MEMO TO:
Alexsei Demo US
RESEARCH ID:
#400085888f6fc3
JURISDICTION:
State
STATE/FORUM:
Texas, United States of America
ANSWERED ON:
September 19, 2022
CLASSIFICATION:
Insurance

Issue:

Does a Texas insurance broker owe a fiduciary duty to their clients when procuring policies?

Conclusion:

Fiduciary relationships can be created by formal or technical relationships, such as attorney-client relationships, or from informal relationships where the existence of confidence and trust imposes greater duties as a matter of law. (Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85 (Tex. App. 2003))

To impose an informal fiduciary relationship in a business transaction, the requisite special relationship of trust and confidence must exist prior to, and apart from, the agreement that is the basis of the suit. (Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85 (Tex. App. 2003))

A fiduciary relationship may be created by contract when a person is justified in placing confidence in the belief that another party will act in their best interest only where they are accustomed to being guided by the judgment or advice of the other party and there exists a long association in a business relationship as well as personal friendship. (Rice v. Metro. LIFE Ins. Co., 324 S.W.3d 660 (Tex. App. 2010))

Subjective trust by one party in another does not establish the requisite relationship to impose an informal fiduciary relationship in a business transaction. (Malik v. GEICO Advantage Ins. Co., 01-19-00489-CV (Tex. App. 2021))

In Environmental Procedures, Inc. v. Guidry, 282 S.W.3d 602, 2009 WL 237063 (Tex. App. 2009), the Texas Fourteenth District Court of Appeals declined to extend the set of formal fiduciary relationships to encompass the relationship of an insurance agent, agency, or broker to a client. The Court also rejected the insureds' argument that the trial court erred in granting a directed verdict regarding their breach-of-fiduciary-duty claims because the evidence raised questions of fact regarding whether an informal fiduciary relationship existed between the parties. The Court found that the evidence would not permit reasonable and fair-minded people to conclude that a confidential relationship existed between the insureds and brokers prior to the transactions which were the subject of the insureds' claims.

In the unpublished decision of Wyly v. Essex Ins. Co., 2012 Tex. Dist. LEXIS 13201 (Tex. Dist. Ct. September 8, 2014), the Texas Tenth District Court, Galveston County, found that despite the longstanding personal friendship between the petitioner and the insurance agent, the insurance agent did not owe a fiduciary duty to the petitioner. The Court found that there was no long-standing business relationship between the petitioner and the insurance agent wherein the insurance agent undertook any duties over and above those of any insurance agent.

Law:

In Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85 (Tex. App. 2003), the Texas First District Court of Appeals explained that fiduciary relationships can be created by formal or technical relationships, such as attorney-client relationships, or from informal relationships where the existence of confidence and trust imposes greater duties as a matter of law. To impose an informal fiduciary relationship in a business transaction, the requisite special relationship of trust and confidence must exist prior to, and apart from, the agreement that is the basis of the suit (at 96): 

A fiduciary duty is an extraordinary duty that is not lightly created. Garrison Contractors, Inc. v. Liberty Mut. Ins. Co., 927 S.W.2d 296, 301 (Tex.App.-El Paso 1996), aff'd on other grounds, 966 S.W.2d 482 (Tex.1998); Gillum v. Republic Health Corp., 778 S.W.2d 558, 567 (Tex. App.-Dallas 1989, no writ). Fiduciary relationships can be created by formal, or technical relationships, such as attorney-client relationships, or from informal relationships where the existence of confidence and trust imposes greater duties as a matter of law. Garrison, 927 S.W.2d at 301; Lovell v. Western Nat. Life Ins. Co., 754 S.W.2d 298, 303 (Tex.App.-Amarillo 1988, writ denied). Proving the existence of a fiduciary relationship requires more than just evidence of prior dealings between the parties, and subjective trust by one party in another does not establish the requisite confidential relationship. Caserotti v. State Farm Ins. Co., 791 S.W.2d 561, 565 (Tex.App.-Dallas 1990, writ denied). There is no general fiduciary duty between an insurer and its insured. Garrison, 927 S.W.2d at 301; Caserotti, 791 S.W.2d at 565. To impose an informal fiduciary relationship in a business transaction, the requisite special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit. R.R. Street & Co., Inc. v. Pilgrim Enter., Inc., 81 S.W.3d 276, 305 (Tex.App.-Houston [1st Dist.] 2001, no pet.). Appellant has not directed us to, and we are not aware of any Texas case that has found a fiduciary relationship between an insured and its insurer.

