PA Supreme Court Narrows Basis to Establish Fiduciary Duty Owed By Financial Advisors/Insurance Agents

Defense Digest, Vol. 23, No. 4, December 2017

By Timothy G. Ventura, Esq.

In addition to more common tort claims for fraud, negligence/negligent misrepresentation and statutory claims for violation of the Pennsylvania Unfair Trade Practices Act (UTPCPL, 73 P.S. § 201-1, et. seq.), plaintiffs in civil suits may pursue claims for breach of fiduciary duty against insurance agents/brokers and financial advisors. In some types of relationships, a fiduciary duty exists as a matter of law, e.g., principal and agent or attorney and client. Yenchi v. Ameriprise Fin., Inc., 161 A.3d. 811, 820 (Pa. 2017)(McCown v. Fraser, 192 A. 674 (Pa. 1937)). Where no fiduciary duty exists as a matter of law, however, Pennsylvania courts have recognized the existence of confidential relationships, i.e., fiduciary relationships where equity requires. Darlington’s Appeal, 86 Pa. 512 (Pa. 1878). A fiduciary duty is the highest duty implied by law, and it requires a party to act with the utmost good faith in furthering the other person’s interests, including a duty to disclose all relevant information. Miller v. Keystone Ins. Co., 636 A.2d 1109, 1116 (Pa. 1994); Basile v. H&R Block, Inc., 761 A.2d 1115, 1120 (Pa. 2000); Young v. Kaye, 279 A.2d 759, 763 (Pa. 1971)). Some courts have held that a fiduciary relationship exists between insurance agents and their customers/clients that triggers a duty to act with the highest level of honesty and loyalty.

In Yenchi, the Pennsylvania Supreme Court recently analyzed whether a fiduciary relationship existed in the context of a financial advisor selling insurance to a married couple. In that case, 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 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/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.” eToll, Inc. v. Elias/Savion Advertising, 811 A.2d 10, 23 (Pa.Super. 2003). Rather, the court stated, “The critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence or trust, justifiably reposed’ on the other side, which results in the effective ceding of control over decision-making by the party whose property is being taken.” The court found that, because the plaintiffs followed some of the broker’s recommendations and rejected others, there existed nothing more than an “arm’s-length consumer transaction” between the parties. The plaintiffs’ lack of education, the advisor’s specialized training and even the payment of the advisor’s fee were all insufficient to establish a fiduciary relationship of “overmastering influence.” In addition, recognizing consumers have other common law tort (e.g., fraud/negligence) and statutory (UTPCPL) claims available in such circumstances, the court expressly declined “[t]o modify the law of fiduciary duty to encompass the particular pitfalls involved in the sale of insurance products by commissioned agents or financial advisors to less savvy customers.”

This Supreme Court decision is favorable for the defense of insurance agents/brokers and financial advisors in Pennsylvania. It clarifies and limits the basis for finding a fiduciary relationship exists 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 what 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.

*Tim is a shareholder in our Philadelphia, Pennsylvania office. He can be reached at 215.575.2582 or tgventura@mdwcg.com.

_{Defense Digest, Vol. 23, No. 4, December 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}