Pa. Supreme Court Holds No Fiduciary Duty Created By Purchase of Insurance From Ameriprise Financial

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PITTSBURGH, June 20 – The Pennsylvania Supreme Court has ruled that Ameriprise Financial owed no fiduciary duties to two insureds who consulted with an Ameriprise financial adviser following a cold call  and purchased life insurance and annuity products from the insurer.

In Yenchi v. Ameriprise Financial, Inc., Mr. and Mrs. Yenchi sued Ameriprise, American Express Financial Services Corporation, American Express Financial Advisors Corporation, IDS Life Insurance Company, and an agent, Holland, after having their purchases independently reviewed.  The Yenchis’ complaint, filed in November 2003, asserted claims of negligence/willful disregard, fraudulent misrepresentation, violation of the Uniform Trade Practices and Consumer Protection Law (“UTPCPL”),  bad faith, negligent supervision, and  breach of fiduciary duty.

The trial court granted the defendants’ summary judgment motion which argued that no fiduciary duty existed.  The Superior Court reversed, however, and the Defendants appealed to the Pa. Supreme Court which granted allocator on the issue of whether a fiduciary duty existed between  the Yenchis and the Defendants.

In finding no fiduciary relationship existed, Justice Christine Donahue wrote that not all insurance transactions impose fiduciary obligations upon the insurer:

The record here establishes that the Yenchis made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that the Yenchis may have become comfortable with the Appellants’ expertise before deciding to purchase the 1996 whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It   does not, however, establish a fiduciary relationship. There is no evidence to establish that the Yenchis were overpowered, dominated or unduly influenced in their judgment by Holland.

The Yenchis never ceded any decision-making authority to [the advising agent]Holland. Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that the Yenchis did not purchase. As to advice accepted, the Yenchis purchased the 1996 whole life insurance policy and the 1997 deferred variable annuity. They began saving money in an investment certificate and opened an IRA account. On the other hand, they rejected other recommendations, including, in particular, Holland’s advice in 1998 to increase their life insurance to the $300,000 level, deciding for themselves that the 1996 whole life policy was a sufficient amount of life insurance for their needs. The evidence does not establish that the Yenchis were subject to any overmastering influence by Holland. They maintained and exercised decision-making control over their financial matters. No confidential relationship was ever created.

Yenchi v. Ameriprise Fin., Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405, at *23-25 (June 20, 2017)

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New York Rolls Out New Cybersecurity Requirements for Banks, Insurers

 

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Harrisburg, Feb. 22 –  According to the New York Department of Financial Services, new cybersecurity rules aimed at safeguarding consumer data go into effect on March 1, 2017.  The regulations  will require banks, insurers, and money services to strengthen their cybersecurity protocols by, in part, putting data security programs in place, and accepting greater responsibility for monitoring the vendors with whom they do business.  The rules also require reporting breaches within 72 hours.

The new rules impose obligations which could create liability from regulatory actions or consumer litigation. According to attorneys quoted in a recent article appearing on Law360.com,  the new guidelines will give enterprising  plaintiffs’ lawyers new claims against financial services firms, as well as firm directors and officers. Under the new DFS scheme, Company executives must certify compliance with the NY DFS regulations on an annual basis. Should those certifications prove incorrect, they could provide the basis for the DFS or consumers to make claims against banks, insurers and other financial services firms for breach of such certification.  Because of that, companies should devote considerable  attention and resources to two areas: 1.) implementation of cybersecurity programs and systems in compliance with DFS requirements; and 2.) making sure company executives have liability insurance coverage for cyber-related missteps, including coverage for both regulatory and consumer  claims.

With respect to adequately insuring cyber exposures, companies should undertake review of D&O policies to make sure any cyber-related liability is not excluded, and also that the insurance will cover the costs of defending against regulatory actions and any resulting penalties.  With respect to DFS requirements for the supervision of third-party vendors, the rules call for vendors to encrypt  nonpublic information and to set up robust protection systems.  Companies should require and review both vendor cybersecurity policies and related liability insurance products to make sure the vendors have technology errors and omissions coverage.  Companies may wish to secure additional insured protection in such policies as well.

