Wise insurance agency owners protect their interests by having producers sign non-compete and non-piracy agreements. While these agreements can go so far that courts refuse to enforce them, well-crafted agreements can make it costly for a former producer to run off with the agency’s accounts. An Indiana agency is an example of one that did things the right way.
The agency hired a producer as an independent contractor in 2012. The two parties signed a contract that included non-disclosure, non-piracy and non-compete agreements. These agreements were binding for two years in specific Indiana counties after termination. The contract also required that, in the event of a legal dispute, the losing party would pay the winner’s attorney fees.
Less than five years later, the producer resigned and began representing a competing agency. It wasn’t long before he began soliciting his former agency’s clients using information he had taken with him when he left. That fall, the agency sued him for breach of the three agreements. Under the rules of the court, they requested that he admit or deny the allegations under oath. He did not respond by the deadline; under Indiana court rules, this was tacit to admitting to the allegations.
In March 2018, the agency asked the court to rule that the facts were not in dispute and to find in their favor. They claimed that:
● The producer violated the contract by taking away 32 clients, costing them $18,607.51 in annual commissions
● The customary price when one agent purchases another’s book of business was three times the value of the commissions
● Consequently, the breach had cost the Company more than $55,822.52 and the cost was growing
The producer filed opposing motions and objections but never followed them up with new evidence. The court held a hearing that December and ruled in the agency’s favor. A separate hearing was held to determine the damages, with the agency providing expert witnesses on typical commission multiples. They offered ranges of multiples, with the “three times” figure falling within all of them. The court awarded the agency $65,685.96, which included the lost commissions and attorney fees, plus 8% interest.
The producer appealed on the damages award, not the ruling in the agency’s favor. He argued that the trial court had abused its discretion by excluding evidence he wanted introduced and in calculating the amount of the damages. However, the appellate court ruled that neither of these claims were true, finding that the “three times” multiple was within the ranges provided in the testimony and that the court correctly excluded his evidence. The appellate court ordered the trial court to enforce its verdict.
This case shows the effectiveness of a legally sound producer agreement. Courts have thrown out non-compete agreements that did not adequately compensate the producer for the restrictions. They have also nullified contracts with unreasonable time and geography limitations. The contract in this case had none of these flaws. The non-compete agreement applied for two years in certain specific counties. After that, the producer could have pursued any account anywhere he wanted.
Also, the agency was knowledgeable about the mergers and acquisitions market. Their request for triple their lost commissions was well within the normal range, and they produced evidence demonstrating that. They won the dispute over the damages because of their preparation.
Non-compete agreements hamper an individual’s ability to earn a living. This is why courts enforce them carefully. However, they can work if the agencies writing them work with a qualified attorney who will produce sensible and cautious wording.
