No Fiduciary Duty Owed to Insureds Under Texas Law

Texas law takes a restrictive view of what duties an insurance agent owes to policy purchasers, and claims for breach of fiduciary duty against an agent are not typically successful. In Texas, there is no formal fiduciary duty between an insurance agent and an insured. There is also no legal duty imposed upon an insurance agent to extend policy protection of their insured simply because the agent knows the customer may need additional insurance.

A recent Texas court case reaffirmed the legal premise that insurers do not owe fiduciary duties to insureds. In Ec & Sm Guerra v. Phila. Indem. Ins. Co. (2020), an insured sued their property insurance company for breach of fiduciary duty, as well as other claims, after the insurer denied a claim for wind damage and disagreed with an independent appraiser’s report of the damage. The court granted the insurer’s motion to dismiss the case, citing Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85, 96 (Tex. App.—Hou. [1st Dist.] 2003, pet. denied), that states that under Texas law “there is no general fiduciary duty between an insurer and its insured.” The court further explained that for a fiduciary relationship to exist, it must be proven that there is more than just evidence of prior dealing between the parties involved since subjective trust by one party in another does not inherently establish the required confidential relationship. The plaintiff did not present facts to establish that a duty was owed prior to, or apart from the issue at suit and their allegations relied on the fact that the insurance company holds a percentage of funds from the premium paid to pay out claims. This is not enough to establish that a relationship existed prior to or apart from the customer and insurance agent’s insurance agreement. Further, the court stated that, “even if an insurance contract’s mere existence created a fiduciary duty, the Amended Complaint’s factual allegations do not give the Court any indication of how Defendant allegedly breached this heightened duty.”

Previous Texas Fiduciary Liability Law

This is not the first time a Texas court has upheld this decision. In Brown v. Carrell (2018), a Texas court found that a fiduciary relationship did not exist between the plaintiff and insurance agent. After Hurricane Ike damaged a home in Beaumont, Texas, the homeowner contacted their insurance agent who sold him one of the policies. The homeowner had both a windstorm insurance policy and flood insurance; however, the two policies were from two separate insurance companies. The homeowner only reported the loss to the insurance agent who sold him the windstorm insurance policy assuming the agent would submit a claim to both insurance companies. In this case, the agent only notified the windstorm insurer and did not notify the insurer of the flood claim. The homeowner’s flood insurance claim was later denied in part because it was not submitted in time. The homeowner filed suit against their insurance agent alleging multiple causes of action, including breach of fiduciary duty. The court granted the agent a no-evidence summary judgement on the homeowners’ claim. The homeowner appealed and contended their agent owed them fiduciary duties. The appellate court held that: “For an agency relationship to exist, there must be (1) a meeting of the minds between the parties to establish the relationship, and (2) some act constituting the appointment of the agent.” Even if there was a relationship between the parties regarding the windstorm policy that was sold, there was no evidence found that would extend that relationship to the flood insurance policy. Because the homeowners failed to meet that burden of proof, the appellate court upheld the lower court’s summary judgment regarding breach of fiduciary duty.

To successfully defend an insurance agent against claims of breach of fiduciary duty, it is essential to develop facts that show a particular agent’s responsibilities are limited under the circumstances of the case. It is also important to gather any and all evidence that would show the agent has not taken on any additional duties that would expose them or the carrier to liability.

Insurance Defense Lawyers

The team of experienced insurance litigation attorneys at MehaffyWeber has represented insurers in a wide variety of cases, including coverage disputes and first and third party coverage litigation matters. In the competitive and rapidly evolving insurance industry, the need for effective defense counsel is paramount. An experienced insurance defense lawyer can help your company resolve disputes effectively and efficiently, protecting your financial interests in insurance disputes. For more than 70 years, MehaffyWeber has had a well-respected insurance defense practice that successfully argued and obtained favorable decisions in state and federal trial and appellate courts.

 

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