A copy of the regulations may be found here:  nydfs-cybersecutiry-regs-03012017

 

 

Claims Delay Not Unreasonable, In Bad Faith, Judge Rules

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SCRANTON, Pa., Jan. 31 — An auto insurer did not unreasonably delay processing of a claim, a Pennsylvania federal judge has ruled.   In Thomas and Colleen Meyers v. Protective Insurance Co., No. 16-1821, M.D. Pa., 2017 U.S. Dist. LEXIS 11338, a delay in the payment of an auto claim at issue in the case was found not so unreasonable as to constitute bad faith.

Thomas Meyers was insured by a hit-and-run vehicle while working as a delivery man on  Jan. 21, 2014.  He filed a claim alleging serious injury  with  Protective Insurance Co.,  for uninured/underinsured motorist benefits on April 23, 2014.  Meyers sought medical expenses and wage loss of more than $120,000.00 on Feb. 1, 2006.  He claims to have received no response from Progressive for more than three months.

On May 26, 2016, Meyers rejected a settlement offer from Protective in the amount of $225,000 .  Meyers later rejected an increased offer, and Protective hired counsel requesting additional time to review the claim.  Protective’s counsel required Meyers to complete four medical evaluations.

Meyers sued the Protective in the Lackawanna County, Pa., Court of Common Pleas, stating claims for breach of contract, common law, and  statutory bad faith pursuant to 42 Pa. C.S. §8371.  Protective removed the action to the U.S. District Court for the Middle District of Pennsylvania and moved to dismiss all claims including breach  of “fiduciary duty,” bad faith and a loss of consortium claim.

Judge A. Richard Caputo dismissed all fiduciary claims, holding, “[u]nder Pennsylvania law, an insurer owes a duty of good faith and fair dealing toward their insureds.  It is well-established, however, that there is no fiduciary duty owed to an insured in the context of an underinsured/uninsured motorist benefits.”

Judge Caputo also rejected the bad faith claims, including allegations that Protective’s failure to communicate constituted bad faith, finding such claims unsupported.  The judge found  that the insurer contacted the Meyerses four times requesting information and/or providing updates on the investigation between March 9, 2016, and May 24, 2016:

“Moreover, after the first settlement offer was rejected by Plaintiffs, Defendant, within only one week, proposed a new, higher, settlement offer.  Although Defendant often did not immediately respond to Plaintiffs’ communications, an allegation of ‘failure’ to communicate is inconsistent with reality.  Defendant’s communications may be described as tardy, but I cannot impute bad faith or even unreasonable delay, especially in light of the fact that Defendant made a settlement offer within three-and-a-half months after receiving Plaintiffs’ estimate of damages.  Although ‘[d]elay is a relevant factor in determining whether bad faith had occurred,’ [Kosierowski v. Allstate Ins. Co., 51 F.2d 583, 588 (E.D.Pa.1999)], I am unable to find precedent supporting the proposition that an insurance company’s investigation of a claim lasting three-and-a-half months is unreasonably lengthy. . . “[t]here is also no evidence that Defendant failed to objectively and fairly evaluate Plaintiffs’ claims, or that the settlement offer was so inadequate as to constitute bad faith.”

Judge Caputo also did not find Protective’s settlement offers unreasonably low:

“First, given that the damages package provided by Plaintiffs included a ‘medical lien and wage loss documentation in an amount in excess of $122,000,’ a settlement offer that is higher by nearly $100,000 than the proposed damages package is not unreasonable, and ‘bad faith is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages.’  Secondly, Plaintiffs’ assertion of a verdict potential is an opinion as to the value of their claim, not an objective measure of it, and because such an assertion is nothing more than a legal conclusion, it must be disregarded.  Simply put, Plaintiffs’ subjective belief as to the verdict potential of their claims cannot constitute evidence of bad faith on the part of Defendant because Defendant’s subjective belief as to the value of the claim may reasonably, and permissibly, differ.”

The judge granted Protective’s 12(b)(6) motion, and gave the Plaintiffs 21 days to amend their complaint.

Thomas and Colleen Meyers v. Protective Insurance Co., No. 16-1821, M.D. Pa., 2017 U.S. Dist. LEXIS 11338

 

Life Insurer Did Not Act In Bad Faith In Interpleader

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HARRISBURG, Pa., June 24 —  A federal judge in Pennsylvania has ruled that the  executrix of an estate failed to establish a right to relief for a life insurer’s alleged bad faith in denying her claim for benefits under a policy of life insurance.

