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Pharma maker not obligated to pay commissions to broker

Posted On: May. 26, 2023 12:43 PM CST


A pharmaceutical manufacturer is not obligated to pay commissions on life and disability policies to a broker that is no longer its broker of record, a federal appeals court said Thursday, in affirming a lower court ruling.

From 1991 through 2015, GlaxoSmithKline LLC, whose U.S. headquarters are in Philadelphia, designated Blue Bell, Pennsylvania-based Special Risk Insurance Services Inc. as its insurance broker of record to negotiate and purchase group insurance policies for its employees, according to the ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in 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 insurers 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, even though the company continued to use the policies.

Special Risk sued GlaxoSmithKline to recover those commissions, charging the drug company with breach of contract and unjust enrichment.  The U.S. District Court in Philadelphia ruled in GlaxoSmithKline’s favor, and was affirmed by a three-judge appeals court panel. 

“The record does not indicate that GlaxoSmithKline ever paid commissions to Special Risk - not even when Special Risk was its broker of record,” it said. “Nor is there any evidence of an industry custom or practice of implying such a promise.

“Without such facts, Special Risk argues that, as matter of law, it has a vested right to a brokerage commission upon the writing of a policy,” it said.

For Special Risk “to succeed on the law alone, it needs a legal rule that an entity, by designating a broker as its insurance broker of record, is liable for that broker’s commissions. Yet Special Risk offers nothing in that respect,” the decision said, in affirming the lower court.

Plaintiff attorney Michael LaRosa, of the LaRosa Law Firm in Havertown, Pennsylvania, said in a statement, “This decision deeply impacts the broker/insured relationship.

“It effectively means that all insurance brokers will be subject to the whim of the insured who can terminate the broker and keep the brokered coverages in effect at reduced premiums, all without any broker recourse for the lost commissions. Accordingly, we will exhaust all possible appellate rights.”

GlaxoSmithKline’s attorneys did not respond to a request for comment.