# Daly v. New York Life Insurance Company

> District Court, S.D. Ohio · September 30, 2019

URL: https://www.frixlaw.com/law-library/cases/10373992

## Case

- **Court:** District Court, S.D. Ohio
- **Decided:** September 30, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10373992

## How later opinions describe it (automated extraction)

- explaining that under Ohio law, a party cannot unilaterally elevate a relationship to a fiduciary level

## Opinion text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

Michael P. Daly,

Plaintiff, Case No. 1:12cv125

v. Judge Michael R. Barrett

New York Life Ins. Co.,

Defendant.

FINAL JUDGMENT & ORDER

This matter came on for a Bench Trial on August 7, 2018, August 8, 2018 and
August 9, 2018 and, thereafter, the parties filed their Proposed Findings of Facts and
Conclusions of Law. (Docs. 101, 102).
I. BACKGROUND
Plaintiff Michael Daly became an insurance agent for Defendant New York Life
Insurance Company in 1988. (Doc. 96, Day 1 of Bench Trial, Tr. 80). New York Life is a
mutual insurance company, which means that it is owned by its 3 to 4 million
policyholders. (Doc. 96, Tr. 214). As an independent contractor, Plaintiff was able to sell
Defendant’s life insurance in addition to insurance policies written by other companies.
(Doc. 97, Day 2 of Bench Trial, Tr. 67). Initially, Daly focused on selling New York Life
whole life insurance policies to business owners and high net worth individuals. (Doc. 96,
Tr. 80; Doc. 97, Tr. 33). Between 1992 and 2011, Daly was one of New York Life’s top-
producing agents. (Doc. 96, Tr. 80-82). During this time, Daly performed at the
Chairman’s Council level, which consists of the 250 top-producing agents for the previous
year. (Doc. 96, Tr. 80). Daly was named Council President in 2005. (Doc. 98, Day Three,
Tr. 7-8). As a result of this success, Daly was invited to attend and participate in various
“council” meetings and to sit on New York Life’s Advisory Board of Directors (“ABD”).
(Doc. 96, Tr. 80, 91). The ABD is comprised of past Council Presidents that are
performing at the Chairman's Council level. (Doc. 96, Tr. 91). The ABD averaged about

sixteen agents. (Doc. 96, Tr. 91). Ted Mathas, New York Life’s CEO, testified that he
“regularly” interacts with top agents on the Chairman’s Council, President’s Council,
Executive Council, and Advisory Board of Directors. (Doc. 97, Tr. 69-70). Mathas
explained that agents will often visit him in his office in New York, call him or email him.
(Doc. 97, Tr. 70). Mathas explained that it was not uncommon for him to reach out to
agents like Daly and invite dialogue. (Doc. 97, Tr. 84). In turn, because of his status,
Daly did not follow the usual chain of command, and had access to New York Life’s top
executives when he needed it. (Doc. 96, Tr. 91-92).
In 2002, Daly discovered an opportunity for selling New York Life insurance
products to credit unions. (Doc. 96, Tr. 82). Daly studied the regulations which applied

to credit unions along with the applicable IRS regulations. (Doc. 96, Tr. 83). Daly then
began developing the concept of a single-premium whole life insurance product which
permitted a credit union to invest money through a “paid up additions rider” without
incurring a tax penalty. (Doc. 96, Tr. 111-112, 147). This rider to the whole life policy is
called the Option to Purchase Paid Up Additions (“OPP Rider”). (Doc. 96, Tr. 147). It
allows policy owners to purchase additional insurance above the death benefit of the base
whole life policy by paying additional premiums (“OPP premiums”). (Id.) Because of their
tax status as nonprofit institutions, credit unions were able to deposit large amounts into
the OPP Rider to take advantage of above-market, guaranteed minimum rates of return
without the risk of penalties or adverse tax consequences if they later decided to withdraw
cash values. (Id.) Daly worked with New York Life’s top management to develop and
approval of the OPP Rider concept. (Doc. 96, Tr. 83-84, 92). Once it was approved by
credit union regulators, Daly began selling the product in 2003. (Doc. 96, Tr. 84-88). As

