A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

An article in the New York Law Journal discussed how the New York Court  of Appeals is scheduled to hear a case that could have a significant impact on the law governing what duties insurance brokers have to insureds.

The case, brought by the Attorney General’s Office against Wells Fargo Insurance Services Inc. concerned a broker’s failure to disclose contingent commissions. Traditionally, New York courts have held that brokers have no fiduciary duty to the insureds to whom they sell policies. Brokers have a duty to obtain the requested coverage for a customer, but generally have no duty to provide advice, guidance, or direction to obtain additional coverage.

This particular type of situation arises not infrequently in personal injury litigation where the defendant has insufficient coverage. The defendant, upset with the broker for not advising her to obtain proper coverage, is left facing significant exposure.

The reasoning behind the law is that insurance brokers are not considered to be members of a profession, such as law or medicine, that involves a fiduciary duty to a client.

In the instant case, the issue of contingent commissions introduces a twist that may cause the court to reexamine existing black letter law. These commissions provide incentive for brokers to place customers with certain insurance companies who pay commissions based on the aggregate book of business placed with it by a broker. The AG alleges that the steering of certain customers to Wells Fargo, without a disclosure of the existence of a contingent commission, violates a duty of loyalty to the client.

But contingent commissions are legal in New York, and there is no duty of loyalty that a broker has to his insured. So we shall see if the Court of Appeals makes a change to this area of the law.

Finding that there is a duty of loyalty in these circumstances, it should be noted, would be a lesser change than if brokers are made to have a duty to provide advice and direction to customers about what type of coverage to obtain. Rather, if the AG prevails, the result will be less far-reaching, requiring the full disclosure of the commission structure in place before the sale of a policy.

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