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N.Y. Court of Appeals: Brokers Not Required to Disclose Incentives

Source: PIANY

Posted on 24 Feb 2011

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The New York Court of Appeals recently issued a ruling upholding previous decisions that held that common law does not require an insurance broker to disclose to its clients incentive arrangements it has with insurance companies.

In The People v. Wells Fargo Insurance Services Inc., then-Attorney General Andrew M. Cuomo brought an action against Wells Fargo alleging that the firm engaged in repeated fraudulent or illegal acts and was unjustly enriched, committed common-law fraud and breached fiduciary duties owed to its clients by entering into incentive agreements with insurance companies and not disclosing those arrangements.

While the suit alleged that Wells Fargo steered its customers to particular insurance companies and away from  others, the suit did not allege that Wells made any material misrepresentations or that any customer suffered demonstrable harm from the incentive arrangements.  Despite losing in two lower courts, Cuomo pushed the case to the state's highest court who dismissed his allegations in a brief seven-page opinion.

Writing for the six justice majority, (Graffeo took no part) Judge Smith clarified that "the relationship between an insurance broker and a purchaser of

insurance is not as simple as the Attorney General suggests," citing a broker's "dual agency status."  According to Smith, "[t]he complaint does not allege that anything Wells Fargo did was contrary to industry custom; indeed the parties seem to agree that arrangements like those the attorney general complains of have been commonplace, and have not generally been disclosed."