May 14, 2021

Volume XI, Number 134

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Insurance Broker Does Not Ordinarily Owe Fiduciary Duties To A Client

In Hitchcock Indep. Sch. Dist. v. Arthur J. Gallagher & Co., a school district sued it insurance broker for failing to obtain insurance policies that did not have arbitration and choice-of-law clauses that favored New York. No. 3:20-CV-00125, 2021 U.S. Dist. LEXIS 57452 (S. D. Tex. February 26, 2021). According to the school district, the insurance broker “knowingly failed to disclose the burdensome and onerous arbitration provisions and choice of law clause[s] to [the school district]”; “misrepresented to [the school district] the nature, quality, and coverage(s) afforded under the Policies”; and “knowingly provided false and fraudulent information concerning the coverages under the Policies and the endorsements, exclusions[,] and provisions of the Policies.” The school district alleged six causes of action against the broker, including breach of fiduciary duty, and sought more than $ 14 million in actual and punitive damages, plus an undetermined amount of attorney’s fees, interest, and costs. The broker moved to dismiss the claims.

A magistrate judge recommended that the motion be granted on the breach of fiduciary duty claim:

To put the fiduciary duty claim into context, Texas law views the fiduciary relationship as “an extraordinary one [that] will not be lightly created.” There are two types of fiduciary relationships: (1) a “formal” relationship in which a duty arises as a matter of law (such as attorney-client, principal-agent, trustee-beneficiary, or between partners in a partnership); and (2) an “informal” relationship arising from a moral, social, domestic, or personal relationship called a “confidential” relationship. It is widely recognized that the relationship between an insurance agent and an insured does not give rise to a formal fiduciary duty. An informal fiduciary relationship “may arise where one person trusts in and relies upon another, whether the relationship is a moral, social, domestic, or purely personal one.” To impose an informal fiduciary duty in a business transaction, however, “the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” … The First Amended Complaint sets forth bare assertions, and nothing more, that a fiduciary relationship existed between HISD and Gallagher. The fact that Gallagher assisted HISD in procuring insurance in the past is insufficient, by itself, to give rise to a fiduciary relationship. There is nothing in the First Amended Complaint to suggest that the Gallagher-HISD relationship was anything more than a routine, arms-length business transaction. Gallagher’s motion to dismiss this claim should be granted.

Id.

 

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© 2021 Winstead PC.National Law Review, Volume XI, Number 108
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About this Author

David Johnson Financial Institution lLtigation Winstead Law Firm Fort Worth Texas
Managing Shareholder - Fort Worth

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the Texas Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. 

David's financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class...

817.420.8223
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