In People v. Wells Fargo Ins. Servs., Inc., the Court of Appeals held that an insurance broker does not breach its fiduciary duty to its customer when it fails to disclose the fact that the broker will receive compensation from the insurer for the policy it will ultimately place on behalf of the customer. The Court noted that this practice has recently been prohibited by regulation of the Insurance Department (11 NYCRR 30.3[a] effective January 1, 2011). Since the allegations in this particular case arose prior to enactment of the regulation, and because the regulation is not retroactive, the Court found that it did not apply to this case.
The broader significance of the Court's decision, however, is its reminder that typical agency principles are not strictly applied to brokers. The Court observed that a broker is the agent of the insured, but customarily is paid by the insurer. The broker, at times, also acts on behalf of the insurer, i.e. when collecting premiums. The broker thus has a more complex relationship with its customer than a typical agent. The Court further described the broker as having a "dual agency status."