Presented by the Insurance Agents & Brokers Liability Practice Group

PA Supreme Court Decision Bolsters Defense of Financial Advisors/Insurance Agents

February 1, 2018

Insurance agents and brokers and financial advisors in Pennsylvania should welcome the recent Supreme Court of Pennsylvania decision in Yenchi v. Ameriprise Fin., Inc., 161 A.3d. 811, 820 (Pa. 2017), which clarifies and limits the basis for finding a fiduciary relationship that would trigger an agent’s heightened duties to act with “utmost good faith in advancing another’s interests.” Where evidence can be developed through discovery to demonstrate that plaintiffs/consumers ultimately retain final decision-making power on the types and amounts of insurance to purchase—e.g., by establishing that a plaintiff accepted certain offers while rejecting others, such as multiple premium quotes—summary judgment should be granted on fiduciary duty claims, and such claims should be dismissed as a matter of law, pre-trial.

In Yenchi, the Pennsylvania Supreme Court analyzed whether a fiduciary relationship existed in the context of a financial advisor selling insurance to a married couple. After a “cold call,” a captive financial advisor met with the Yenchis and, for a $350 fee, presented them with a financial management proposal, including various financial recommendations. At a subsequent meeting, the advisor proposed a whole life insurance policy, which Mr. Yenchi opted to purchase. The advisor later proposed that the Yenchis increase their life insurance coverage, but they rejected his advice on that occasion.

After their portfolio was reviewed independently by a third party a few years later, the plaintiffs were told that the whole life insurance policy would inevitably lapse, was underfunded, and that additional premiums beyond those allegedly represented by the advisor would have to be paid. The Yenchis filed suit against their advisor and Ameriprise, alleging claims for negligence, fraud, unfair trade practices and breach of fiduciary duty, among other others.

The trial court granted summary judgment on the fiduciary duty count, holding that no fiduciary relationship existed because the plaintiffs continued to make their own investment and purchasing decisions. In addition, the lower court cited its own decision in Ihnat v. Pover, 1999 Pa.Dist. & Cnty. Dec. LEXIS 225 (C.P.Alleg. Feb. 1, 1999), in which it held that no fiduciary duty arises between an insurance agent and a policyholder unless the policyholder delegates decision-making control to the agent. In applying that decision, the court found no material difference between an insurance agent and a financial advisor.

In reversing the Superior Court and upholding the summary judgment of the trial court, the Supreme Court in Yenchi held that no fiduciary duty exists in a consumer transaction for the purchase of a whole life insurance policy based upon the advice of a financial advisor when the consumer purchasing the policy does not “cede decision-making control to the other party.” In so holding, the court noted that fiduciary duties do not arise “merely because one party relies on and pays for the specialized skill of the other party.”

The opinion may be found here.

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