In this complex case, a supplementary insurer is accused of not acting in support of its obligations.
Missouri Court Allows Breach of Fiduciary Duty Claim Against Excess Insurer
In its recent decision in SSM Health Care Corp. v. Repwest Ins. Co., 2014 U.S. Dist. LEXIS 158164 (E.D. Mo. Nov. 7, 2014), the United States District Court for the Eastern District of Missouri had occasion to consider whether an insured can maintain a breach of fiduciary duty claim against its excess insurer for its denial of coverage for an underlying settlement.
Repwest insured SSM under an excess workers’ compensation policy for losses in excess of $300,000. SSM had a number of comp claims asserted against it that ultimately were settled for an amount higher than $300,000. Upon settlement, SSM demanded reimbursement from Repwest with respect to one of the claims. Repwest refused any indemnity obligations on several grounds, including the basis that the settlement amount did not actually exceed $300,000. SSM later brought suit against Repwest for breach of contract, vexatious refusal to pay, declaratory judgment and breach of fiduciary duty and an award of punitive damages. Repwest moved to dismiss SSM’ claim for breach of fiduciary duty on the basis that Missouri law does not recognize a fiduciary relationship between an excess insurer and its insured.
The court agreed that Missouri law generally does not generally recognize a fiduciary relationship between an insurer and its insured. It nevertheless observed that a fiduciary relationship can arise in various circumstance, such as when an insurer is “entrusted to defend a claim on behalf of the insured.” While Repwest pointed out that as an excess insurer, it had no duty to defend, the court nevertheless concluded that SSM alleged sufficient facts to raise a question as to whether SSM had it placed its trust in Repwest with respect to the underlying claim. Key among these facts for the court were that SSM kept Repwest apprised of the underlying claim and of the progress of settlement negotiations and that Repwest’s coverage counsel ultimately consented to the settlement amount. The court noted that it was “plausible that by giving Repwest confidential information about the progress of settlement negotiations, SSM ‘reposed trust’ in Repwest as to its property and business.” From these facts, the court agreed that at least on a motion to dismiss standard, SSM sufficiently stated a case that it could have justifiable relied on Repwest’s consent to settlement such that a fiduciary obligation was created.
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