An insurance company terminated one of its exclusive agents when it learned of his unethical business practices. After they found out what else he had been doing, they sued him.
The Missouri agent had an appointment with the carrier for four years starting in 2018. An investigation revealed that he had, among other offenses, submitted fraudulent documents on his clients’ behalf and issued policies without getting down payments. In April 2022, the carrier excused him from further service.
The carrier-agency contract prohibited him from soliciting the carrier’s customers for only one year following termination. It also required him to transfer his interest in his phone number to the carrier. Apparently, however, he could foresee what was coming. In the months before his termination, he allegedly ran and printed reports on several of the carrier’s customers. These reports were not related to his work for the carrier. He also kept the phone number after his termination. After they parted ways, he either started or joined two insurance agencies and began soliciting “dozens” of the carrier’s customers.
The carrier sued, alleging nine claims against him. He asked the court to dismiss them all, saying that the carrier had failed to meet the law’s requirements for stating a claim.
Under federal rules for court proceedings, a claim can survive a motion to dismiss if it contains sufficient factual matter that the court accepts as true and that a reasonable person would infer as meaning the accused party is liable for the alleged misconduct.
In November 2023, the judge agreed that the agent may have improperly used the carrier’s trade secrets (the customer information.) The agent tried to argue that the carrier’s network security was lax and they should have protected the information better. The judge dismissed that argument in one sentence. He also held that the reports were valuable because they contained non-public information on pricing and quotes that only someone with access to their systems could get.
He also found that the claim against the agent for breach of contract was valid, ruling that it was plausible that he had violated both the non-solicitation agreement and the agreement to transfer the phone number. Lastly, he refused to dismiss the claim that the agent’s two agencies controlled unjustly enriched themselves by helping themselves to the trade secrets and phone number.
However, he agreed to dismiss five of the claims. He refused to grant an injunction stopping the agent from operating, saying that an injunction is a legal remedy and not the basis of a claim. In other words, the lawyers made a mistake by including it.
The carrier also unsuccessfully claimed that the agent had made false advertisements. The judge ruled that the carrier had not “seriously attempted to argue” that the agent had made false statements about his products that were intended to deceive their audience. He judged that the agent had neither a fiduciary duty nor a duty of loyalty to the carrier. Finally, though he did find that the agent may have improperly interfered with the carrier-agent contract, he dismissed the claim against his agencies.
There is no further public record of proceedings in this matter, so either it has yet to go to trial 15 months after the judge rendered his decision or the two parties have settled out of court.
This agent appears to be unscrupulous, and the carrier was justified in taking action against him. As non-solicitation agreements go, a one-year prohibition is shorter than those other carriers require. A more ethical agent would not have given his carrier false documents or bound policies without down payments, let alone swiped customer lists. And he certainly would have looked for new prospects for insurance sales rather than blatantly violating the non-solicitation agreement. If he thought the carrier would simply let him get away with it, he was naive. Producers should comply with contract provisions, try to negotiate them away, or decline to sign the contracts.
