It is an unfortunate fact of life that not everyone conducts themselves honorably in business. The bad apples are not always held responsible for their actions. In at least one case, however, he was.
A life insurance and annuities agent in Iowa had a history of placing coverage through a managing general agent in North Carolina. The Iowa agent passed away unexpectedly, leaving his widow to run his agency. The MGA’s principal attended the agent’s wake and approached the devastated widow. He assured her that “he would act as her personal business advisor and help her to transition William’s insurance interests over to her control and establish her own business.”
The promises continued after the funeral, with the MGA repeatedly saying that she could rely on him to place her interests above his. Before his death, her husband had begun placing large life insurance policies for close personal friends and business partners. The MGA offered his assistance in completing the placements.
He also assured her that he would honor the carrier appointments her husband had, and that he would make similar appointments for her son. Because of these promises, she felt comfortable sharing her business plans with him – she would complete the sales of the large policies, continue operating the existing company, and form a new one.
The MGA promptly bought a domain name in the name of her planned new company, built a website and had all email inquiries from that site forwarded to his own agency’s website. He did not forward any of these inquiries to her, and he retained control of the domain name.
Unbeknownst to her, he also approached the friends and business partners who were the subject of the large policies. Falsely telling them he was acting on her behalf, he sold them $20 million in life insurance through one of his carriers and retained all the commissions.
In addition, he advised her to buy $6 million in annuities that would list her as the producer of record and pay her $25,000 a month immediately. However, the applications he prepared were for deferred annuities that did not list her as the producer. Her company did not receive any commissions, but the MGA sent her checks totaling $130,000.
The widow sued him on several counts, all of which he moved to have dismissed. The trial court ruled in his favor and she appealed.
The appellate court upheld some of the dismissals, but not all of them. The judges ruled that, while the two parties did not have a binding contract regarding the annuities she bought, they may have had one for the $20 million life insurance sale. They also found that he may have unjustly enriched himself by cutting her out of the life insurance sale and keeping all the commission.
The two parties may also have had a fiduciary relationship, the court found. The MGA repeatedly told her that he would place her interests above his. This earned her confidence in him, and he was aware of that. They also ruled that she was justified in relying on his assurances about the life insurance sale. Based on this, they refused to dismiss the breach of fiduciary duties, fraud, and negligent misrepresentation allegations.
The MGA’s conduct appears to have been unethical. She did not seek out his counsel; he offered it, made promises, then tried to take unfair advantage of a businesswoman who had just lost her husband. In some states, insurance regulators could discipline a producer like this for acting in an untrustworthy manner. Even agents who do the right things get sued. Agents who purposely do the wrong things are asking for legal trouble. Worse yet, they have ruined a great business relationship and may have damaged their reputation in the niche industry they serve.
