrie-p-appler
https://www.goldbergsegalla.com/attorneys/michael-s-saltzman