Also known as: insurance brokers · insurance brokering · broker
Written by attorneys — see sources below.
An intermediary who acts primarily on behalf of a purchaser in obtaining insurance coverage from one or more insurers. The broker is compensated by commission from the insurer yet owes primary allegiance to the insured in selecting and placing the policy.
Israel Irving, an art collector, retained an insurance broker to procure coverage for a shipment of paintings. The broker's specialized knowledge of fine-art underwriting practices was attributed to Irving under the merchant definition, allowing the insurer to treat Irving as a merchant in the transaction.
Indigo Textiles hired an insurance broker to obtain property coverage on its warehouse. The broker produced a carrier ready to issue the policy on the quoted terms. When Indigo later refused to pay the premium in bad faith, the broker remained entitled to its commission.
Iain Irons orally retained an insurance broker to place a $600,000 cargo policy. The broker sent a signed binder confirming the essential terms to the carrier. The signed binder satisfied the statute of frauds requirement against Iain.
Infinity Bank used an insurance broker to secure a multi-state liability policy. When coverage litigation arose across jurisdictions, the broker's placement activities were examined to determine whether the transaction constituted interstate commerce subject to federal antitrust scrutiny.
In the late 1970s, ISO, an association of approximately 1,400 domestic property and casualty insurers that serves as the almost exclusive source of support services for CGL insurance in the United States, began revising its 1973 standard CGL policy form. The 1973 form provided occurrence-based coverage for sudden and accidental pollution and did not cap defense costs. Primary insurers including Hartford Fire Insurance Company, Allstate Insurance Company, Aetna Casualty and Surety Company, and CIGNA Corporation sought four changes: a shift to claims-made coverage with a retroactive date, elimination of pollution coverage, and a legal defense cost cap. After ISO proposed 1984 forms that omitted some of these changes, Hartford persuaded General Reinsurance Corporation, the largest American reinsurer, to procure the modifications or derail the program. The Reinsurance Association of America agreed to boycott the 1984 forms unless the changes were added, and domestic and London reinsurers informed ISO they would withhold reinsurance until the forms were altered. ISO then withdrew the 1984 forms and adopted 1986 forms containing a retroactive date and pollution exclusion; it later withdrew support services for the 1973 form. Separate agreements among London reinsurers required primary insurers to switch to claims-made policies and excluded pollution coverage from reinsurance contracts covering North American risks. Nineteen states and many private plaintiffs filed 36 complaints alleging that these actions violated section 1 of the Sherman Act. The cases were consolidated in the Northern District of California. The District Court granted motions to dismiss in 1989, holding the conduct fell within McCarran-Ferguson immunity and applying international comity to the foreign defendants. The Ninth Circuit reversed in 1991. The Supreme Court granted certiorari in 1992.
View caseInterlink Communications engaged an out-of-state insurance broker to obtain a group health policy. State officials challenged the broker's authority to place the coverage, testing whether insurance brokerage constituted local business subject to state licensing rather than interstate commerce.
The case involved a challenge to a Virginia statute that included provisions discriminating between the state's own corporations and corporations chartered in other states. On the trial in the court below, the validity of these discriminating provisions was assailed. It was contended that the statute conflicted with the Privileges and Immunities Clause, which provides that the citizens of each State shall be entitled to all the privileges and immunities of citizens in the several States, and with the Commerce Clause, granting Congress power to regulate commerce among the several States. The same grounds were urged in the Supreme Court for reversal of the judgment. The dispute centered on insurance companies of New York, whose policies were issued through agents in Virginia. These policies did not take effect until delivered by the agent in Virginia, making them local transactions governed by local law. The judgment of the Supreme Court of Appeals of Virginia was brought before the United States Supreme Court for review.
View caseAn insurance broker is characterized as acting primarily on behalf of the purchaser even though compensation typically arrives by commission from the insurer.
An insurance agent is expressly authorized to sell the insurance of a specific company while a broker is an independent contractor who may place coverage with various insurers.
A broker earns the commission by producing a carrier ready to issue coverage on the quoted terms. Bad-faith refusal by the insured does not defeat the broker's right to payment.