Federal and New York State Courts Reaffirm That No Inherent Fiduciary Duty Exists Between Insurance Companies, Brokers and Clients

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The insurance industry continues to defend itself against lawsuits alleging the existence of a fiduciary duty between insurance companies, insurance brokers and clients. Lisa Shrewsberry, a partner with the New York law firm of Traub Eglin Lieberman Straus, recently defended two such cases in both federal and New York state courts. Both courts agreed with Shrewsberry's argument that under New York law, insurance companies and their representatives generally do not owe a fiduciary duty to those insure. The relationship between insurer or broker and client is a common commercial relationship, even if the company or its broker maintains a long-standing personal relationship with the client.

TRAUB EGLIN LIEBERMAN STRAUS LLP (TELS) is pleased to announce that in two recent cases argued in New York, TELS attorney Lisa L. Shrewsberry was able to uphold the principle that the relationship between an insurance company or its broker and an insured is that of a common commercial relationship, not rising to the level of a fiduciary.

The first case, filed in U.S. District Court, Southern District of New York, alleged misconduct by TIAA-CREF and its related entities in the sale of a single life annuity to a 70 year-old university professor. The professor, who suffered from severe emphysema, retired with approximately $1.3 million in retirement benefits. After retirement, the professor decided to purchase a single life annuity without a guaranteed payout period or death benefit. Such an annuity provides greater monthly income than similar annuities with those features built-in. Approximately six months after retirement, the professor passed away.

The executrix of the professor's estate subsequently sued TIAA-CREF, alleging that the insurance company should have prevented the professor from purchasing that type of annuity. In light of her deteriorating health, the suit alleged, TIAA-CREF should have recognized that the annuity was not in her best interests. The Plaintiff also alleged that the issuer of the annuity recognized a substantial windfall upon the death of the annuitant (the professor), and that they breached a fiduciary duty by selling the annuity contract to her.

Lisa Shrewsberry of TELS then filed a motion to dismiss for failure to state a claim upon which relief might be granted. In the motion, Ms. Shrewsberry argued that, under New York law, insurance companies and their representatives generally do not owe a fiduciary duty to those they insure. While a fiduciary duty can be created, even in certain arms-length transactions, an active attempt by the insurance company to create such a relationship is required.

As part of her motion, Shrewsberry argued that an annuitant purchasing a single life annuity is presumed to know that he might pass away before receiving substantial benefits of the policy. Ms. Shrewsberry also pointed towards Plaintiff's own evidence that the professor, who had a PhD and taught in universities for more than 30 years, was capable of understanding the repercussions of her actions, and that she was not too incapacitated to engage in arms-length contractual negotiations. Judge Deborah A. Batts, who presided over the case in Federal court, agreed. She found that no fiduciary duty existed, and dismissed the complaint in its entirety.

In another case, Ms. Shrewsberry represented an insurance broker who was accused of breaching a fiduciary duty. The Plaintiff filed suit against the broker and his attorneys when the Plaintiff's $700,000 life insurance policy lapsed. The policy was originally purchased in 1989, and was owned by an irrevocable life insurance trust (ILIT). In 1999, the ownership of the policy was to be transferred to a second trust. The transfer never took place and, only one year later, the policy lapsed for non-payment of premium. The Plaintiff's poor health prevented him from simply reinstating the policy.

The Plaintiff then filed suit, alleging that the insurance broker, with whom he had a close relationship for 40 years, should have ensured that the change of ownership was effected, and should have prevented the policy from lapsing. Ms. Shrewsberry countered by filing a motion for summary judgment, arguing that there was no fiduciary duty between the broker and the Plaint ff.

Under New York law, an insurance broker has a duty to obtain insurance coverage requested by the client within a reasonable time, or to inform the client of the inability to do so. There is generally no duty to continue to advise the client, as the client is ordinarily in a better position to know his own financial situation and insurance needs. Therefore, the relationship between broker and client is an ordinary commercial relationship, not one involving a fiduciary duty.

Ms. Shrewsberry went on to argue that even though the Plaintiff and broker were longstanding friends, no fiduciary duty existed between the two. Justice Steve Jaeger heard all arguments, and granted Ms. Shrewsberry's motion for summary judgment. Justice Jaeger agreed that, although the insurance broker attempted to facilitate the transfer of ownership of the policy, there was nothing more he should have done. In granting the motion, Justice Jaeger rejected the Plaintiff's claims that the broker should have known when the policy was about to lapse and should have prevented the lapse. Since the ultimate cause of the lapse was the Plaintiff's failure to pay the premiums, the Plaintiff was ultimately responsible.

Both of these cases reflect different ways that the "fiduciary duty" argument is used to assign blame when the purchaser of insurance is actually the responsible party. As both Plaintiffs discovered, New York law clearly spells out that the relationship between an insurer or its representative and the customer does not automatically rise to the level of fiduciary.

The case involving the insurance company was Vera Muller-Paisner v. TIAA-CREF (U.S. District Court, Southern District of New York, Index No. 03 Civ. 6265). The second case was Michael Wolfe v. Tannenbaum, Dubin & Robinson LLP (Supreme Court of the State of New York, Nassau County, Index Number 014600-01).

TELS congratulates Ms. Shrewsberry for these two successes. For more information on Ms. Shrewsberry, a partner with TELS, please visit:



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