Broker Different Than Agent and Insurer

Barry Zalma

May 17, 2023

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Knockerball MidMo, LLC (“Knockerball”) appealed from the judgment of the trial court granting McGowan & Company, Inc.’s (“McGowan”) motion for summary judgment on Knockerball’s claims for negligence and breach of fiduciary duties.

In Knockerball Midmo, LLC v. Mcgowan & Company, Inc. d/b/a McGowan Excess & Casualty, No. WD85458, Court of Appeals of Missouri, Western District, Fourth Division (May 9, 2023) the Court of Appeals resolved the dispute.

BACKGROUND

McGowan, in its capacity as Knockerball’s insurance broker, and Sportsinsurance, in its capacity as managing general agent for Liability Insurer, assisted in procuring general liability insurance coverage for Knockerball in the amount of $1 million and the liability insurance policy covered the time period when Hart was severely injured on Knockerball’s premises.

Hart sued Knockerball for personal injuries (the “Underlying Suit”). Knockerball was served and promptly notified McGowan of the Underlying Suit and provided a copy of the petition to McGowan. McGowan’s representative assured Knockerball’s managing member that McGowan would “handle it.”

However, through a variety of missteps by McGowan, Sportsinsurance, and Liability Insurer, no responsive pleading was timely filed on behalf of Knockerball and an order of interlocutory default against Knockerball was entered in the Underlying Suit on March 31, 2017.

Knockerball then entered into an agreement with Hart that contained the following provisions: Hart and Knockerball and for the consideration of TEN DOLLARS ($10.00) provided to Hart this day by Knockerball agreed to settle and assign rights against broker and insurer.

Thereafter, a bench trial on damages was held on July 11, 2017, at which Knockerball did not cross-examine witnesses or object to the evidence Hart’s attorney offered. On July 13, 2017, the court in the Underlying Suit entered a Final Judgment for Hart against Knockerball in the amount of $44,631,268.99 with interest at the rate of 6.16 percent.

It is undisputed that Knockerball did not incur any attorney’s fees for the defense of the Underlying Suit. And Hart is prohibited from attempting to collect any portion of the judgment in the Underlying Suit against Knockerball or Knockerball’s managing member.

The trial court found that it was undisputed that not only was Knockerball protected from liability on Hart’s claims but it also stood to collect in excess of $1 million as a result of the resolution of actual coverage claims, therefore it was difficult to see how Knockerball has been damaged and that such damage was proximately caused by McGowan’s conduct.

ANALYSIS

This case is not a “bad faith refusal to settle” case against a liability insurer or that insurer’s general agent. Simply put, there is a difference between an insurance broker such as McGowan and a general agent for the insurer (i.e., Sportsinsurance). While an agent represents the insurer, an insurance broker, unless otherwise authorized and provided, represents the insured and, unless otherwise shown by the evidence, is to be regarded as the agent of the insured. Knockerball’s claims against McGowan are for negligence.

The circuit court granted summary judgment in favor of the insurance broker, and the insured appealed, asserting that the trial court erred in concluding that the insured sustained no damages resulting from the insurance broker’s failure to procure adequate insurance coverage.

The judgment in the Underlying Suit was entered after Hart agreed that he would not levy execution by garnishment or otherwise provided by law, or otherwise collect or attempt to collect on any property, asset, or right of Knockerball for any portion of the Judgment entered against it in the Underlying Suit. Instead of Knockerball suffering damages from a $44 million default judgment in the Underlying Suit, it actually received $1.25 million from Liability Insurer’s settlement of Hart’s claims against Liability Insurer.

Knockerball actually profited from its own business premises negligence due to the corresponding settlement of Hart’s coverage and bad faith claims.

The Court of Appeals concluded that Knockerball has not been damaged as a result of the judgment entered against it in the Underlying Suit. Knockerball has not established that it sustained pecuniary damage as a result of McGowan’s alleged negligence and breach of fiduciary duties to Knockerball as Knockerball’s insurance broker.

Without damages, the trial court’s summary judgment ruling is not erroneous, and Knockerball’s appeal is without merit.

ZALMA OPINION

Although the broker was negligent in not immediately forwarding the notice of the suit to the insurer the resulting actions of the insured and the plaintiff to allow action against the insurer and the brokers resulted in Knockerball incurring no damages and, in fact, profiting from the situation. This part of the case was, in my opinion, a waste of judicial time since an inability to prove any damage defeats the purpose of litigation.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, is available at http://www.zalma.com and [email protected]

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