In Environmental Procedures, Inc. v. Guidry, 282 S.W.3d 602, 2009 WL 237063 (Tex. App. 2009), the Texas Fourteenth District Court of Appeals declined to extend the set of formal fiduciary relationships to encompass the relationship of an insurance agent, agency, or broker to a client (at 628):

Courts do not create fiduciary relationships lightly. Schlumberger Tech. Corp., 959 S.W.2d at 177. And as an intermediate appellate court, we decline to extend the set of formal fiduciary relationships to encompass the relationship of an insurance agent, agency, or broker to a client. See T.F.W. Mgmt., Inc. v. Westwood Shores Prop., 79 S.W.3d 712, 720 (Tex.App.-Houston [14th Dist.] 2002, pet. denied) (declining to create a fiduciary duty requiring the owner of a country club to provide an accounting to a property owners' association of fees the association provided to the club); Emscor Mfg., Inc. v. Alliance Ins. Group, 879 S.W.2d 894, 910 (Tex.App.-Houston [14th Dist.] 1994, writ denied) ("It is not for an intermediate appellate court to create new causes of action.").

The Court also rejected the insureds' argument that the trial court erred in granting a directed verdict regarding their breach-of-fiduciary-duty claims because the evidence raised questions of fact regarding whether an informal fiduciary relationship existed between the parties. The Court found that the evidence would not permit reasonable and fair-minded people to conclude that a confidential relationship existed between the insureds and brokers prior to the transactions that were the subject of the insureds' claims (at 628): 

The Insureds also contend that the trial court erred in granting a directed verdict regarding the Insureds' breach-of-fiduciary-duty claims because the evidence raised questions of fact regarding whether an informal fiduciary relationship existed between the parties. When a business transaction is involved, "the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit." Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 288 (Tex.1998). After reviewing the record under the applicable standard of review, we conclude that the evidence would not permit reasonable and fair-minded people to conclude that a confidential relationship existed between the Insureds and Brokers prior to the transactions which are the subject of the Insureds' claims.

We overrule the Insureds' second issue; hence, we do not reach their subsidiary argument that when a fiduciary relationship exists, it is presumed that the injury caused by a breach of fiduciary duty is inherently undiscoverable, which thereby tolls the statute of limitations.

In Rice v. Metro. LIFE Ins. Co., 324 S.W.3d 660 (Tex. App. 2010), the Texas Second District Court of Appeals explained that due to the extraordinary nature of fiduciary relationships, the law does not recognize them lightly. Whether such a duty exists depends on the circumstances of a case. A fiduciary relationship may be created by contract when a person is justified in placing confidence in the belief that another party will act in their best interest only where they are accustomed to being guided by the judgment or advice of the other party and there exists a long association in a business relationship as well as personal friendship. In this case, one of the appellants alleged that she had been a customer of an insurer on several occasions throughout her life. The Court found that this was not sufficient to establish that the appellants had a special relationship of confidence and trust with the insurer to create a fiduciary relationship. An insurer does not generally have a fiduciary duty toward its insured (at 678-679): 

Due to its extraordinary nature, the law does not recognize a fiduciary relationship lightly. Therefore, whether such a duty exists depends on the circumstances.

Fiduciary duties may arise from formal and informal relationships and may be created by contract.... A person is justified in placing confidence in the belief that another party will act in his best interest only where he is accustomed to being guided by the judgment or advice of the other party and there exists a long association in a business relationship as well as personal friendship. Thus, the relationship must exist prior to and apart from the agreement that is the basis of the suit.

Cotten v. Weatherford Bancshares, Inc., 187 S.W.3d 687, 698 (Tex.App.-Fort Worth 2006, pet. denied) (emphasis added and footnotes omitted); see Meyer, 167 S.W.3d at 331 (explaining that there must be a “special relationship of trust and confidence” to create a fiduciary relationship in an ordinary business transaction). An insurer does not generally have a fiduciary duty toward its insured. See

[324 S.W.3d 679]

E.R. Dupuis Concrete Co. v. Penn Mut. Life Ins. Co., 137 S.W.3d 311, 318 (Tex.App.-Beaumont 2004, no pet.) (citing Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85, 96 (Tex.App.-Houston [1st Dist.] 2003, pet. denied)); Garrison Contractors, Inc. v. Liberty Mut. Ins. Co., 927 S.W.2d 296, 301 (Tex.App.-El Paso 1996), aff'd, 966 S.W.2d 482 (1998); cf. Berry v. First Nat'l Bank of Olney, 894 S.W.2d 558, 560 (Tex.App.-Fort Worth 1995, no writ) (holding that a bank did not automatically have a fiduciary relationship with its customers and that the customers therefore had the burden to respond to the bank's summary judgment motion by providing evidence of specific facts showing a special relationship).

