By: AgencyEquity.com
A contract between an insurance carrier and a captive agent typically restricts the agent’s permissible activities and requires the agent to meet certain conditions after termination. A Missouri agent tried to ignore those provisions and the carrier took him to court.
The agent represented the carrier for a little over four years. At some point, the carrier investigated the agent’s business practices. The investigation revealed that the agent had submitted fraudulent documents on insureds’ behalf. The agent had also issued policies without first collecting the required down payment on the premium. Based on these findings, the carrier terminated the agent’s contract in April 2022.
That contract had a termination clause that prohibited the agent from soliciting or servicing the carrier’s insureds for one year after termination. It also required him to “transfer his interest” in his phone number to the carrier. The agent appeared to disregard both these provisions. The carrier claimed that he printed several reports during his last few months with them that were not related to his work as an agent for them. Using the information he compiled, he solicited “dozens” of their insureds for the new agency he started. He also continued to use the phone number.
The carrier sued him and his former and new agencies on nine counts. The agent asked the federal district court to dismiss all of the claims.
On November 1, 2023, the judge dismissed some but not all of the claims, leaving the agent potentially liable to the carrier for damages. He refused to issue an injunction to stop the agent from continuing to operate. The carrier had argued that the agent broke a law against false advertising by using the unauthorized phone number. The judge rejected this claim, finding that the agent had not made any false statements about the phone number being affiliated with the carrier and that his use of the number did not deceive consumers.
He further rejected the claim that the agent breached his fiduciary duty to the carrier, ruling that no fiduciary relationship existed. An insurance agent, he wrote, is not necessarily a fiduciary for the carrier, and the carrier had not shown that the agent was one in this situation. The judge also found that the agent had no legal duty to be loyal to the carrier as the contract had not created that duty.
However, the agent and his agencies were not off the hook. The carrier had sued for violations of federal and state laws protecting trade secrets. The judge found these claims plausible. The agent began running and printing reports of customer information on the same day he was informed that the carrier was investigating him. The carrier now alleged that he was using that information to violate his non-compete agreement. The judge allowed this complaint to proceed.
He also allowed the breach of contract complaint to go forward. He dismissed claims of business interference against the two agencies but left them in place against the agent himself. “The Court,” he wrote, “can draw the inference that (the agent) took affirmative steps to induce the (carriers’ policyholders to break their contracts) when he began ‘solicit[ing]’ (them),… and that the policyholders would have performed their contracts … absent (his) interference …”
Lastly, the carrier accused him and his agencies of unjustly enriching themselves. The judge dismissed this claim against the agent but not the one against the agencies. “(The carrier) identified both the telephone number … and customer information … as benefits” the agencies received, he wrote.
No further public record exists for this case. The two sides’ attorneys may be negotiating a settlement.
If this agent submitted false documents to the carrier with insurance applications, he should be worried about losing his license, not a lawsuit. Regardless, contract terms are enforceable. The contract said that the reports he ran were the carrier’s property and he was not entitled to use it once he was no longer their agent. Anyone signing a contract with a captive carrier should carefully review the promises contained in it and be prepared to honor them. Anything less may result in a lawsuit.