Daly’s credit union business grew, he began to focus on selling to credit unions. (Doc.
96, Tr. 89). Between 2003 and 2011, there was explosive growth in the use of New York
Life’s OPP Riders. (Plaintiff’s Ex. 83, NYL 27819). Daly’s credit union customers used
the OPP Rider to “dump in” premiums that were often 100 times greater than the annual
base premium, or a 100:1 ratio. (Doc. 96, Tr. 114).
In late 2010, New York Life’s senior management began to scrutinize more closely
the dramatic growth in single premium business. (Doc. 97, Tr. 93-94). Mathas explained
that he started to have some concerns about “the risk profile of that business” because
of its “unusual liquidity features vis-à-vis our other products, meaning that it really was
money that you could put it in and take it out pretty quickly.” (Doc. 97, Tr. 94, 97). Mathas

shared his concerns with the New York Life’s Board of Directors during their November
2010 board meeting. (Doc. 97, Tr. 96-97). Mathas’ main concerns were “portfolio drag”
and “shock lapse.”
Portfolio drag referred to the nature of the investments in New York Life’s portfolio.
(Doc. 97, Tr. 111). Mathas explained that because interest rates had declined historically,
the new money which was brought in by premiums is invested at a rate lower than the
rate of the existing portfolio. (Id.) Even though they were only small part of New York
Life’s overall portfolio, Mathas questioned the wisdom of bringing in credit union OPP
rider premiums: “Why on Earth would you want to even take one penny away from all the
other millions of policyholders who are paying their life insurance premiums to protect
their families to write business that has a financial risk profile that’s questionable?” (Doc.
97, Tr. 207).
Shock lapse refers to the risk of a sudden cash value surrender if interest rates

were to rise in the future and OPP policyholders withdrew their money. (Doc. 97, Tr. 107).
Mathas explained that if there were mass withdraws, the company would be forced to sell
its bonds at a loss to pay the cash surrender values. (Doc. 97, Tr. 107).
Mathas also became concerned about the number of agents doing this type of
business. (Doc. 97, Tr. 104). Mathas eventually learned that between January 1, 2010
and July 31, 2011, 1600 agents had sold a single-premium policy with ratios of more than
ten-to-one and 458 agents had sold policies which were a hundred-to-one. (Doc. 97, Tr.
103). While Daly accounted for a disproportionate share of the OPP premiums brought
in during this time, 70 percent of the total premiums were brought in by other agents.
(Doc. 97, Tr. 110). Mathas understood that these changes would have an effect on the

income and opportunities for agents. (Doc. 97, Tr. 114). However, Mathas knew that “if
we didn't take action soon, it would even have a bigger impact on their income. The more
agents that were doing it and the more they were doing this, the more they were
establishing a cause of a problem.” (Doc. 97, Tr. 114). Mathas also understood that the
changes meant the company would be turning away hundreds of millions of dollars in
OPP premiums. (Doc. 97, Tr. 120).
Daly was concerned that these changes would hurt his own business. In April of
2010, Daly sent an email requesting a “brief phone call” with Mathas and Mark Pfaff, who
was Executive Vice President in charge of New York Life’s Agency Department.
(Plaintiff’s Ex. 36). Daly explained:
I do not have a New York Life Product that is viable after June 9. I am going
to copy you on what send to your guys. I need to expand my supplier
network for the first time in my career. I am OK with that and want you to
be as well. Life Product thinking seems very out of touch. This is sent from
my private email that see right away.

Thanks...Mike

(Id.) Daly also believed that any concerns regarding shock lapse were overstated. Daly
explained that his credit union customers had a persistency rate of almost 100 percent
because of the high level of service he provided. (Doc. 96, Tr. 130, 136).
Daly was able to provide input regarding the changes to the OPP policies. An
email dated April 22, 2010 shows that “in response to some feedback we received from
Mike Daly,” analysts for New York Life developed a solution for the OPP policies “that
both resolved our financial issue and better meets the needs of Mike and his clients.”
(Plaintiff’s Ex. 40). In an email dated September 12, 2010, Pfaff commented: “You’ve
handled Daly’s concerns perfectly. Let’s keep him dialed in as we bring this home.
Perhaps he can be our spokesperson for the roll-out.” (Plaintiff’s Ex. 70). In addition,
Daly was provided with pre-release access to policy illustrations with the new pricing so
his business would avoid any interruption. (Plaintiff’s Ex. 74).
At some point in November of 2010, Mathas began formulating the idea that the
OPP premium ratio should be 10:1. (Doc. 97, Tr. 98, 103). Pfaff’s notes from meetings
held on November 9, 2010 show there was a recognition that a 10:1 ratio limit on single
premium policies would “cut off Daly bus[iness]” and a “10:1 limit . . . kills Daly.” (Plaintiff’s
Exs. 95, 105). However, this change was not implemented at this time. Instead, different
changes to pricing and commissions on the OPP policies were made and announced on
November 19, 2010. (Doc. 96, Tr. 138-139). Daly was granted a special exception which
allowed him additional time to submit applications for OPP policies. (Doc. 96, Tr. 133).
As a result, Daly brought in $123 million in additional OPP premiums under the previous
price structure, along with the corresponding commission on that amount. (Doc. 97, Tr.

