by John Darer CLU ChFC MSSC RSP CLTC
The New York Court of Appeals, New York's highest court, has affirmed the dismissal of the New York Attorney General's case against an insurance broker holding that there is no common-law fiduciary duty of an insurance broker to disclose to its customers any incentive compensation arrangements the broker has entered into with insurance companies.
1. None of the allegations in the complaint mention any misrepresentation by the broker or that any customer suffered any demonstrable harm.
2. The rule that one acting as a fiduciary in a transaction cannot receive undisclosed compensation does not apply to insurance brokers because insurance brokers are dual agents.
3. Without allegations that the customers were given bad advice or inferior products in exchange for the incentive payment, there is no breach of the duty of loyalty.
In its decision in Murphy v. Kuhn. the New York Court of Appeals affirmed that, absent a special relationship, insurance producers’ only legal obligation is to obtain the coverage the client requests within a reasonable time or inform the client of the inability to do so.
The New York Insurance Department has issued regulations following the Spitzer investigations {see NYS Insurance Regulation # 194 (11 NYCRR 30)} which preclude undisclosed incentive compensation deals. The regulatioon remains in effect although Independent Agents and Brokers of New York states on its web site that it and the Council of Insurance Brokers of Greater New York are considering filing an appeal of last November's trial court decision upholding the regulation.
Read No. 6
The People &c., by Andrew M. Cuomo, &c., Appellant, v. Wells Fargo Insurance Services, Inc., et al., Respondents. Download NY Court of Appeals People v Wells Fargo Insurance Svcs
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