Emerson Elec. Co. v. Marsh & McLennan Cos., SC 92026.

• Decision Date: 06 March 2012
• Docket Number: No. SC 92026.,SC 92026.
• Citation: 362 S.W.3d 7
• Court: Missouri Supreme Court
• Parties: EMERSON ELECTRIC CO., Appellant, v. MARSH & McLENNAN COMPANIES, et al., Respondents.

362 S.W.3d 7

EMERSON ELECTRIC CO., Appellant,

v.MARSH & McLENNAN COMPANIES, et al., Respondents.

No. SC 92026.

Supreme Court of Missouri, En Banc.

March 6, 2012.

Mark G. Arnold, Husch Blackwell LLP, Dorothy White–Coleman, Susie McFarlind, White Coleman & Associates LLC, St. Louis, John C. Cabaniss, Cabaniss Law, Randall D. Crocker, Thomas Armstrong, von Briesen & Roper SC, Milwaukee, for Emerson.

Christopher J. St. Jeanos, Willkie Farr & Gallagher LLP, New York, Kevin F. Hormuth, David P. Niemeier, Greensfelder Hemker & Gale PC, St. Louis, for Marsh.

LAURA DENVIR STITH, Judge.

Emerson Electric Company appeals the circuit court's grant of judgment on the pleadings to Marsh USA Inc., Marsh & McLennan Companies Inc., Marsh Inc. and Joseph E. Lampen (collectively “Marsh”) on Emerson's claims that Marsh violated a fiduciary duty of loyalty to Emerson by not disclosing that Marsh received contingent commissions from insurers for directing Emerson's business to them and that Marsh kept all interest earned on the premiums Emerson sent it between the time Marsh received them and the time they were forwarded to the relevant insurers. In addition, Emerson argues that Marsh breached a duty to find it the least costly policy possible, in part due to the commissions and interest income it received.

As discussed below, it is settled law that when a broker is acting as the agent of an insured, it has a fiduciary duty to perform its duties with reasonable care, skill and diligence. This Court agrees that this necessarily includes a duty of loyalty to the insured during the scope and course of that agency. But the scope of the agency, and hence of the duty, of a broker to an insured is limited. While a broker has a duty to act with reasonable care, skill and diligence in procuring insurance, Missouri long has held that a broker has no duty to advise the insured about what insurance he needs or what insurance to buy unless it specifically undertakes to do so. This Court, therefore, rejects Emerson's claim that brokers have an additional duty to find insureds the lowest possible cost insurance available to meet their needs.

Brokers are independent agents, not employees, who are paid by commission. Their receipt of such commissions is not a breach of the duty of loyalty or other fiduciary duties owed to insureds. Whether Emerson is correct that a broker's additional receipt of undisclosed contingent commissions for steering business to a particular insurer breaches a common law duty to the insured is not reached by this Court, for Missouri statutes specifically authorize a broker to receive commissions from the insurer, without distinguishing between types of commissions. § 375.116, RSMo 2000.¹ Emerson cites no authority requiring disclosure by a broker of statutorily authorized payments or other aspects of its financial arrangements with an insurer.

Similarly, section 375.051 ² anticipates that a broker will deposit premiums in an account pending their payment to the insurer or refund to the insured. It makes the broker a fiduciary as to the funds deposited but does not require the broker to segregate the premiums from its other funds, nor does it set out any obligations as to interest on the premiums. Indeed, in the absence of a contrary agreement, a broker's duty to the insured normally ends once it has procured insurance, and it holds any premiums for the benefit of the insurer, not the insured. Emerson cites no authority holding that a broker has a duty to pay interest on premiums to the insured or to disclose to the insured that it receives such interest.

Nonetheless, this Court finds that the trial court erred by dismissing the petition because it cannot be said as a matter of law that Emerson cannot recover on one or more of its claims. While Emerson nowhere alleges fraud or misrepresentation, if its petition is read very broadly, it does allege that receipt of the contingent commissions caused Marsh to fail to act with reasonable care, skill and diligence in procuring insurance. This states a claim for relief. Similarly, the scope of a broker's duty may vary depending on its agreement with the insured and the relationship between the parties. To the extent that the petition alleges that Marsh undertook duties in addition to those imposed by law, its failure to fulfill them may be actionable. Here, because judgment was granted on the pleadings, the record is insufficient to determine whether, based on agreements governing the scope of their more than 20–year relationship as broker and agent, such a duty arose. Accordingly, the judgment of the trial court is reversed, and the case is remanded.

