Opinion ID: 2540396
Heading Depth: 2
Heading Rank: 4

Heading: Interest on Premiums

Text: This Court also rejects Emerson's argument that Marsh's deposit of the premiums sent to it by Emerson into an interest-bearing account pending the time it forwards them to insurers is a breach of Marsh's duty of loyalty. It is true, as Emerson notes, that there is a broad agency principle that an agent who makes a profit with respect to a matter conducted on behalf of the principal must turn over the profit to the principal. Restatement (Second) of Agency, § 388 (1958). But the extent of an agent's fiduciary duties to the principal vary depending on the parties' agreement and the scope of the parties' relationship. Restatement (Third) of Agency § 8.01 cmt. c (2006). For the reasons just discussed, the agency relationship of the insured and an insurance broker is limited in scope, and the duty of loyalty necessarily extends only to matters undertaken by the broker within the scope of the agency. This limitation is particularly important because a broker is not always an agent of the insured, and indeed its commissions customarily are paid by the insurer. Graue reaffirmed that a broker may be an agent of the insurer or of the insured, depending on the facts of a particular case. 847 S.W.2d at 783. Gilbert similarly recognized that even in dealing with the same client, the broker may be the agent of the insured for some purposes but the agent of the insurer for other purposes in the course of the same transaction, without violating a fiduciary duty to either, because a broker: [M]ay enlarge his relationship with the company for which he procures business so as to become the agent of such company in one or more or all the particular matters involved. . . . He is not necessarily the agent of either of the parties throughout. He may be the agent of one of them in the transaction of some of the particular matters involved and of the other in the remainder of the matters involved. 100 S.W.2d at 612 (emphasis added). Of particular importance here, Gilbert held that this means a broker may be the agent of the insured in taking and placing the application and of the [insurer] in the issuance and delivery of the policy and the collection of the premiums thereon. Id. (emphasis added); see also Jeffery E. Thomas & Francis J. Mootz, III, New Appleman on Insurance Law Library Edition 2-23 (2011) (stating [b]rokers are typically insurers' agents with respect to issuing policies, issuing certificates of insurance, collecting premiums and the like). Other cases have held that, as a result, a broker's role as agent of the insured normally ends upon procurement of the insurance. See, e.g., Hecker, 891 S.W.2d at 816 (holding the agency relationship ceases on execution and delivery of the policy to the insured); Morrow v. Loeffler, 297 S.W.2d 549, 552-53 (Mo.1956). In the absence of a continued duty to the insured, the earning of interest could not be a breach. Emerson has not cited any case holding under either Restatement of Agency principles or the common law that interest a broker may earn on premiums before it remits them to insurers or insureds belongs to anyone other than the broker, much less that a broker has a duty to disclose individually to its insureds the unsurprising fact that it earns interest on money it deposits in its accounts, a matter that is disclosed in its public financial statements. Missouri's legislature specifically has recognized the limited and dual nature of a broker's role. Section 375.051 states that if the broker is collecting premiums for the insured, then it holds any money so collected for the insured in a trust or fiduciary capacity, and if it collects the premiums for the insurer, then it holds any money so collected in a trust or fiduciary capacity for the insurer: 1. Any insurance producer who shall be appointed or who shall act on behalf of any insurance company within this state, or who shall, on behalf of any insurance company, solicit applications, deliver policies or renewal receipts and collect premiums thereon, or who shall receive or collect moneys from any source or on any account whatsoever, on behalf of any insurance company doing business in this state, shall be held responsible in a trust or fiduciary capacity to the company for any money so collected or received by him or her for the insurance company. 2. Any insurance producer who shall act on behalf of any applicant for insurance or insured within this state, or who shall, on behalf of any applicant for insurance or insured, seek to place insurance coverage, deliver policies or renewal receipts and collect premiums thereon, or who shall receive or collect moneys from any source or on any account whatsoever, shall be held responsible in a trust or fiduciary capacity to the applicant for insurance or insured for any money so collected or received by him or her. § 375.051 (emphasis added). Sections 375.051.1 and 2 do not state that the broker acts as a fiduciary as to any interest earned on premiums. They state only that the broker holds the money collected as a fiduciary for either the insured or the insurer, depending on the circumstances of the particular case. This makes sense, for if the broker or agent fails to pay earned premiums to the insurer, then the insured will not be covered, and if the broker or agent fails to pay unearned premiums to the insured, then the insured will not have received the benefit of its bargain. But nothing in either section of the statute gives either insured or insurer the right to monies other than the premiums agreed to in their contracts. Subsection 375.051.3 confirms this reading. It states that [n]othing in this section shall be construed to require any insurance producer to maintain a separate bank account or deposit for the funds of each payor, as long as the funds so held are reasonably ascertainable from the books of account and records of the insurance producer. § 375.051.3. This provision would not be needed unless brokers were permitted to put premiums into their own accounts. Yet the statute imposes no requirement on brokers to segregate or account for interest earned on those funds, nor does it otherwise suggest that insureds have any legal right to such interest. For the reasons already noted, to extend the common law to impose such a duty would be particularly inappropriate in the context of an insurance broker's limited and often dual role as agent for the insured and insurer and in light of the legislature's failure to impose such a duty in this highly regulated area.