Ohio Appellate Court Finds Expert Testimony May Not Be Necessary to Prove Claim Against an Insurance Agent
In the case of Hanick v. Ferrara, 2020-Ohio-5019, the Ohio Seventh District Court of Appeals reversed summary judgment in favor of an insurance agent and found that there was an issue of fact as to whether the plaintiff could establish a fiduciary relationship between the plaintiff and her agent and that it was possible for the plaintiff to prove a breach of duty and damages on behalf of the agent, even without expert testimony.
Roberta Hanick sued her insurance agent, Thomas P. Ferrara, alleging claims of negligent misrepresentation, fraud/deceit and breach of fiduciary duty. Ms. Hanick was 68 years old, with no spouse, children or immediate family, when she began purchasing life and annuity products from Mr. Ferrara. Over the course of the next six years, he sold her annuities and life insurance policies. In several instances, the life insurance policies lapsed for non-payment of premium, and he sold her new policies with a higher premium. The plaintiff alleged that Ferrara, acting as her insurance agent, improperly canceled her existing annuity with Old Mutual Life Insurance, causing her to incur a significant early withdrawal penalty, then used the funds to purchase three separate annuities on which he earned substantial commissions. She further alleged that he failed to advise her of early withdrawal penalties and misled her as to the nature of the products. At one point during their business relationship, the agent borrowed $3,500 from her personally, signing a promissory note. Correspondence between the plaintiff and the agent indicated that their relationship was more than just a business relationship.
After the lawsuit was filed, the plaintiff missed several deadlines for obtaining an expert report. The defendant then moved for summary judgment, arguing under well-settled Ohio law that, absent extraordinary circumstances, the relationship between a customer and an insurance agent is a business relationship and no fiduciary duty exists. Further, to prove a claim for misrepresentation or breach of fiduciary duty, the plaintiff would require expert testimony because of the complex nature of insurance. The trial court granted summary judgment, and the plaintiff appealed. The Court of Appeals reversed summary judgment on two of the plaintiff’s claims. First, the court found that there was a question of fact as to whether a fiduciary relationship did exist since “some reasonable person could find appellant reposed a special trust in Ferrara [the agent] and he understood this relationship had developed (upon his own encouragement).” Second, the appeals court found that the trial court erred in holding that expert testimony was required to establish the agent’s professional standard of care, his breach and damages caused, thereby “these subjects are within the common understanding and experience of a standard juror.” Hanick v. Ferrara at ¶82.
The Court of Appeals acknowledged that generally the relationship between an insurance agent and a client is not a fiduciary relationship but, rather, an ordinary business relationship. However, a fiduciary relationship can arise from such an informal relationship when both parties understand that a special trust or confidence has been established. Both parties must understand that the special trust and confidence exist.
The Court of Appeals further noted that neither the plaintiff nor the agent specifically testified to a fiduciary relationship. However, the court found that from the testimony of the plaintiff and the agent, there was a question of fact as to the fiduciary relationship. The agent had disclosed that he had lectured the plaintiff about spending money on friends and had told her that if she continued to run through her money, he could no longer “in good faith” be her agent. There were also communications between them both during the relationship, and at the end, that indicated a friendship and personal trust between them.
The Court of Appeals further found that the plaintiff in this circumstance could establish a breach of the standard of care and damages without expert testimony. The Court of Appeals held that the allegations of unauthorized withdrawals from an annuity does not require an expert to show breach of fiduciary duty. The court noted that the allegation was that the withdrawal was made to pay back a personal loan by the agent and caused the plaintiff to incur surrender charges. “Self dealing by a fiduciary creates a presumption that the action is invalid, and an attorney-in-fact is obligated to demonstrate the fairness of his conduct.” Id. at ¶97. The court went on to note that the plaintiff did not need expert testimony to demonstrate that the purchase of life insurance policies (which she did not need because of her personal situation), utilizing funds withdrawn from an annuity, and incurring surrender charges was unaffordable and inappropriate. Jurors could evaluate this independent of expert testimony. The calculation of her damages was an arithmetic problem and did not require expert testimony either.
The agent has filed a discretionary appeal with the Ohio Supreme Court, arguing that the Court of Appeals opinion is inconsistent with well-settled Ohio law and upends the relationship between an agent and client. The agent’s counsel also argues that well-settled law establishes that expert testimony is required to establish a breach of the duty of care and damages in a case like this. The Ohio Supreme Court has not decided whether to accept the appeal at this time. If the Ohio Supreme Court declines discretionary jurisdiction, the opinion is only binding in the Seventh Appellate District in Ohio, but it may be persuasive authority in other jurisdictions as well.
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