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Click here for the full text of this decision FACTS:CRS Marketing Agency Inc. (CRS) began marketing individual insurance policies to school district employees in the late 1970s. Through the years, CRS developed its own policy forms and pricing structures. It marketed insurance through agents and earned override commissions on the sales. CRS also developed expertise in helping school districts administer insurance and other benefit plans by means of a common-remitter program. The CRS common-remitter program was offered through National Plan Administrators Inc. (NPA), a corporation wholly owned by CRS. The common-remitter program allowed NPA to offer multiple products to an employer and allowed the employer to offer insurance products and fringe benefits to employees with minimal administrative difficulties. The common-remitter program also allowed NPA and CRS to develop relationships with employers, which helped its marketing efforts. In the late 1980s and early 1990s, CRS marketed cancer policies underwritten by American Heritage Life Insurance Co. The relationship between American Heritage and CRS became strained, in part, because some of the independent agents that CRS approached to market the cancer policies were contracting directly with American Heritage and depriving CRS of commissions. In early 1995, CRS and National Health Insurance Co. Inc. began discussing the possibility of National Health underwriting CRS’ cancer policies. Scott Smith, president and CEO of National Health at the time the agreement with NPA was executed and through the time frame relevant to the suit, told Clyde Sommerlatte, the owner of CRS, he was opposed to rolling American Heritage policies to National Health. Rolling of policies was described as a process by which a great number of individual policies in force are effectively transferred or rolled from one insurer to another by way of an agent or marketer presenting the new insurer’s product and recommending to an employer and insured employees that the existing policies be rewritten with the new insurer. The rolling process can result in less-desirable insureds, such as those with open claims, remaining with the original carrier while other, lower-risk insureds become policyholders with the new carrier. In the negotiations between NPA and National Health, Sommerlatte made it clear that he wanted CRS products to be sold only through CRS. Negotiations leading up to the contract lasted several months and were conducted at arms length. Both parties received the advice of counsel. National Health and NPA eventually executed an Administrative, Compensation and Claim Service Agreement. The agreement provided that CRS-developed insurance products would be marketed exclusively through NPA. The agreement also stated that NPA “shall act as an independent contractor in the performance of responsibilities formed under this agreement, and that [NPA's] services are not exclusive to National Health and that [NPA] will provide services to third parties.” The rolling practice was not addressed in the agreement. After execution of the agreement in 1995, NPA began administering, and CRS began marketing, cancer policies underwritten by National Health. In 1997, NPA also began administering cancer policies for Hartford Life Insurance Co. The Hartford policies were policies similar to the policies CRS marketed for National Health, but they were not sold to school district employees through the schools. In May 1999, unbeknownst to National Health, NPA and Hartford discussed rolling cancer policies underwritten by both National Health and American Heritage to Hartford. In July 1999, National Health informed NPA that it was going to discontinue underwriting CRS-marketed cancer policies and that National Health had found a buyer to purchase the existing policies (referred to by the parties as a “book of business”). The potential buyer would administer the policies itself instead of using NPA’s services. National Health gave NPA 90 days to find a buyer for the National Health book of business that would allow NPA to continue as administrator. NPA approached Hartford about purchasing National Health’s entire cancer policy book of business. In order for Hartford to evaluate the offer, NPA sent Hartford what National Health contends was confidential information as to National Health’s policyholders and premiums. Hartford ultimately declined to purchase National Health’s entire cancer policy book of business but agreed to offer replacement policies to National Health insureds without requiring evidence of insurability so long as the insureds were “actively at work.” Ultimately, most National Health policies were replaced by Hartford policies. Within a short time in the fall of 1999, the number of NPA-administered National Health policies dropped from approximately 7,000 to approximately 500. The policies of most National Health insureds who were not actively at work remained with National Health; most insureds actively at work switched to Hartford. National Health sued NPA, CRS and Hartford. The claims against NPA and CRS included breach of contract, breach of fiduciary duty, fraud, fraudulent inducement, “unfair or deceptive act or practice,” misappropriation of trade secrets and negligent misrepresentation. At trial, the breach of fiduciary duty claim was submitted as follows: “Did NPA fail to comply with its fiduciary duty to [National Health]? “You are hereby instructed that, in its role as [National Health's] third-party administrator, NPA owed National Health a fiduciary duty. To prove that it complied with its duty, NPA must show that: “a. The transaction(s) in question were fair and equitable to [National Health]; “b. NPA made reasonable use of the confidence that [National Health] placed in NPA; “c. NPA acted in the utmost good faith and exercised to the utmost scrupulous honesty toward [National Health]; “d. NPA placed the interests of [National Health] before its own, did not use the advantage of its position to gain any benefit for itself at the expense of [National Health], and did not place itself in any position where its self-interest might conflict with its obligations as a fiduciary; and “e. NPA fully and fairly disclosed all important information to [National Health] concerning NPA’s role as third-party administrator for [National Health].” The trial court instructed the jury to answer yes or no. NPA objected in part to this submission on the basis that the question and instructions inquired about a general fiduciary duty when NPA did not owe such a duty to National Health. The trial court overruled NPA’s objection. The jury answered “Yes” and found National Health’s damages were $744,937. The jury also found malice and assessed $100,000 in punitive damages. Based on a jury finding that NPA and CRS were a single business entity, the trial court entered judgment against NPA and CRS jointly and severally for actual and punitive damages. NPA and CRS appealed. The 3rd Court of Appeals affirmed. The 3rd Court concluded that NPA owed a general fiduciary duty to National Health. The 3rd Court also concluded that the single-business enterprise theory was a valid means of piercing the corporate veil to impose liability on CRS. NPA and CRS filed petitions for review with the Texas Supreme Court. HOLDING:Reversed and rendered. The court held that the Texas Insurance Code does not create a general fiduciary duty applicable to third-party administrators. The Legislature, the court noted, clearly and specifically addressed certain fiduciary duties in the code, yet it did not impose a general fiduciary duty on agents in general or on third-party administrators. And in declining to expand the meaning of statutes by implication, the court also held that the general structure of the code does not create such a duty. The court next considered whether NPA had a general fiduciary duty under the common law. NPA asserted that any fiduciary duties were limited by the parties’ agreement. NPA, the court stated, could have breached a general fiduciary duty owed to National Health by NPA’s act of marketing policies for another insurance company without first submitting the applications to National Health, if the policies were similar to those underwritten by National Health and if sales of the policies produced premiums for other insurers. But National Health did not contract for such actions on behalf of NPA. The detailed agreement, the court stated, specified just the opposite: that NPA was an independent contractor whose activities in administering and marketing insurance products were not exclusive to National Health. Thus, the court declined to impose a general fiduciary duty on NPA when the parties expressly agreed that NPA could take actions that would be in violation of such a duty. Because NPA did not owe National Health a general fiduciary duty, the court stated that the question and the jury’s answer regarding breach of fiduciary duty were immaterial and could not support a judgment. Accordingly, the court reversed the judgment of the 3rd Court and rendered judgment that National Health take nothing from NPA. OPINION:Johnson, J., delivered the opinion of the court.

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