9).
In the spring of 2011, New York Life created an OPP Pricing Committee to
determine what steps could be taken to reduce the risks associated with large OPP dump-
ins. Daly served on the OPP Pricing Committee. (Doc. 98, Tr. at 98-99). The Committee
developed a plan which was to go in place September 1st. (Doc. 97, Tr. 45). However,
according to Mathas, changes in the financial markets and a drop in interest rates in
August of 2011 created a sense of urgency. (Doc. 97, Tr. 100-101). On August 17, 2011,
Mathas approved the implementation of new limitations on the acceptance of OPP
premiums: (a) effective immediately, OPP dump-ins would be limited to $2 million per
decision-maker; and (b) for premiums received on or after September 1, 2011, OPP

dump-ins could not exceed ten times the standard annual base premium for the
underlying whole life insurance policy. (Defendant Ex. 36, at NYL 7045). On August 18,
2011, these changes were explained to Daly and a few other high-performing agents in
a telephone conference with New York Life executives. (Doc. 96, at 162). As a result,
according to Daly, the plan developed by the OPP Pricing Committee “got vetoed on
August 10, that ten months of work, which is Ted's prerogative to veto it. Basically they
threw out all the work of the OPP Committee, and he said, ‘We’re done now.’” (Doc. 97,
Tr. 45-46). However, Daly was permitted exceptions and an extension which allowed him
to receive another $700,000 in commissions above what he would have earned. (Doc.
97, at 38).
After this Court’s ruling on New York Life’s dispositive motions, the only claims
remaining for bench trial were breach of fiduciary duty and defamation. Daly dismissed
his claim for defamation at trial. Therefore, the only claim for this Court to decide is Daly’s

claim for breach of fiduciary duty under Ohio law.
I. ANALYSIS
New York Life argues that Daly failed to establish that there was a fiduciary
relationship or duty between itself and Daly.
The Ohio Supreme Court has defined the term “fiduciary relationship” as one “in
which special confidence and trust is reposed in the integrity and fidelity of another and
there is a resulting position of superiority or influence, acquired by virtue of this special
trust.” Hope Acad. Broadway Campus v. White Hat Mgt., L.L.C., 145 Ohio St. 3d 29, 40-
41, 46 N.E.3d 665, 676 (Ohio 2015) (quoting In re Termination of Emp. of Pratt, 40 Ohio
St.2d 107, 115, 321 N.E.2d 603 (1974)). In determining whether a fiduciary relationship

has been created, “the main question is whether a party agreed to act primarily for the
benefit of another in matters connected with its undertaking.” Id. (citing Strock v.
Pressnell, 38 Ohio St.3d 207, 216, 527 N.E.2d 1235 (Ohio 1988)).
Daly argues that a fiduciary relationship arose out of an informal relationship
between himself and New York Life. While a fiduciary relationship may be created out of
an informal relationship, “this is done only when both parties understand that a special
trust or confidence has been reposed.” Umbaugh Pole Bldg. Co. v. Scott, 58 Ohio St. 2d
282, 286, 390 N.E.2d 320, 323 (Ohio 1979); see also Pasqualetti v. Kia Motors Am., Inc.,
663 F. Supp. 2d 586, 598 (N.D. Ohio 2009) (explaining that under Ohio law, a party cannot
unilaterally elevate a relationship to a fiduciary level).
Daly maintains that trust and confidence existed as a result of the strategic
partnership formed between himself and New York Life. Daly cites the frequent one-on-
one contact between New York Life’s top executives and Daly. Daly points out that New

York Life sought his opinions and placed special trust and confidence in him because of
his superior knowledge and expertise on various issues, especially when it came to selling
policies to credit unions. Daly points out that although he was permitted to sell competing
life insurance products, he was dedicated to New York Life. Daly explains that after
fostering Daly’s idea, encouraging the transition of his agency to all credit union clients,
promoting his investment in that agency, partnering with him to price the OPP product in
2010, promising him a voice in the design of the 2011 version, and committing to make
the new product compatible with his business, Mathas “killed” his business without even
talking to him.
However, at trial, Mathas was asked: “Was there anything in your view that was

