No Implied Payment Contract for Duration of Policy Established Where the Insured Is Entitled to Change the Broker of Record

In Special Risk Insurance Services, Inc. v. GlaxoSmithKline, LLC, 2022 WL 1093129 (E.D. Pa. Apr. 12, 2022), the plaintiff, an insurance broker, sued its insurance customer (the defendant) for purportedly changing its broker of record, thus forfeiting the plaintiff’s ability to collect premiums on the policies placed for the defendant. As is customary in the insurance industry, the plaintiff was directly compensated by the defendant’s insurers a portion of the premiums for each of four employee insurance policies placed. In the lawsuit, the plaintiff asserted four claims—breach of contract, unjust enrichment, promissory estoppel and tortious interference—arising out of its lost commissions after the defendant changed the broker of record. The plaintiff was seeking a termination of the defendant’s policies or payment of the accruing premiums on the policies it had placed.

The court found that the plaintiff could not establish the existence of a written contract or an oral or implied-in-fact contract that would suggest the plaintiff was entitled to ongoing commissions for the policies it placed for as long as the policies remained in effect, irrespective of the defendant exercising its right to change brokers. The court similarly rejected the remaining claims, finding that: (1) the plaintiff had no reasonable expectation of being paid by the defendant (who, in fact, never paid the plaintiff directly) (unjust enrichment); (2) the defendant never promised to pay the plaintiff commissions, compensation or fees (promissory estoppel); and (3) the plaintiff’s tortious interference claim was time-barred by the statute of limitations.

Interestingly, the insurance broker in this case alleged an argument insurance professionals often refute—the existence of an implied contract between an insurance broker and its retail customer. Indeed, it has been successfully argued that the insurance policy contract is between the insurer and the insured, and (absent bona fide evidence of a separate written or oral contract) viable grounds do not exist for an insured to bring a breach of contract claim against its retail insurance broker arising solely out of an expectation of insurance procurement.

Insurance professionals should remain cognizant of discussions with customers and alleged promises exchanged by either party to avoid needless litigation arising from disparate expectations.

The material in this law alert has been prepared for our readers by Marshall Dennehey. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note tgventura@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2022 Marshall Dennehey. All Rights Reserved.