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Lawsuit Claiming “Kickbacks” Breached Fiduciary Duty Transferred to Missouri Supreme Court

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Case law in Missouri

Missouri Court of Appeals discusses duty of loyalty in insurance procurement cases

By Geri L. Dreiling, Esq.

A suit filed by St. Louis-based Emerson Electric against Marsh & McLennan Companies alleging the insurance brokerage made recommendations based on “kickbacks” and retained the interest earned on invested premium payments has been transferred Missouri Supreme Court.

Emerson claimed Marsh & McLennan breached its fiduciary duty by failing to disclose contingent commissions, that the contingent commissions caused an inflated premium and by investing insurance premiums.

The trial court disagreed.

In entering a judgment for Marsh & McLennan on the pleadings, St. Louis Circuit Judge Robert H. Dierker Jr. concluded that the parties lacked a fiduciary relationship beyond the broker’s responsibility to procure insurance in accordance with the client’s wishes.

On Sept. 6, in Emerson Electric Co. v. Marsh & McLennan Companies, the Missouri Court of Appeals, Eastern District affirmed in part, reversed in part and remanded the case.

St. Louis lawyers Mark G. Arnold, Dorothy White-Coleman and Susie McFarlind represented Emerson Electric. Kevin F. Hormuth and David P. Niemeier represented Marsh & McLennan.

Missouri Law on Duty of Loyalty

Writing for the Missouri Court of Appeals, Judge Gary M. Gaertner Jr., noted that Missouri courts have limited the scope of fiduciary duty in procurement contract cases so that the duty of care, skill and diligence ends when the insurance is procured.

However, a limited duty isn’t synonymous with exclusive duty.

Gaertner writes:

While Missouri courts have discussed in detail their reasoning for finding these limitations on the fiduciary duty of care, skill, and diligence in procuring insurance, there is scant discussion of whether this duty is the exclusive fiduciary duty insurance brokers owe their clients.

The Court examined whether a duty of loyalty, which has been defined as exercising the highest degree of honesty and loyalty, exists alongside the limited fiduciary duty of care. Gaertner notes that Missouri has adopted the Restatement (Second) of Agency which describes a duty of loyalty.

Further, the insurance broker-client relationship is an agency relationship. Missouri courts have found a duty of loyalty in other agency relationships. Travel agents and real estate brokers have been found to owe a duty of loyalty.

Gaertner writes:

Therefore, because of our Supreme Court’s use of fiduciary and agency language regarding insurance brokers, our state’s general agency principles which maintain that a duty of loyalty is intrinsic in any fiduciary relationship, the lack of conflict with our stated policies regarding insurance sales, and our view of similar agency relationships in Missouri; we conclude that a duty of loyalty is inherent in an insurance broker’s present fiduciary duties as agent for the insured.

Contingent Commissions

Citing Section 375.116 RSMo., which specifically allows insurance brokers to receive contingent commission, the Court rejected Emerson’s first argument and denied the first point.

With respect to Emerson’s argument that the contingent commissions caused it to pay inflated premiums, Gaertner writes:

Because this case resolved at the pleadings stage, we have no factual record from which to discern whether Emerson could have paid a lower price if Marsh did not have arrangements with the insurance companies to receive contingent commissions.  We also are unable to review the brokerage agreement between Marsh and Emerson, or the placement service agreements between Marsh and the insurance companies, as they were not part of the record.

Because the record was not insufficient and all reasonable inferences must be given to Emerson, the Court granted the second point.

Premium Interest

In denying the final point, Gaertner relied upon Missouri statutory provisions also cited by the lower court. Section 375.051.1 and 375.051.2 RSMo., when read together, “make it clear that insurance producers, including agents or brokers…can collect premiums on behalf of either the insurance company or the insured.”

Moreover, because the insurance company had no fiduciary duty beyond procuring the insurance and forwarding the premiums to the insurance companies, there was no breach.

Missouri Supreme Court Transfer

The Missouri Court of Appeals concluded that the question of whether “the fiduciary relationship between an insurance broker and a client includes a duty of loyalty” is an important one for the state of Missouri and transferred the matter to the Missouri Supreme Court.

With respect to the trial court’s ruling, the Missouri Court of Appeals affirmed it in part, reversed it in part and remanded the case.