An Examination of Whether A Fiduciary Relationship Exists Between an Insured and its Broker

December 08, 2005

In the past year, an enormous amount of attention has been focused on New York State Attorney General Eliot Spitzer’s investigation into purported corruption among some of the leading insurance brokerage houses in the nation.  At the heart of the investigation are so-called “contingent commissions” and the glaring conflicts of interest that they create.  Contingent commissions are widely thought to create a conflict of interest by encouraging insurance brokers to secretly place their own interest in obtaining lucrative commissions paid by the carrier and a higher salary ahead of their clients’—policyholders—interest in obtaining the best coverage for the lowest possible price.  Douglas R. Richmond, Insurance Brokerage and Contingent Commissions, 27 Ins. Litig. Rep. 533, 535 (2005).   Until recently, very little thought was given to the relationship that exists between a policyholder and its insurance broker.  However, if contingent commissions create a conflict of interest that is as harmful as Spitzer and some commentators suggest, then policyholders are compelled to investigate further. 

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