I. FACTUAL AND PROCEDURAL BACKGROUND

Emerson's pleadings, which are taken as true for the purposes of this appeal, assert that Marsh is the largest insurance broker in the world, providing advice concerning and facilitating the purchase of appropriate insurance for the diverse risks faced by its clients around the world. Emerson is a multinational industrial company that designs, manufactures and sells a variety of products worldwide. Emerson has utilized Marsh's insurance brokering services to acquire excess liability, aircraft, international and other specialized insurance since 1987.

The record does not reveal whether the parties operated under a written or oral agreement or a combination of both. It does reveal that, in the course of their relationship as broker and insured, Emerson paid Marsh to place particular types of insurance with insurers to meet a variety of Emerson's insurance needs. According to Emerson, Marsh steered its business to a few insurers that agreed to pay Marsh extra commissions, the amount of which was contingent on the amount of business Marsh had sent the insurers.

In addition to seeking advice from Marsh, Emerson would pay its insurance premiums to Marsh. Marsh then would remit those premiums to the insurer who had agreed to issue a policy to Emerson and would provide Emerson with the policy. During some or all of the period of time between when Marsh received the premiums and it forwarded them to the relevant insurer, it would deposit the premiums in an interest-bearing account. The record does not reveal why Emerson paid the premiums at the times it did, whether they were held for days, weeks or months, or the amount of interest Marsh received. Nor does it reveal whether Marsh directly told Emerson that it earns interest on its premiums, although Marsh's public filings disclosed that it earns such interest on its premium accounts.

In 2005, Emerson sued Marsh in the St. Louis circuit court ³ asserting that Marsh's desire to earn contingent commissions led it to place insurance with companies that did not offer the best rates. Emerson alleged that this practice, as well as Marsh's undisclosed deposit of premiums in an interest-bearing account before forwarding them to insurers, amounted to self-dealing, which violated a fiduciary duty of loyalty it owed Emerson when acting in the scope and course of its duties as Emerson's broker.

Emerson also alleged that accepting contingent commissions violated Marsh's duty to exercise reasonable skill, care and diligence to obtain insurance that met its needs at the lowest possible price, as these practices must have increased the cost of its premiums. It further alleges that even if insurance brokers do not have a general duty to obtain the lowest possible cost insurance, Marsh agreed to do so but failed in that duty.

In June 2010, Marsh filed a motion for judgment on the pleadings claiming that it did not breach any duties it owed to Emerson because: (1) section 375.116 allows insurance brokers to accept commissions—contingent or otherwise—from insurers without disclosing such commissions to insureds and, as a result, Marsh did not have a duty to disclose such commissions to Emerson; (2) Missouri law does not require an insurance broker such as Marsh to find the lowest possible price for insurance but rather imposes a duty to use reasonable skill, care and diligence in procuring insurance for Emerson, and Marsh fulfilled that duty; and (3) once an insured pays its premium to a broker, the broker holds the premium on behalf of the insurer, not the insured, and, therefore, Marsh did not owe Emerson a duty to disclose interest it accrued from temporarily investing Emerson's premiums prior to transferring them to insurers.⁴

In October 2010, the trial court granted Marsh's motion for judgment on the pleadings. Emerson appealed to the court of appeals, which, after opinion, transferred the case to this Court pursuant to Rule 83.02.

II. STANDARD OF REVIEW

In reviewing the grant of a motion for judgment on the pleadings, this Court must decide “whether the moving party is entitled to judgment as a matter of law on the face of the pleadings.” Eaton v. Mallinckrodt, Inc., 224 S.W.3d 596, 599 (Mo. banc 2007), quoting RGB2, Inc. v. Chestnut Plaza, Inc., 103 S.W.3d 420, 424 (Mo.App.2003). “The well-pleaded facts of the non-moving party's pleading are treated as admitted for purposes of the motion.” Id. A grant of judgment on the pleadings will be affirmed only “if the facts pleaded by the petitioner, together with the benefit of all reasonable inferences drawn therefrom, show that petitioner could not prevail under any legal theory.” Messner v. Am. Union Ins. Co., 119 S.W.3d 642, 644 (Mo.App.2003).

III. DUTIES OF INSURANCE BROKERS AND AGENTSA. Fiduciary Duty is Part of Broker–Insured Relationship

It is helpful to understand the difference between an insurance agent and an insurance broker such as Marsh. An insurance agent works for and acts as an agent for a particular insurer or insurers. “By definition an insurance agent is ordinarily ‘an agent of the insurer’ and not an agent of the insured.” Graue v. Missouri Prop. Ins. Placement Facility, 847 S.W.2d 779, 783 (Mo. banc 1993), quoting § 375.012(4), RSMo 1986. A general agent for the insurer usually will...