Fiduciary Duty

A fiduciary duty exists when one party, the principal, entrusts another party, the fiduciary, to act on their behalf in some way. The fiduciary relationship must be a formal relationship between the two parties where there is a clear obligation of the fiduciary to act in good faith toward the interests of the principal. Most fiduciary obligations involve the careful management of money in some way; however, that is not always the case.

A fiduciary is legally required to exercise the highest good faith when acting in the interests of the principal; the behavior of the fiduciary must not include seeking any benefit or advantage from the relationship other than any fees or salary agreed upon in advance. The fiduciary must not intentionally misrepresent or conceal information from the principal even if the relationship is strained. The legal duties of a fiduciary are:

1. The Duty of Loyalty
2. The Duty of Obedience
3. The Duty of High Care
4. The Duty to Disclose All Key or Material Information

Many fiduciary relationships arise from contracts, but they can also be implied when one party has a reasonable expectation that the other party has an obligation of care. For example, stockbrokers have a fiduciary duty to properly manage their client’s accounts. That duty arose from a contract between the parties. On the other hand, employers have a fiduciary duty to manage their employees’ insurance policies and retirement accounts. Employees have a reasonable expectation that the employer will manage those accounts property, but doing so is not necessarily an element of an employment contract – it is implied.

Other examples might include corporate officers and directors and their fiduciary obligation to the shareholders. Partners and joint venture participants have fiduciary duties to the partnerships or joint ventures to act in the best interest of the group or entity. Parents also have fiduciary obligations to their children.

When a fiduciary fails to exercise necessary care toward the principal, there may be a claim for breach of fiduciary duty. In order to pursue a claim for breach of duty, the principal must be able to establish a few elements:

1. Demonstrate that there existed a formal relationship that could give rise to the duties
2. Demonstrate that the fiduciary duty existed
3. Demonstrate that the fiduciary duty has been breached
4. Demonstrate that the breach of duty caused you to suffer a loss (caused injury)

If you are able to establish these elements, you may be able to obtain recovery for your losses through a fiduciary liability claim.

Businesses in manufacturing face the threat of product liability claims, toxicity exposure claims and other torts brought by the public. A business may also be in need of defense counsel if an employee sues over a mistake made in a health benefits plan, which was implied to be the business’ fiduciary responsibility. For instance, if a clerical error on the part of your business leaves your worker without insurance, your business could be liable for the medical expenses plus attorney’s fees. In such a case, you want a strong defender on your side.