A drugmaker is not required to pay commissions on life and disability insurance to a broker who is no longer its broker, a federal appeals court said Thursday, affirming a lower court decision.
From 1991 through 2015, GlaxoSmithKline LLC, whose U.S. headquarters are in Philadelphia, appointed Blue Bell, Pennsylvania-based Special Risk Insurance Services Inc. as its insurance broker to negotiate and purchase group insurance for its employees, according to the ruling by the 3rd U.S. Circuit Court of Appeals at Philadelphia i Special Risk Insurance Services Inc. v. GlaxoSmithKline LLC, trading as GlaxoSmithKline.
These included group life insurance policies with Liberty Mutual Insurance Co. and ACE American Insurance Co. and its disability insurance policy with Metropolitan Life Insurance Co., the ruling said.
For several years, these insurance companies paid Special Risk annual commissions ranging from $850,000 to $1.2 million each year on the policies.
In 2015, GlaxoSmithKline terminated Special Risk as its broker of record but continued to use the group insurance policies that Special Risk had previously brokered.
When GlaxoSmithKline terminated Special Risk, the three insurers stopped paying Special Risk commissions, although the company continued to use the policies.
Special Risk sued GlaxoSmithKline to recover those commissions, accusing the drug company of breach of contract and unjust enrichment. The US District Court in Philadelphia ruled in GlaxoSmithKline’s favor and was affirmed by a three-judge panel of the Court of Appeals.
“The record does not indicate that GlaxoSmithKline ever paid commissions to Special Risk — even when Special Risk was its broker of record,” it said. “Nor is there any evidence of an industry custom or practice to imply such a promise.
“Absent such facts, Special Risk asserts that, by law, it has a right to a brokerage commission when writing a policy,” it said.
For “Special Risk” to succeed on the statute alone, a legal rule is required that an entity, by appointing a broker as its insurance broker, is liable for that broker’s commissions. Yet Special Risk offers nothing in that regard, says the decision, affirming the lower court.
Plaintiff attorney Michael LaRosa, of the LaRosa Law Firm in Havertown, Pennsylvania, said in a statement, “This decision profoundly affects the broker/insured relationship.
“This effectively means that any insurance broker will be subject to the whim of the insured who can terminate the broker and keep the brokered policies in force at reduced premiums, all without any broker having to charge for the lost commissions. Accordingly, we will exhaust all possible appeal rights.”
Lawyers for GlaxoSmithKline did not respond to a request for comment.