Glenda said in her affidavit, “I have been a customer of MetLife on several occasions throughout my life....” The Rices have not directed us to any other evidence concerning their relationship with MetLife apart from the coverage at issue in this case. We hold that Glenda's sole statement in her affidavit does not constitute more a scintilla of evidence that the Rices had a special relationship of confidence and trust with MetLife to create a fiduciary relationship. See Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 595 (Tex.1992) (explaining that “[n]either is the fact that the relationship has been a cordial one, of long duration, evidence of a confidential relationship”), superseded by statute on other grounds as stated in Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225-26 (Tex.2002). Thus, we hold that the trial court properly granted summary judgment against the Rices' breach of fiduciary duty claim, and we overrule their seventh point.

In the unpublished case of RZQ, L.L.C. v. McClelland & Hine, Inc., 13-19-00471-CV (Tex. App. 2021), the Texas Thirteenth District Court of Appeals found that the evidence did not support a breach of fiduciary duty claim where it did not establish that the parties had a confidential relationship so as to give rise to an informal fiduciary duty. The Court explained that, generally, the relationship between an insurance agent and an insured does not give rise to a formal fiduciary duty (at 25): 

The evidence is also not enough to support a breach of fiduciary duty claim. Fiduciary duties may arise from certain formal relationships that are considered to be fiduciary as a matter of law or from informal, "confidential" relationships. Garcia vVera, 342 S.W.3d 721, 724 (Tex. App.—El Paso 2011, no pet.). Generally, the relationship between an insurance agent and an insured does not give rise to a formal fiduciary duty. Envt'l ProceduresIncvGuidry, 282 S.W.3d 602, 626-628 (Tex. App.—Houston [14th Dist.] 2009, pet. denied). And appellants' evidence does not establish that they had a "confidential" relationship with MHI so as to give rise to an informal fiduciary duty. See Garcia, 342 S.W.3d at 724.

Likewise, in the unpublished decision of Malik v. GEICO Advantage Ins. Co., 01-19-00489-CV (Tex. App. 2021), the Texas First District Court of Appeals explained that not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship. The Court noted that while an informal fiduciary duty may arise in some circumstances, subjective trust by one party in another does not establish the requisite relationship to impose an informal fiduciary relationship in a business transaction (at 15-16): 

Thus, Malik's breach-of-fiduciary-duty claims rely on the existence of a fiduciary relationship between an insurer and its insured. See id. Appellees alleged in their motion that no such duty exists.

"It is well settled that not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship." Meyer vCathey, 167 S.W.3d 327, 330 (Tex. 2005) (internal quotations omitted). When the underlying facts are undisputed, determination of the existence, and breach, of fiduciary duties are questions of law, exclusively within the province of the court. Id. In certain formal relationships, such as an attorney-client or trustee relationship, a fiduciary duty arises as a matter of law. Id. An informal fiduciary duty may arise from "a moral, social, domestic or purely personal relationship of trust and confidence." Id. (internal quotations omitted). "To impose an informal fiduciary relationship in a business transaction, the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit." Id. (internal quotations omitted). Subjective trust by one party in another does not establish the requisite relationship. Caserotti vState Farm InsCo., 791 S.W.2d 561, 565 (Tex. App.—Dallas 1990, writ denied).

Texas courts, including this Court, have held that "[t]here is no general fiduciary duty between an insurer and its insured." Wayne DuddlestenIncvHighland InsCo., 110 S.W.3d 85, 96 (Tex. App.—Houston [1st Dist.] 2003, pet.

Page 16

denied); see also Rice vMetroLife InsCo., 324 S.W.3d 660, 678 (Tex. App.—Fort Worth 2010, no pet.) ("An insurer does not generally have a fiduciary duty toward its insured."); Caserotti, 791 S.W.2d at 565 ("[Insured] has not cited, and we have not found, any Texas authority recognizing the existence of a fiduciary relationship between an insured and his or her [automobile] insurer.").

In the unpublished decision of Wyly v. Essex Ins. Co., 2012 Tex. Dist. LEXIS 13201 (Tex. Dist. Ct. September 8, 2014), the Texas Tenth District Court, Galveston County, found that despite the longstanding personal friendship between the petitioner and the insurance agent, the insurance agent did not owe a fiduciary duty to the petitioner. The Court explained that there was no long-standing business relationship between the petitioner and the insurance agent wherein the insurance agent undertook any duties over and above those of any insurance agent (at 13-14): 

"[N]ot every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship."37 An insurance carrier owes its insured a duty of good faith and fair dealing because of the contract between them and unequal bargaining power when entering into the contract.38 However, the "special relationship" created does not extend to those who are not parties to the insurance contract.39 In Texas, an insurance agent owes two common-law duties to a client when procuring insurance: (1) to use reasonable diligence [*14]  in attempting to place the requested insurance; and (2) to inform the client promptly if unable to do so.40 Absent evidence of prior dealings where the agent customarily has taken care of the customer's needs without consulting the customer, no legal duty exists on the part of an insurance agent to extend insurance protection of his customer.41 Indeed, Texas courts have held there is no duty on the part of the agent to disclose policy coverage limitations.42 And, there is no fiduciary duty between an insurance agent and client.43

Despite the personal friendship between Wyly and Geisler dating back to the 7th grade, there was no long-standing business insurance relationship between Wyly and Geisler wherein Geisler undertook any duties over and above those of any insurance agent.44 Indeed, this was the one and only time the two worked together.45 There is no fiduciary duty owed from Geisler to Wyly, and therefore, no breach of such non-existent duty.

