Missouri Federal Court Finds Excess Workers’ Comp Insurer May Have Fiduciary Duty To Insured

After a company settled a workers’ compensation claim for more than $300,000, the company made a claim on its workers’ compensation excess insurer for the amount above $300,000, which the excess insurer had agreed to indemnify the company for according to the terms of the policy.  The excess insurer refused payment and the insured brought claims against the insurer under Missouri law for breach of contract, vexatious refusal to pay, declaratory judgment, and breach of fiduciary duty.  The excess insurer filed a motion to dismiss the breach of fiduciary duty claim on the grounds that Missouri law does not recognize a fiduciary relationship between an excess insurer and its insured, but the U.S. District Court for the Eastern District of Missouri denied that motion yesterday.

The court explained that even though Missouri does not, as a matter of law, recognize a fiduciary relationship between an insurer and insured, an insurer/insured fiduciary relationship can arise in certain circumstances, especially if the insurer is “entrusted to defend a claim on behalf of the insured.”  Under Missouri law, the key question is “whether or not trust [was] reposed with respect to the property or business affairs of another,” and the court concluded that the insured in this case had sufficiently plead these facts.  The insured alleged that it kept the insurer apprised of the progress of the case, the progress of settlement negotiations, and that the insurer’s counsel consented to the settlement.  The court found that the insured could have justifiably relied on the insurer’s consent to settlement so as to create a fiduciary obligation of good faith on the insurer.