Court Reaffirms Broker Had Assumed No Fiduciary Duty

In an unpublished modified opinion, the Second District Court of Appeals in Los Angeles has affirmed a decision from last year holding that an insurance broker did not owe, and therefore had not breached, a "fiduciary duty" to its client.  However, the appellate court--in an opinion issued last week in Workmen's Auto v. Guy Carpenter--suggested that under different factual circumstances, a fiduciary duty could in fact have been owed and/or breached.

"This case is important because 1) it recognizes and applies the defense that an insurance broker does not owe a fiduciary duty in certain situations and 2) it suggests that a fiduciary duty may be found if the alleged breach of fiduciary duty is separate and distinct from the claim for professional negligence," said Joseph J. DeHope, Jr., Esq., a partner in the law firm of Kaufman Dolowich Voluck & Gonzo, LLP, who has followed the case closely.

In May 2011, the California Court of Appeal held that an insurance broker could not be sued for breach of fiduciary duty. The decision garnered substantial commentary and the Court granted rehearing. The original opinion was published but it was depublished when the court agreed to rehear the case. The new opinion, which is not published, affirms that the pleadings in this case did not support a claimed breach of fiduciary duty. An unpublished opinion generally may not be cited as binding legal authority.

The new decision reviews existing California law and gives fair warning that a breach of fiduciary duty claim may be upheld under a different set of facts: "The bottom line is that while these authorities do not close the door on fiduciary duty claims against insurance brokers, they cast doubt on the nature and extent of those claims. In our view, however, a fiduciary duty cause of action against an insurance broker very well might pass muster in an appropriate case," the appellate court ruled.

This case arose in the reinsurance setting but the legal analysis applies to insurance as well as reinsurance brokers. The appellate court did not address the specific facts alleged to support the breach of fiduciary duty. It reviewed existing law and concluded that when negligence and fiduciary duty claims overlap regarding a breach of the duty of care, negligence is the only permissible legal theory.

To read the appellate opinion, click here.