MONY issued Steve Eckert a life insurance policy with a death benefit of $127,000.  His wife at the time, Carol, was named the beneficiary.  In 1989, however, The Eckerts divorced, but Steve Eckert failed to remove his ex wife as the beneficiary.   Eckert remarried to Pamela Eckert in 2006.

Eckert died, and the beneficiary was never changed.  MONY filed an interpleader complaint in the U.S. District Court for the Middle District of Pennsylvania, seeking to pay the proceeds into court.  Eckert’s current wife, Pamela, and former wife, Carol,  both filed answers and crossclaims.  Pamela also filed a bad faith claim against MONY, and a claim alleging violation of the Pennsylvania Unfair Insurance Practices Act.

MONY moved to dismiss the three counterclaims filed by Pamela Eckert.  District Judge William W. Caldwell denied the motion in part, but ordered breach of fiduciary duty and bad faith claims dismissed.  Pamela Eckert filed an amended answer, again alleging bad faith, and MONY again filed a motion to dismiss.

Judge Caldwell dismissed the bad faith claims again, finding that aside from her allegation that MONY denied her the policy proceeds, Pamela’s pleading did not support a bad faith claims since it was “wholly unconnected to a denial of benefits.”  He wrote:

“Subparagraphs (a), (d), (e) and (f) [of Eckert’s opposition brief], relate to a transfer of ownership, not to a denial of benefits. Even if they alleged actionable conduct (and we express no opinion on that matter), this conduct could not be understood to bear on a claim for policy proceeds. In other words, Eckert may be correct (at least in this case) that a transfer of ownership led to a denial of (or at least a dispute about) her claim for the proceeds of the policy, but the fact that an insurer’s conduct leads to a transfer of ownership does not mean it gives rise to a claim for denial of benefits after that transfer has been made. As judicially construed, section 8371 covers bad faith in denial of benefits, not bad faith in the transfer of ownership in a policy. Section 8371 does not reach the latter conduct.”

MONY Life Insurance Co. v. Carol Snyder, f/k/a Carol Eckert, and Pamela Eckert, No. 15-2109, M.D. Pa.; 2016 U.S. Dist. LEXIS 34371)(Caldwell, J.).

 

Nationwide Properly Withdrew Defense of Pollution Claim, 3rd Circuit Rules

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PHILADELPHIA, May 27  — The Third Circuit last week ruled that  Nationwide Insurance properly terminated its defense of a group of insured homeowners, finding that it had properly reserved its rights to do so.

Randy and Erin Shearer sued a group of homeowners, claiming that the owners permitted sewage to leak onto the Shearer’s property, an 18 acre parcel of land they intended to develop.  Nationwide defended the homeowners under a reservation of rights, and eventually cancelled coverage and withdrew its defense.

The insurer issued several reservation communications to its insureds, stating that  coverage was subject to a reservation of rights,  and pointing out pollution exclusions in the policy, and exclusions for biological deterioration.

Nationwide filed suit in 2014 claiming it owed the homeowners no defense, citing the pollution exclusion. The homeowners did not contest the exclusion, but rather claimed prejudice from Nationwide’s decision to terminate their defense.  The U.S. District Court  for the Eastern District of Pa. found in favor of Nationwide, ruling that the reservation of rights letters entitled Nationwide to withdraw its defense.

In affirming the district court, Circuit Judge Thomas Hardiman wrote:

“While they were understandably disappointed by Nationwide’s decision to withdraw its defense, the fact that it was entitled to do so under the terms of the insurance contracts means that the defense it did tender was a temporary benefit to the policyholders. . . The fact that Nationwide defended the case for some time before citing an exclusion and denying coverage does not somehow turn the defense it did provide into fraudulent inducement. . . Nor does it turn the policyholders’ decision to allow Nationwide to provide them with a defense into detrimental reliance.”

Nationwide Insurance Company v. Shearer, et. al., (3rd Circuit, 2016)(Hardiman, J.)

Geico Loses Summary Judgment Bid In Florida Bad Faith Case

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TAMPA, Fla., May 12 — On May 12, GEICO Insurance lost a bid in Florida federal court to dismiss a bad faith suit premised upon its alleged failure to adequately defend a GEICO insured in a personal injury action.  The Court ruled that a genuine issue of material fact existed as to whether the insurer acted in bad faith in its handling of the claim.

