A Duty to Offer Lowest Price Coverage?

The poor economy may push some clients to begin suing brokers who accept contingent commissions from insurers.

A lawsuit raising conflict-of-interest charges and claiming Marsh and McLennan had the obligation to find the cheapest coverage for its client may be just the first of many such allegations against brokers, legal experts said.

"You will see these charges more and more ... , " said Steven Plitt, an insurance-law expert at Kunz Plitt Hyland and Demlong in Phoenix. "Right now, because the economy is so bad, price has become much more important to everybody."

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Before the lawsuit, Emerson Electric Co. vs. Marsh and McLennan Cos., was settled, it went to the Supreme Court of Missouri, which remanded the case back to a lower court to determine whether Marsh's "receipt of the contingent commissions [for steering business to a particular insurer] caused Marsh to fail to act with reasonable care, skill and diligence in procuring insurance."

At the same time, the court ruled that receipt of contingent commissions is "not a breach of the duty of loyalty or other fiduciary duties owed to insureds" and rejected Emerson's "claim that brokers have an additional duty to findinsureds the lowest possible cost insurance available to meet their needs," according to the opinion.

The court also ruled that Marsh did not owe Emerson any interest from the temporary investment of premiums prior to payment to insurers.

Following the ruling, Marsh and Emerson settled the lawsuit on May 25, according to Marsh.

"The terms of the settlement are confidential. Marsh is pleased to have resolved the matter," according to a statement from the New York-based broker.

Emerson began using Marsh for insurance brokering to acquire excess liability, aircraft, international and other specialized insurance in 1987, according to court documents. In 2005, the St. Louis-based multinational sued Marsh claiming that Marsh's "desire to earn contingent commissions led it to place insurance with companies that did not offer the best rates." The lawsuit also sought damages from Marsh because Emerson did not receive the benefit of premium payments that were sent to Marsh and deposited into interest-bearing accounts prior to payment to the insurer.

Marsh sought summary judgment on the lawsuit, claiming it "did not have a duty to disclose such commissions;" that Missouri law did not require Marsh to find the lowest possible price "but rather imposes a duty to use reasonable skill, care and diligence in procuring insurance; and that it had no legal duty to pay interest on premiums.

The court ruled in Marsh's favor and dismissed the lawsuit. Emerson appealed and the Supreme Court of Missouri issued its decision in March.

Plitt said brokers should "just be very careful when you are talking to your clients that you are not telling them you got the cheapest coverage because that's a difficult burden for any agent to prove ... [and] may create legal obligations for yourself that might otherwise not exist. I think that is highlighted by the Emerson case."

--By Anne Freedman

October 1, 2012

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