In May v. United Services Ass'n of America, 844 S.W.2d 666 (Tex. 1992), the Texas Supreme Court noted that an insurance agent has a common-law duty to use reasonable care, skill, and diligence in procuring insurance (at 666-667): 

This case involves the scope of an insurance agent's common-law duty to a customer in rendering advice about and procuring a policy for health insurance. The plaintiffs asserted only common-law causes of action, making no claim under the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code §§ 17.41 et seq. or any other statute. While the jury found favorably for the plaintiffs on a claim of the agent's negligence, it failed to find for the plaintiffs as to misrepresentation. On this verdict, the trial court rendered judgment for the plaintiffs, but the court of appeals reversed. 788 S.W.2d 608. We affirm the judgment of the court of appeals because there is no evidence in the record before us that the agent breached the duty to use reasonable care, skill and diligence in procuring insurance in any way

Page 667

that proximately caused harm to the petitioners.

The Court explained that an insurance agent who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. Accordingly, liability has been imposed on an insurance agent where the agent induced the plaintiff to rely on their performance of the undertaking to procure insurance, and the plaintiff reasonably, but to their detriment, assumed that they were insured against the risk that caused their loss (at 669-670): 

The first theory charges that Preston was negligent in failing to procure for the Mays the type of policy that they requested or that would insure them against the risk they identified as important in their conversation with Wiley. It is established in Texas that an insurance agent 8 who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. In Burroughs v. Bunch, 210 S.W.2d 211 (Tex.Civ.App.--El Paso 1948, writ ref'd), an agent was held liable for fire damage to a house being built by his customer when the agent, after agreeing to have a builder's risk policy issued on the house, failed to notify the customer that he had not procured such a policy. Id. at 214. Similarly, in Scott v. Conner, 403 S.W.2d 453 (Tex.Civ.App.--Beaumont 1966, no writ), an agent was held liable for fire damage after his customer requested a new policy to replace one cancelled by the insurer, and the agent neither procured such a replacement policy nor alerted the customer to this failure by returning the unearned portion of the premium from the original policy. Id. at 458.

Liability was imposed in the Burroughs and Scott cases because the agent induced the plaintiff to rely on his performance of the undertaking to procure insurance, and the plaintiff reasonably, but to his detriment, assumed that he was insured against the risk that caused his loss. See Burroughs, 210 S.W.2d at 213-14; Scott, 403 S.W.2d at 458. 9 Unlike the plaintiffs in the Burroughs and Scott cases, however, the Mays were not misled into believing that a

Page 670

policy in their name existed. Moreover, they were not led wrongly to believe that their policy provided protection against a particular risk that was in fact excluded from the policy's coverage. See Rainey-Mapes v. Queen Charters, Inc., 729 S.W.2d 907, 913-14 (Tex.App.--San Antonio 1987, writ dism'd by agr.) (agent gave assurances that shipowner's contemplated trip from the Virgin Islands to Houston would be covered, when in fact policy contained a territorial exclusion clause encompassing points along that route); see also Pete's Satire, Inc. v. Commercial Insurance Co., 698 P.2d 1388, 1389-90 (Colo.App.1985) (agent misrepresented that policy covered bar against risks relating to patrons' consumption of alcoholic beverages), aff'd, 739 P.2d 239 (Colo.1987); cf. Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co., 140 Ariz. 383, 682 P.2d 388, 390 (1984) (employee of insurer misrepresented that "umbrella" policy would supplement the liability coverage available to insured's lessees under the primary policy). 10

Authorities:
Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85 (Tex. App. 2003)
Environmental Procedures, Inc. v. Guidry, 282 S.W.3d 602, 2009 WL 237063 (Tex. App. 2009)
Rice v. Metro. LIFE Ins. Co., 324 S.W.3d 660 (Tex. App. 2010)
RZQ, L.L.C. v. McClelland & Hine, Inc., 13-19-00471-CV (Tex. App. 2021)
Malik v. GEICO Advantage Ins. Co., 01-19-00489-CV (Tex. App. 2021)
Wyly v. Essex Ins. Co., 2012 Tex. Dist. LEXIS 13201 (Tex. Dist. Ct. September 8, 2014)
May v. United Services Ass'n of America, 844 S.W.2d 666 (Tex. 1992)