When an insurance carrier and an agency part ways, both sides have to comply with the terms of the contract between them. When they cannot agree on what those terms mean, the result can be a court fight.
A Mississippi agency signed a captive agency agreement with the carrier in September 2016. That contract permitted either party to terminate the agreement “without cause” upon at least 60 days’ notice. They signed a superseding contract four years later that:
- Stated in a preamble that the carrier retained “the right to terminate this Agreement in its sole discretion should it determine for any reason that the interests of (the carrier), its business plans, or its policyholders are furthered thereby …”
- Explicitly stated that the agency was an “independent contractor captive agent” of the carrier and there was no employer-employee relationship between the two
- Shortened the termination notice to 30 days and deleted the “without cause” wording
- Permitted the carrier to terminate the contract without advance notice under certain circumstances, such as the agency violating the contract’s terms, losing licenses, a change in control of the agency, and where “(the carrier) determines that it is in the best interests of (the carrier) or its policyholders to terminate …”
- Promised that the carrier would withhold the final commission check for six months after termination and subject the check’s amount to adjustments and offsets
In May 2021, the carrier interviewed the agency’s principal “to investigate a leak of confidential and proprietary company information.” Three weeks later, the carrier informed the agency that it was terminating the contract effective August 13. The notice did not state a reason for the termination.
The agency believed the carrier was retaliating against it for the principal’s “conduct during the investigation.” They sued the carrier for breach of contract, failure to pay renewal commissions to which the agency was entitled, and unjust enrichment from withholding the commissions. The court’s opinion did not state the amount of damages the agency sought, but it referenced a federal law giving the court jurisdiction “where the matter in controversy exceeds the sum or value of $75,000,” so the damages were at least that much and possibly much higher.
The agency claimed:
- Because the “without cause” wording was deleted in the 2020 contract, the carrier could terminate the contract only for furtherance of the interests of the carrier, its business plans, or its policyholders.
- The 2020 agreement removed a provision stating that the agency was not entitled to renewal commissions after termination. Therefore, the agency said, the carrier was obligated to pay those commissions.
The carrier asserted that it had the right to terminate the contract for any or no reason. They also argued that the agency was not entitled to renewal commissions and that the terms of the contract prohibited the agency’s “unjust enrichment” claim.
The judge agreed that the carrier had the right to terminate the contract. The termination provision, he wrote, did not obligate either party to show cause when terminating with 30 days’ notice.
He saw things differently when it came to the commissions. Noting that “the contract is silent on when commissions cease, if at all,” he ruled that it was “ambiguous as to the issue of renewal commissions.” For this reason, he refused to dismiss the renewal commissions and unjust enrichment claims. However, he did dismiss the breach of contract claim.
The principals of any agency, captive or independent, would do well to give close attention to the specific details in carrier contracts. This agency tried to stretch the meaning of the termination provision, but they convinced the judge that the commission provisions were ambiguous. They succeeded because they knew what their contract said. Other agencies can prevent conflicts like this from ever starting by knowing their carrier contracts.
