by John Darer
The question of whether insurance brokers are required to obtain the lowest cost insurance that meets the insured’s needs was recently addressed by the Missouri Supreme Court in the case of Emerson Electric Co. v. Marsh & McLennan Cos., 362 S.W.3d 7 (Mo. 2012).
Emerson alleged that
- Marsh attempted to steer the business to a few insurers that agreed to pay Marsh extra volume based contingent commissions.
- Marsh had breached its duty of loyalty to Emerson by not purchasing the lowest cost insurance that met Emerson’s needs because Marsh steered business to secure the alleged “contingent commissions” from the insurers involved with the ultimate placement
The Missouri Supreme Court found that:
- while Marsh owed Emerson a duty of loyalty, the duty of loyalty DID NOT include a duty to obtain the lowest cost insurance that met the insured’s needs absent a specific agreement to do so.
- the broker's duty of loyalty to the client does not require them to disclose contingent commissions to its insured.
- the broker still has a fiduciary duty to use reasonable care, skill and diligence in procuring insurance. Failure of that fiduciary duty would be legally actionable, not because it represented a breach of the duty of loyalty but because it would constitute a failure to exercise the degree of care required in procuring a policy for the insured generally
Insurance Journal carries the story here
How if anything does this decision impact the conduct of brokers of structured settlements in the primary and secondary structured settlement market?
Primary structured settlement market
Arguably the story of Executive Life Insurance Company of New York is a good example of where the "best price" [and lack of diversification] ultimately proved to not necessarily be the best thing for the insured (annuitant), regardless of whether the advocate for best price was the structured settlement broker, the plaintiff attorney, the plaintiff themselves, or the insurer.
Secondary structured settlement market
Do the same legal principles law even apply, even though some loosely use the term "annuity" "structured settlement" and "broker" when they are talking about structured settlement payment rights? A number of individuals or entities operating in the structured settlement factoring space claim to be able to get the best price. The question is the best price for sellers or best price for investors and what. if any duties are created. What is the consumer's or investor's expectation
Consider that New Leaf Structured Settlements, a factoring company that advertises 'Home Of the Best Price & Fast Funding Guarantees" but the fine print states the following:
*Customer must request Guarantees in writing from Company (New Leaf) prior to the execution of the contract to sell future structured settlement annuity payments and Company will provide both guarantees in writing as part of the transactional documents selling future structured settlement payments for a lump sum of cash. We make these offers as part of our unwavering commitment to be the best purchaser of structured settlement annuity payments. (emphasis ours)
This seems to acknowledge the issues raised in the Emerson case.