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Legal Updates for Insurance Agents & Brokers

Nothing “Special” About Relationship Between PA Insurance Broker and Insurance Company

Legal Update for Insurance Agents & Brokers - November 30, 2023

November 30, 2023

by Dana A. Gittleman

In Mohanan, et al. v. Liberty Mutual Personal Insurance Company, 2023 WL 8026106 (E.D. Pa. Nov. 20, 2023), the United States District Court for the Eastern District of Pennsylvania reiterated the prevailing standard in Pennsylvania for establishing the existence of a “special relationship” between an insurance customer and an insurance broker, i.e. “ced[ing of] decision-making control or surrend[ing] substantial control.”

The court granted defendant Liberty Mutual’s motion to dismiss to strike references to a “special relationship” owed to plaintiffs premised on Liberty Mutual’s purported “cultivat[ion of] a relationship of trust and confidence.” The court agreed with Liberty Mutual’s position that the relationship between an insurance broker and an insured is an arm’s length business relationship; a fiduciary duty does not arise simply because the insurance agent or broker possesses superior knowledge or skill as compared to a lack of sophistication of the insured. 

In Pennsylvania, an insurance agent or broker is under a general duty to procure the coverage requested by a customer and has no duty to advise or recommend as to the types of amounts of coverage available, to obtain total or full coverage, or explain the policy and its coverages and/or exclusions absent evidence of a “special relationship.” Wisniski v. Brown & Brown Ins. Co., 906 A.2d 571, 577-78 (Pa. Super. 2006); Stern Family Real Estate Partnership v. Pharmacists Mut. Ins. Co., 2007 U.S. Dist. LEXIS 22296 (W.D. Pa. March 27, 2007); Yenchi v. Ameriprise Fin., Inc., 161 A.3d 811, 820 (Pa. 2017).

The analysis of the existence of a special relationship is an important one with respect to the standard of care applied. If an insured can establish a special relationship--for example, as analyzed here, through overmastering influence and/or final decision-making power ceded to the insurance agent or broker--the insurance agent or broker is assumed to have undertaken additional, fiduciary duties. In other words, the existence of a special relationship elevates the duty owed from a duty to procure to a duty to advise or recommend. Accordingly, a viable special relationship or fiduciary duty claim asserted against an insurance producer can significantly narrow the defenses available in a professional liability lawsuit.

The Mohanan decision is a welcome addition to the existing precedent in Pennsylvania limiting the imposition of a fiduciary duty on an insurance agent or broker. Consistent with the Pennsylvania Supreme Court’s 2017 decision in Yenchi, supra, the bar remains high to establish a confidential or fiduciary duty between an insurance producer and an insurance customer. 

 

 

Legal Update for Insurance Agents & Brokers - November 30, 2023, has been prepared for our readers by Marshall Dennehey. It is solely intended to provide information on recent legal developments and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note tgventura@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2023 Marshall Dennehey. All Rights Reserved.

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On July 23, 2026, the Ohio Supreme Court issued a rare opinion on the binding effect of an appraisal award in a property insurance policy.  The Court in One Church held: A binding appraisal award will not be set aside unless an error is so palpably wrong that it undermines the intent of the agreement, such as corruption or gross mistake, not a mere error of judgment—To plead a claim of mistake with particularity as required by Civ.R. 9(B), facts alleged in a complaint must constitute the elements of mistake—Allegation that additional, hidden damage was discovered after appraisal award failed to state a claim of mistake that could justify setting aside binding appraisal.  The case arose out of a claim brought by One Church against its insurer, Brotherhood Mutual Insurance Company for roof damage from a storm. Pursuant to the terms of the insurance policy, the parties agreed to submit the matter to appraisal. The two appraisers inspected the building, and both appraisers agreed that the damages were $313,271.98. The insurer paid the agreed appraised amount.  Thereafter, the insured submitted a claim for an additional $206,663.09 in damages. The insured argued that these additional damages were not discovered until after the repairs began, and that they should be permitted to submit an additional claim, even though there had already been a binding appraisal of damages. The insurer refused to pay the additional damages, and the insured sued for breach of contract and bad faith.  In the trial court, the insurer moved to dismiss for failure to state a claim, arguing that the binding appraisal award barred any further claims. The insured took the position that additional hidden damages could not be discovered until after the repairs began, and therefore there was a mutual mistake. The trial court dismissed the case on the insurer’s motion, because there was no “evidence of fraud, misfeasance, or mistake”. The Court of Appeals agreed that appraisal awards are generally binding, but noted that an appraisal award can be set aside for fraud or manifest mistake. The Court of Appeals reversed and remanded the case to the trial court, finding that the insured had pled mistake with sufficient particularity. The insurer appealed to the Ohio Supreme Court. On appeal, the Ohio Supreme Court reversed the Court of Appeals, and reinstated the trial court decision dismissing the case for failure to state a claim upon which relief can be granted. The Supreme Court found that since the insured had already demanded appraisal, and the appraisal award was binding, “something more than error of judgement, such as corruption in the arbitrator, or gross mistake” must be pled with particularity, and proven for the insured to override the appraisal award. Since the complaint did not allege fraud or manifest mistake with sufficient particularity, something more than a mere error of judgment, the complaint was insufficient to state a claim.  The complaint in this case did not challenge the appraisal award. It pled that additional damages were discovered that were not apparent when the appraisal was done. It did not specify “who discovered the damages, how they were discovered, where they were found, why they were previously hidden, or why they rise to the level of a manifest mistake that the “appraiser would have corrected...had it been called to his attention”. Id at ¶22 citing Lakewood Mfg. Co. v. Home Ins. Co. of New York, 422 F.2d 796, 798 (6th Cir. 1970). Cases deciding the effect of appraisal awards are unusual. The Ohio Supreme Court’s decision in One Church relies primarily on 19th century case law for its conclusion. This emphasizes the fact that there is minimal case law deciding the effect of binding appraisal clauses in property insurance policies, and makes this case all the more significant. A lengthy dissent was written by Justice Fisher, who would have affirmed the Court of Appeals decision reversing and remanding the case for a decision on the merits. Of course, the decision works both ways, and an insurer dissatisfied with a binding appraisal award will likewise be without further recourse absent evidence of corruption, fraud, misfeasance, or manifest mistake, which must be pled with particularity. To constitute manifest mistake, “the mistake must be of such character that the arbitrator or appraiser would have corrected it had it been called to his attention.”  Lakewood Mfg. Co. v. Home Ins. Co. of New York, 422 F.2d 796, 798 (6th Cir. 1970).  The majority opinion does not specifically identify what would have been sufficient to plead mistake with particularity, or if the insured could have amended the complaint to overcome the deficiencies. The dissent argues that this was not really a case alleging mistake, but rather a question of contract interpretation. The insured did not challenge the appraisal, but argued that the hidden damage was not part of the appraisal, and the appraisal only covered the known damages.  However, this argument did not carry the day with the majority.