Court of Appeals to Consider Fiduciary Duties of Insurance Brokers

Earlier this year, the New York State Court of Appeals agreed to hear a case that could have enduring legal ramifications for the insurance brokerage industry. In People ex rel. Cuomo v. Wells Fargo Insurance Services Inc., an action brought by New York’s Attorney General arising from a broker’s acceptance and alleged nondisclosure of contingent commissions, the Court will address if, and under what circumstances, insurance brokers owe fiduciary duties to insureds. As New York courts have traditionally declined to impose a fiduciary duty on an insurance broker absent exceptional circumstances, the Court’s ruling could significantly change how state law treats the relationship between insurance brokers and the clients for whom they procure insurance coverage.

The Court’s willingness to hear the case is significant, both for its implications and its timing. In February, following years of enhanced regulatory scrutiny of compensation arrangements between insurance brokers and insurance companies, the New York State Insurance Department (NYSID) released its final broker compensation disclosure rule, which will take effect Jan. 1, 2011.