Independent insurance agencies and the carriers they represent ideally should be partners. Of course, it does not always work out that way, and they may come to a parting of ways. The agency may have a legitimate complaint against a carrier’s conduct. That, however, was not the case with an agency in Texas that sued a carrier.
As is common, the agency and carrier had a contract permitting either to terminate the relationship at any time, with or without cause. The carrier took advantage of this provision. The agency principal concluded that his contract termination was retaliation against him for actions that he took.
The court opinions are light on details, referring to the briefs filed by the attorneys. However, the agent apparently concluded that the company’s officers were violating U.S. Securities and Exchange Commission (SEC) rules. He complained to the company’s board of directors but received no satisfaction. He followed that with a shareholder-derivative lawsuit against the company. The appellate court opinion also states that he “filed a whistleblower complaint with the Occupational Safety and Health Administration” (OSHA.) It is unclear why he may have sought relief from OSHA, which has jurisdiction over workplace safety issues, not financial filings.
Regardless, he lost his position on the carrier’s advisory board, his agency contract was canceled, and his lease in one of the carrier’s office buildings was terminated. He then sued the carrier, claiming that he was the subject of unlawful retaliation under the federal Sarbanes-Oxley Act of 2002. That law prohibits public companies and those acting on their behalf from discharging, demoting, or in any other manner discriminating against an employee for engaging in protected whistleblowing activity.
The agent argued that he fell within the definition of “employee” in the regulations implementing the law. Those regulations define “employee” as an individual:
- presently or formerly working for a covered person
- applying to work for a covered person
- whose employment could be affected by a covered person
He argued that he met these criteria because he was an agent selling the company’s products and was a member of the advisory council. The carrier said that he was a contractor, not an employee, and the whistleblower protections do not apply to contractors (the carrier is a public company.)
The trial court agreed with the carrier, finding that the agent had provided no convincing evidence that he was an employee. The agent appealed, but the appellate court upheld the ruling. The agent was an employee of his agency, they ruled, not of the insurance carrier, and therefore had no whistleblower protection.
One of the keystones of the independent agency system is that the agencies are independent of the carriers and therefore able to represent several of them. An insurance agent cannot be both an independent agent and an employee of a carrier; the two are mutually exclusive. The agent’s claim that his roles selling insurance for the carrier and sitting on the advisory council made him an employee were never strong. If the courts had accepted his argument, then an employment relationship would exist between every carrier and every employee of every agency that represented them. By extension, employees of an agency representing 20 carriers would have 20 employers. This is clearly unworkable and contrary to the principles of the system.
Independent agencies are contractors, and carriers do not have to do business with agents who accuse them of malfeasance, even if the accusations were justified. Agencies sometimes have legitimate legal claims to make against their carriers; this one did not. Whistleblower protections are for employees and not for agency council members.
