Two life insurance agents in Kentucky under exclusive contract to an insurer tried to simultaneously sell for another one. When the first insurer found out, they terminated the pair and litigation ensued.
The insurer provides life insurance and other financial services. They offered two types of contracts to agents – “career agent” and “agency producer.” Both contracts made the agent an independent contractor. However, they contained some key differences when it came to agent compensation:
- Career agents receive compensation only while the contract is in effect. No commissions are payable after termination of the contract. Agency producers may receive compensation following termination for renewals of policies written while the contract was in effect.
- Career agents may receive bonuses and incentive trips. Agency producers are ineligible for these incentives.
In 2013 and 2014, two individuals signed career agent contracts with the insurer. In late 2015, one of them signed a new contract under which she transitioned to agency producer. That transition was unsuccessful. In the spring of 2015, she signed another agreement transitioning back to career agent status.
Both individuals eventually sought appointments with a competing insurer. When the competitor hired the other person as an agent and employee in late 2017, he retired as an employee of the first insurer but remained as one of its agents. He signed a new agreement with them to transition to agency producer. The first producer likewise left for the competitor but remained an agent of the first insurer.
Once this insurer found out that some of its agents were doing business with the competitor, they took action to cut them off. In March 2018, they sent both individuals letters terminating their contracts in accordance with those documents’ termination provision.
In April 2019, the agents sued the insurer for breach of contract, discrimination/disparate treatment, and defamation. The insurer asked the court for summary judgment – a verdict in its favor based on the law where no material facts are in dispute.
It took four pandemic-delaying years, but in October 2023 the judge ruled in the insurer’s favor. He found that the contracts plainly permitted either party to terminate them at any time without cause. Therefore, the terminations were proper.
He further ruled that the insurer’s refusal to compensate them following termination was also in keeping with the contracts’ terms. The judge noted that the agency producer contracts gave both of them the opportunity to earn vested commissions. “While this was an opportunity,” he wrote, “both (agents) concede that they did not earn vested renewal commissions as agency producers.” Because of this, he found that no reasonable jury would conclude that they were owed vested renewal commissions.
The judge also rejected the age and sex discrimination and disparate treatment claims. The agents were independent contractors, and the state’s anti-discrimination law applied to employees only, not independent contractors.
Lastly, he rejected the claim that the insurer’s post-termination letters to their clients defamed them. Nothing in the letters, he stated, was either false or necessarily harmful to their reputations.
The provisions in the contracts quoted by the court seem very plain. Both insurer and agent had the ability to walk away from the contract at any time for any reason. In addition, the career agent contracts clearly stated that the commission spigot would be turned off on the effective date of termination. It appears both agents attempted to get deals that would give them post-termination compensation. However, for unstated reasons they were unsuccessful as agency producers. That was unfortunate, but the contracts and the law were clearly on the insurer’s side.
Insurer-agency contracts are difficult to read and understand, but it is vitally important that agents know what they are agreeing to. The judge’s opinion did not say whether the agents argued that they misunderstood the compensation arrangements. That does not matter; they signed contracts agreeing to them. Most courts will uphold the terms of a clearly stated contract.
