March 8, 2012

Court hands down decision limiting scope of insurance broker fiduciary duty.


On March 6, the Supreme Court of Missouri handed down an important decision in favor of Willkie client Marsh USA Inc., which significantly limits the liability of insurance brokers by restricting the scope of the fiduciary duties and duties of loyalty imposed on insurance brokers by virtue of their status as agents of the insured. In Emerson Electric Co v. Marsh & McLennan Companies, et al., the Missouri Supreme Court affirmed the favorable ruling Marsh received from the Missouri Court of Appeals. Willkie briefed and argued the appeal on behalf of Marsh.


In a lawsuit that was triggered by the investigation of certain practices in the insurance industry undertaken by former New York Attorney General Elliot Spitzer, Emerson sued Marsh, arguing that Marsh breached the fiduciary duty and duty of loyalty Marsh owed to Emerson (its client) by (i) receiving and failing to disclose its receipt of contingent commissions, (ii) receiving and failing to disclose interest it earned on the premiums Emerson paid to Marsh for transmittal to Emerson’s insurers, and (iii) by not obtaining the insurance requested by Emerson at the absolute lowest price. The trial court dismissed, and the Missouri Court of Appeals affirmed the dismissal, of these claims.

Supreme Court of Missouri Decision

The key holdings by the Supreme Court are as follows:

1)  The Missouri Legislature "clearly and unambiguously has held that [contingent commission] payments are authorized" and neither the receipt of such commissions nor the failure to disclose such commissions to an insured violates the fiduciary duty or duty of loyalty owed by an insurance broker.

2)  Insurance brokers may earn interest on the premiums they receive from an insured for transmittal to carriers, and insurance brokers have no duty – statutory or common law – to disclose or return such interest to insureds.

3)  While an insurance broker (by virtue of its status as an agent) owes the insured a duty of loyalty, the duty is limited to using reasonable care, skill, and diligence to procure the requested coverage. The Court agreed with Marsh’s position that "Emerson tries to take this concept too far when it argues that it includes a duty to obtain the lowest cost insurance that meets the insured’s needs" and, therefore, "[f]ailure to obtain the lowest possible cost insurance does not in itself violate … a duty of loyalty to the insured …."

The only piece of the case that now remains is an allegation that, although Marsh has no common law duty to obtain the least expensive insurance possible for Emerson, Marsh nevertheless voluntarily agreed to undertake that duty and then breached it by failing to obtain insurance "at the absolute lowest price." The Court noted, however, that it was remanding this portion of the case because the case was at the pleading stage and that, as Willkie argued, "the record ultimately may show that Marsh’s favorable contractual relationships with certain insurers allowed it to obtain more types of insurance, or more reasonably priced insurance" for its clients.

Partner Christopher St. Jeanos argued the appeal before the Supreme Court of Missouri. The brief was prepared by Mr. St. Jeanos, along with partner Deirdre Hykal and associates Jeffrey Williams and Lauren Verdirame.