Breach of fiduciary duties can derail claims and cheat injured parties out of the compensation they deserve. While that could be the basis of new lawsuits, a breach of fiduciary duties can give rise to challenging claims. That’s because:
- Texas law does not dictate that insurance agents have “formal fiduciary duties” to insured individuals.
- Texas courts have ruled that “there is no general fiduciary duty between an insurer and its insured,” establishing case law through Wayne Duddlesten, Inc. v. Highland Ins. Co. and other rulings.
Despite Texas statutes and case law, insurance agents do NOT have free reign or carte blanche to do whatever they want with insured individuals’ claims. Instead, these agents are generally required to act with reasonable prudence and adhere to some basic fiduciary duties as they process claims and deal with insured individuals.
If insurance agents fail to abide by these basic duties, they can be sued, fined, and face disciplinary action from the Texas Department of Insurance (TDI).
Here’s a look at how all that works, how insurance agents can breach their fiduciary duties, and how you can protect your rights if or when that happens.
Insurance Agent Fiduciary Duties Defined
Fiduciary duties refer to legal obligations or responsibilities that require one party to act in the best interests of another. While fiduciary duties can arise in various settings, with different professionals and varying obligations, in insurance, these duties generally focus on:
- Relationships between the insurer and the insured: The agent-policyholder relationship may become a “special relationship” if the agent has established a specific “course of dealing” with the insured individual. Say, for instance, the agent routinely renews an insured party’s auto insurance or homeowner’s insurance policy without an explicit request. That action could create a “standard” and liability if the agent misses the renewal and the policy lapses.
- Industry standards of care: Insurance agents are generally required to abide by standard industry procedures, processes, and timelines when handling claims. Since industry standards tend to change over time, these practices can be constantly evolving. That may present challenges in determining when and how care standards have not been met. Nevertheless, looking at what a “reasonable person” would do in the same situation can help.
- Professional conduct: While insurance agents are typically required to handle claims with professionalism, they may raise the standards of care required if they present themselves as more or specially experienced.
Ultimately, fiduciary duties for insurance agents are intended to instill fairness and consistency in dealings with insured individuals and the processing of claims.
Insurance Agent or Broker? How Relationships Matter with Fiduciary Duties
With fiduciary duties, the insurance professional’s title and role matter. That’s because insurance agents and insurance brokers do NOT have the same fiduciary duties. In fact, here’s the distinction and why it’s crucial:
- Insurance agents are employees and representatives of an insurance company. As such, these agents can help customers with policies and claims involving their employer. In this capacity, insurance agents generally have fiduciary duties to their employer. There’s also a basic level of fiduciary duties between the agents and customers.
- Insurance brokers are representatives of the consumer or party seeking insurance. Unlike agents, brokers don’t work for insurers. Instead, brokers tend to work closely with individuals to help them shop for the insurance coverage they need, comparing policies and options from different providers, rather than a single insurance company.
Based on that difference, insurance brokers generally owe a higher level of fiduciary duty than agents do to insured individuals. Ultimately, however:
- The title an insurance professional holds may not accurately describe the relationship shared with the insured individual.
- The courts can have the final say on whether someone actually serves as an insurance agent or broker, given the circumstances — and regardless of their official job title.
How Insurance Agents Breach Fiduciary Duties: Examples
When it comes to an insurance agent and a customer, a fiduciary duty can establish a base level of trust and good faith, requiring agents to act in the best interests of the customer. With that, a standard of care arises, setting up some objective parameters and guardrails for the relationship between the agent and the insured individual.
That should mute personal interests that could arise in dealings between the agent and the insured person, creating a more level playing field, more consistency, and more predictability with claims and insurance dealings. However, that doesn’t necessarily happen in practice.
In fact, insurance agents can breach their fiduciary duties in various ways. When they do, they fail to deliver and meet the basic standards of care required of them.
- Negligent interactions: If insurance agents fail to take out the coverage requested by an individual, those agents can be negligent in their dealings with that customer. Similarly, negligent interactions can include making mistakes and failing to take proper care when issuing policies and/or processing claims.
- Wrongful denials: Failing to honor valid insurance claims can be another breach of fiduciary duties. With wrongful denials, insurance agents may misinterpret the available evidence or engage in other breaches of fiduciary duty, like post-claim underwriting.
- Use of misleading information: Misleading customers who are taking out coverage or filing claims can involve misinterpreting policy language, using misleading “evidence,” or even providing false information to intentionally manipulate customers.
- Post-claim underwriting: Illegal and unethical, post-claim underwriting involves dialing back certain coverage after a policyholder has already paid for that coverage and filed a claim. Generally, this occurs when insurance companies rush to issue policies without sufficiently assessing the risk or doing enough due diligence to tailor the policy. Instead, the insurance company only takes this critical eye to policies after a claim has been filed; at that point, the policyholder has been paying premiums with the expectation of certain coverage. Instead, however, an agent may engage in post-claim underwriting to allege that certain coverage is not available, despite the premiums insurers have been collecting on that coverage.
If you suspect these actions in your dealings with insurance agents, consult an experienced insurance lawyer. You could have the right to appeal or sue, holding insurance companies accountable while asserting your rights.
Bad Faith Insurance Claims & DTPA Violations
Breach of fiduciary duty can be just one basis for conflict with and lawsuits against insurance companies. Along with these claims, insurers can also find themselves in the hot seat when they allegedly engage in:
- Bad faith practices: This can involve any practice that’s intentionally aimed at violating the terms of the policy and failing to honor the contract between the insurer and the insured individual.
- Insurance code violations: Failing to abide by Texas Insurance Code can also open up the possibility of penalties and lawsuits against insurance companies. With claims involving insurance code violations, punitive damages may be available.
- Violations of the Texas Deceptive Trade Practices Consumer Protection Act (DTPA): Prohibiting intentional deception in the course of business, the DTPA provides a remedy for individuals who have been lied to or misled by businesses, including insurance companies, allowing lawsuits and potential damages of up to three times the losses involved.
These acts can take several forms in the real world, including (but not limited to):
- Misrepresenting the coverage or policy limits and exclusions
- Cutting corners during claim investigations to skew the findings
- Failing to disclose vital information about a claim or policy
- Canceling policies without reason or notice after individuals file claims
All of this can be a big shock to policyholders, especially those who diligently pay their premiums on time — and who have filed no or few claims in the past.
That’s one reason why it can pay to have an experienced attorney in your corner, providing effective counsel and helpful advice as you deal with insurance companies. With this representation, you can also protect your rights and get professional help identifying breaches of fiduciary duty and more.