unique about your level or frequency of interaction with Mr. Daly as compared to other
high-performing agents?” (Doc. 97, Tr. 71). Mathas responded: “As compared to other
high-performing agents and members of the Advisory Board of Directors, no.” (Doc. 97,
Tr. 71). In addition, Daly does not dispute that New York Life had the right to make
prospective changes to its product offerings, including new OPP business after
September 1, 2011. (Doc. 96, Tr. 195-96). When it came to these changes, Mathas
explained that “I wasn't even thinking about Mike Daly at this time. I was thinking about
how I needed to manage this situation to do the right thing for our current and our future
policyholders for generations to come.” (Doc. 97, Tr. 122). Daly agreed that when it
came to economic interests, the policyholders came first. (Doc. 96, Tr. 216).
As a general rule, a fiduciary relationship does not exist between parties
negotiating an arm’s-length commercial transaction. Blon v. Bank One, Akron, N.A., 35
Ohio St.3d 98, 101, 519 N.E.2d 363, 367 (Ohio 1988). The Ohio Supreme Court has

explained: “in business transactions where parties deal at arm's length, each party is
presumed to have the opportunity to ascertain relevant facts available to others similarly
situated and, therefore, neither party has a duty to disclose material information to the
other.” Id.
The Ohio Supreme Court has also held that merely giving advice to another does
not create a fiduciary relationship. Umbaugh, 58 Ohio St. 2d at 282, 390 N.E.2d at 323.
Even though one party to a commercial relationship may “wish for the . . . success” of the
other party and “furnish [the other party] with advice in a congenial atmosphere in a
sincere effort to help [the other party] prosper,” this does not give rise to a fiduciary duty.
Palmer-Donavin Mfg. Co. v. Rheem Sales Co., No. 2:14-CV-91, 2014 WL 2767665, at *6

(S.D. Ohio June 18, 2014) (quoting Umbaugh, 58 Ohio St. 2d at 282, 390 N.E.2d at 323).
This case involves arms-length transactions between two parties in a commercial
relationship. While advice and counseling were exchanged between New York Life and
Daly, this did not vitiate the commercial relationship because neither party had, nor could
have had, a reasonable expectation that one would act solely or primarily on behalf of the
other. See Umbaugh, 58 Ohio St. 2d at 282, 390 N.E.2d 320 at 323. It was not
reasonable for Daly to expect that New York Life would act primarily on his behalf. While
Daly disagreed with the changes New York Life made to the OPP products, Daly
acknowledged that when it came to protecting economic interests, New York Life was
required to put the policyholders first. Similarly, New York Life did not have a reasonable
expectation that Daly would act primarily on its behalf. New York Life was certainly aware
that Daly could take his customers elsewhere. Mathas testified at trial that he had a
concern that Daly would leave New York Life for another company. (Doc. 97, Tr. 157).

Even though Daly’s success was linked to New York Life’s success (and vice-versa), that
does not mean that New York Life had a duty to subordinate its own interests to Daly’s
interests or act “primarily for the benefit” of Daly. See Palmer-Donavin, 2014 WL
2767665, at *6. Moreover, any internal discussions of how the limits on OPP business
would have an effect on Daly, is not the same as deciding to limit OPP business in order
to “kill” Daly’s business. As Pfaff testified at trial:
Mike and I have been around for a long time. Products change, tax laws
change, underwriting changes. The business changes all the time. It
doesn’t take people out of business.

You adjust, and you move on. . . . Did I think [the changes made in 2011
were] going to change the sales process he was making? Absolutely. But
Mike’s a pro. What I assumed [he] would do is he would pivot, just as the
other people who are selling this product have pivoted since we made the
changes.

Q. Are there other agents who make seven-figure incomes selling whole life
insurance to clients other than credit unions?

A. Absolutely.

Q. Was there anything you knew about Mr. Daly or the business in 2011
that led you to believe Mr. Daly would not do that as his next step?

A. No. I knew him to be a successful agent before this sales process had
been put into place. That was a market that he was working, and the needs
of that market still existed along those lines.

(Doc. 98, Tr. 52-53).
Based on the record presented at trial, the Court concludes that there was not a
fiduciary relationship or duty between New York Life and Daly.
II. CONCLUSION
Based on the foregoing, Defendant New York Life Insurance Company is entitled
to judgment in its favor on Plaintiff Michael Daly’s claim for breach of fiduciary duty. There

being no other matters pending before this Court, this case is CLOSED and
TERMINATED from the active docket of this Court.
IT IS SO ORDERED.
/s/ Michael R. Barrett
JUDGE MICHAEL R. BARRETT

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10373992. Public record. Not legal advice.