An insurance broker is a person or more commonly a business selling insurance of various insurance companies through its business. Lay people often think of brokers as insurance agents or even insurance companies. However, brokers are not insurance agents, who generally are employee or agents for an insurance company, and brokers are not insurance companies.
The general rule is that a broker is primarily an agent of the person who first employed him, and where he is employed to procure insurance he is an agent of the person for whom the insurance is procured in so far as matters connected to the matters of procurement are concerned. Travelers Indemnity Company v. Baty, 523 S.W. 2d 534, 538 (Mo. App. W.D. 1975). However, there are exceptions to the rule. For example, any agent or broker authorized and acting in capacity as a resident agent of a foreign insurer acts on behalf of the insurer, not the insured. Diplomat Homes, Inc. v. Commercial Standard Ins. Co., 394 F. Supp 558 (W.D. Mo. 1975), and Section 375.901. Also, depending upon the facts of a particular case a broker may be an agent of the insurer or dual agent of both the insurer and the insured depending on the particular facts. See Graue v. Missouri Property Insurance Placement Facility, 847 S.W. 2d 779, 783 (Mo banc 1993).
In Missouri a broker is usually the agent of the insured, but additional facts may lead to the broker being found to be an agent or the insurer or the agent of both. This issue is very important because in the absence of fraud on the part of an insured, or his agent, an insurance company is bound by all acts, contracts, representations of its agent, whether general or special, which are within the scope of his real or apparent authority, not withstanding they are in violation of private instructions or limitations on his authority, which the person dealing within, acting in good faith, has neither an actual or constructive knowledge. Baker v. St. Paul Fire and Marine Insurance Company, 427 S.W. 2d 281, 285-86 (Mo. App. W.D. 1968).
To find apparent agency the appearance of authority must have been created by the principle. Dudley v. Dumont, 526 S.W. 2d 839, 845 (Mo. App. E.D. 1975). Although no actual authority in such respect has been conferred, an insurer is still bound by acts and contracts of it agents as are within the apparent scope of authority with which he has been clothed, that is, the authority which although not actually granted, the insurer knowingly permits the agent to exercise. Travelers Indemnity Company v. Beaty, 523 S.W. 2d 534, 538. By virtue of such apparent authority, a soliciting agent may bind the company by agreements and representation made in connection with the application for insurance which he has the power to take. Id.
In practice this general rule means that if an insured makes a request of a broker, and the broker misinforms the insurer of the facts, the insurer can rescind or avoid the obligation because the broker is the agent of the insured and not the insurer. However where one of the exceptions apply a broker is the agent of the insurer and his act caused a policy to be bound or fail the insurance company may be held liable. Examples include a broker who binds a risk, or allows a policy to lapse, or fails to insurer the correct person or property, or causes the policy to be endorsed improperly.
In cases where a broker and insurance company are being pursued for liability it is important to fully investigate the relationship between the broker and the insurance company. The broker and the agent will have a written agreement between them explaining their relationship, but there may be more than one agreement. Many insurance companies hire brokers to do claim administration, and investigation of claims. Insurance companies often provide forms, instructions, policy manuals and marketing materials that may evidence an agency relationship. Financial transactions, payments, indemnity agreements, E & O insurance polices may also provide useful information concerning the relationship between the broker and the insurance company.