The insureds,  Manuel A. and Aleli Gonzalez bought auto insurance from GEICO General Insurance Co. and added their grandson Ishmael Ramjohn as an additional insured. Ramjohn allegedly injured Lisa Anderson in an automobile accident in February 2009, whereupon Anderson’s attorney attempted to settle Anderson’s claim with GEICO .

Anderson’s lawyer and GEICO communicated several times during 2009, leading to his sending a demand for the $100,000.00 bodily injury policy limit insuring Ramjohn. GEICO offered $2,581.16 to resolve the claim.  Later, GEICO increased its offer to $22,500.00 after receiving additional information on Anderson’s injuries.

After  Anderson sued the insureds in the Hillsborough County, Fla., Circuit Court for damages,  GEICO offered the $100,000 policy limits, which Anderson rejected.  A jury in that case returned a verdict for Anderson in the amount of  $398,097.82.

The insureds then sued GEICO in the U.S. District Court for the Middle District of Florida, alleging bad faith in handling Ramjohn’s defense.

In denying GEICO’s motion for summary judgment, Judge James S. Moody Jr. held:

“the record reflects facts that could permit a jury to find that GEICO acted in bad faith…In other words, this case, like most bad-faith cases, presents a genuine dispute that requires a jury’s resolution…For example, [insureds’ expert Peter] Knowe’s testimony creates a genuine issue for trial. Knowe testified that GEICO’s handling of the Anderson claim deviated from industry standards in several key respects. Remarkably, GEICO does not address or reference Knowe’s expert opinion anywhere in its motion…there is also evidence suggesting that GEICO did not evaluate Anderson’s claim from the perspective of a reasonable insured facing unlimited exposure.”

Judge Moody added that a reasonable jury could find that GEICO’s offer strategy in the case was executed in aid of a policy to reduce average loss payments.

Gonzalez et al v. GEICO General Insurance Company, (M.D. Fla. 2016)(Moody, J.)

Pa. Supreme Court To Take Up Insurer Fiduciary Duty Question

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PHILADELPHIA, March 30 – The Pennsylvania Supreme Court will review a Superior Court decision holding that Ameriprise  Financial, Inc. may owe a fiduciary duty to a couple who were allegedly misled into buying an insurance policy and annuity.

In September, the Pa. Superior Court reversed in part a summary judgment ruling in favor of Ameriprise in which the trial court struck claims of breach of fiduciary duty against an Ameriprise agent made by Plaintiffs Eugene and Ruth Yenchi.  The Yenchis alleged that the Ameriprise agent used a financial planning review the Yenchi’s purchased as an opportunity to sell life insurance and annuities, and that in the process, Ameriprise’s agent made material misrepresentations.

In what it called a matter of first impression, the Superior Court ruled that the sale of insurance was “typically considered an arm’s-length transaction, in which the insurer incurs no fiduciary duty apart from those that may be defined in the insurance contract.”   It also ruled, however, that under the facts alleged by the Yenchis, they paid an Ameriprise agent a fee for a financial planning review, which led to recommendations to buy life insurance through the agent, under what the Yenchis alleged were fraudulent circumstances.

The Superior Court held that there were sufficient facts present which might prove a confidential relationship existed between the Yenchis and their agent which, under Pennsylvania law, could create a fiduciary duty:

“the Yenchis claim a confidential relationship arose with Mr. Holland [the agent], prior to their purchase of life insurance, when they agreed to purchase what they believed was independent, financial planning advice.  It is significant that Mr. Holland cultivated a relationship with the Yenchis first as a financial advisor, not an insurance salesperson.  That this advise resulted in their purchase of life insurance products from [Ameriprise] is not determinative of the nature of the relationship.”

The Superior Court opinion can be found here:  Yenchi v. Ameriprise Financial (Pa. Super. 2015) .

In granting Ameriprise’s petition for allowance of appeal, the Supreme Court indicated it will review whether the Superior Court erred in reversing the summary judgment decision striking the Yenchi’s fiduciary duty claims, as well as Superior court rulings vacating decisions to exclude certain evidence at trial.