Opinion ID: 2801672
Heading Depth: 4
Heading Rank: 1

Heading: U.S. Auto

Text: The existence of a fiduciary duty is a question of law. Nat’l Med. Enter. v. Godbey, 924 S.W.2d 123, 147 (Tex. 1996) (citation omitted). A fiduciary relationship may be created by contract. See Lindley v. McKnight, 349 S.W.3d 113, 124 (Tex. App.—Fort Worth 2011, no pet.). However, because a fiduciary duty imposes obligations above and beyond the explicit terms of the contract, Texas courts “do not create such a relationship lightly.” See, e.g., Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). Lincoln’s arguments thus turn on the meaning of terms in the reinsurance agreements, which we construe by applying the ordinary rules of contract interpretation. See id.; McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 829 (Tex. App.—Dallas 2010, no pet.) (construing the parties’ contract to determine if they had entered into a fiduciary relationship).
The district court misinterpreted the scope of the fiduciary duty imposed by the reinsurance agreements. The General Agency Agreement states that U.S. Auto owed S&C a fiduciary duty in virtually all transactions related to the premiums: The Agent [U.S. Auto] shall accept and maintain at all times all premiums collected and other funds relating to the business written under this Agreement as a fiduciary for [S&C]. The privilege of retaining commissions shall not be construed as changing the fiduciary capacity. This imposed a fiduciary duty on U.S. Auto that encompassed collecting, handling, spending, deducting from, and depositing the premiums. The broad 18 Case: 13-10589 Document: 00513046323 Page: 19 Date Filed: 05/18/2015 No. 13-10589 language defining the boundaries of this fiduciary duty—maintaining “all premiums” at “all times”—is without qualification. Such language required U.S. Auto to handle all funds as a fiduciary from the moment it accepted them until the time they left its control—a period including when it calculated commissions, made deductions, and ultimately deposited the remaining premiums. The expansive contractual language is consistent with a provision in the Texas Insurance Code stating that “[a] managing general agent holds money on behalf of an insured or insurer in a fiduciary capacity.” TEX. INS. CODE § 4053.106. Indeed, control over funds belonging to others is the classic situation in which a fiduciary duty arises. Pegram v. Herdich, 530 U.S. 211, 231 (2000) (“At common law, fiduciary duties characteristically attach to decisions about managing assets and distributing property to beneficiaries.”). As the plain language of the provision states, U.S. Auto’s “privilege of retaining commissions” does not alter this analysis. The district court imposed too narrow a duty by holding that fiduciary duties arose only after U.S. Auto retained its commissions and deposited funds in the trust account. In addition to contradicting the contract’s broad language, imposing such a narrow duty would eviscerate the fiduciary obligations concerning the funds. U.S. Auto could simply avoid liability by misappropriating all the premium funds before making deposits into the trust account. The district court thought Texas Insurance Code provisions requiring managing general agents to maintain escrow accounts mean that no fiduciary duties exist prior to the funds being deposited in the escrow account. Those provisions do the opposite, however, recognizing that agents can siphon funds just as easily—and perhaps in a manner more difficult to detect—before they end up in the account. TEX. INS. CODE.§ 4053.105(c) (“[A] managing general agent may not use, take as an 19 Case: 13-10589 Document: 00513046323 Page: 20 Date Filed: 05/18/2015 No. 13-10589 offset, or convert money that is or should have been deposited in the escrow account.” (emphasis added)). The ruling that U.S. Auto owed no fiduciary duty with respect to premiums until it transferred the funds to the trust account thus contravenes the terms of the agreement and the fiduciary protections the parties intended. U.S. Auto contends that we should nevertheless affirm dismissal of the assigned S&C claim on the alternative ground that S&C, unlike Lincoln, did not suffer any damages (S&C was paid its 2% fee). We think the better course is to allow the district court to consider the damages issue in the first instance. Lincoln requested a constructive trust over the profits U.S. Auto received, which is a remedy that may be available for breach of fiduciary duty. 8 See Meadows v. Bierschwale, 516 S.W.2d 125, 128–29 (Tex. 1974); Chien v. Chen, 759 S.W.2d 484, 494 n.6 (Tex. App.—Austin 1988, no writ) (“Equitable remedies, such as . . . the imposition of a constructive trust, may be awarded for breach of the higher standards of conduct demanded in the fiduciary relationship.”). That remedy does not require actual damages. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942) (“It would be a dangerous precedent for us to say that unless some affirmative loss can be shown, the person who has violated his fiduciary relationship with another may hold on to any secret gain or benefit he may have thereby acquired.”); see 8 Lincoln appears to have satisfied the pleading requirement to obtain such relief by explicitly requesting a constructive trust in its complaint. See Lee v. Lee, 47 S.W.3d 767, 780– 81 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (holding that the plaintiff must prove actual damages if it fails to request equitable relief); see also Tisino v. R&R Consulting & Coordinating Grp., LLC, 478 F. App’x 183, 185 (5th Cir. 2012) (holding that a “complaint, which asserts a breach of fiduciary duty claim and requests imposition of a constructive trust” provides sufficient notice (internal quotation marks omitted)). 20 Case: 13-10589 Document: 00513046323 Page: 21 Date Filed: 05/18/2015 No. 13-10589 also ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 874 (Tex. 2010) (“[W]here a fiduciary takes advantage of his position of trust to induce a principal to enter into a contract[,] [t]he remedy of forfeiture is necessary to prevent such abuses of trust, regardless of proof of actual damages.” (emphasis added)); Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999) (“[A] client need not prove actual damages in order to obtain forfeiture of an attorney’s fee for the attorney’s breach of fiduciary duty to the client.” (emphasis added)). The parties therefore may fully litigate the merits of S&C’s fiduciary duty claims on remand. The grant of summary judgment on S&C’s fiduciary duty claim—asserted by Lincoln as a result of the assignment—is reversed.
We next turn to whether U.S. Auto owed these same fiduciary duties directly to Lincoln. The district court did not focus on this issue given its ruling that any duty, even that owed to S&C, did not extend to mishandling of premiums prior to them being deposited in the trust account. The parties spend much of their briefs arguing whether a duty was owed to Lincoln under either the common law, the Insurance Code, or the parties’ agreements. Once again, we find that the Reinsurance Agreement answers the question: In connection with this Agreement, [S&C] and the Agent [U.S. Auto] have entered into the Agency Agreement. [Lincoln] has selected the Agent [U.S. Auto] to administer the business reinsured hereunder. While for regulatory purposes, the Agent [U.S. Auto] will need to be appointed as [S&C’s] agent, it is recognized that the Agent [U.S. Auto] is acting on behalf of [Lincoln]. 21 Case: 13-10589 Document: 00513046323 Page: 22 Date Filed: 05/18/2015 No. 13-10589 ROA 743 (emphasis added). In addition, the General Agency Agreement states in the specific context of handling premiums that U.S. Auto is acting as Lincoln’s agent: [S&C], at [Lincoln’s] request, further authorizes the Agent [U.S. Auto] to perform all acts and duties under policies of insurance issued by [S&C] as would otherwise be performed by [S&C], including . . . remitting and/or receiving monies due from or to [S&C], and adjusting and paying losses or other claims. . . . In performing each of the acts mentioned above, the Agent [U.S. Auto] shall be under the direct supervision and control of [Lincoln General], and [Lincoln] shall be solely responsible for the acts of the Agent [U.S. Auto]. ROA 759 (emphasis added). These provisions recognize the obvious: given S&C’s limited role as the fronting entity, it is Lincoln that has an interest in the premium funds as only it is liable for paying claims. With respect to the handling of premium funds, the agreement thus sensibly extends the duties owed the nominal beneficiary of U.S. Auto’s fiduciary role (S&C) to the party actually affected by those fiduciary decisions (Lincoln). U.S. Auto contends that National Plan Administrators, Inc. v. National Health Insurance Co., 235 S.W.3d 695 (Tex. 2007), supports its argument that it does not owe a fiduciary duty to Lincoln. Although the Supreme Court of Texas in that case found no general fiduciary duty that would have governed the plan administrator’s marketing of policies to other insurers, it also recognized that the parties’ contract imposed specific fiduciary duties. Notably, those included duties relating to the handling of claims. Id. at 702– 03. The parties’ agreements in this case also are the source of the fiduciary duty we have recognized, and it is a specific one that that involves U.S. Auto’s 22 Case: 13-10589 Document: 00513046323 Page: 23 Date Filed: 05/18/2015 No. 13-10589 conduct in “accept[ing] and maintain[ing] at all times all premiums collected and other funds relating to the” policies. Because Lincoln’s breach of fiduciary duty claim against U.S. Auto relies on that specific duty governing management of funds and not a general one that would apply to all business activity, the grant of summary judgment on this claim is reversed.