Many captive insurance agents eventually decide to make the transition to independent. There is a right way to do that and a wrong way. The wrong way is what a couple of Massachusetts agents did a few years ago. Don’t expect to get away with taking your former carrier’s expiration lists.
An agent started his career with Liberty Mutual, but after a couple of years he left to manage an independent agency created by his mother, who was a full-time nurse with no insurance experience. She was the sole owner of the agency.
A few months later, while still managing the agency, he signed an exclusive agency agreement with Allstate and formed a new company to act as its agency. That contract classified him as an independent contractor, not an Allstate employee. It also stated that Allstate’s wholly owned “confidential information” could be used only for the purposes of the agreement. “Confidential information” included policyholder information such as names, addresses, ages, types of insurance, limits, premiums, expiration dates, and so on.
His Allstate agency hired his girlfriend and her daughter. The daughter obtained a Massachusetts insurance producer’s license. At the time, Allstate was selling only auto insurance in the state, and they disputed whether the agency could represent other carriers for homeowners and other lines. In any case, he won sales awards from the company.
In the meantime, the daughter went through the company’s training program and opened an Allstate agency in another town. That summer, the agent and his girlfriend started another agency and what they claimed was a marketing firm. A month later, one of his employees emailed Allstate and accused him of commingling business with the daughter’s agency and sharing Allstate customer information with the independent agencies.
Allstate investigated and found emails between the agent, his girlfriend, her daughter, and another employee containing spreadsheets that included extensive Allstate customer information. There were also emails about using Allstate lists to generate leads for the independent agencies if the Allstate agencies did not write them. Allstate terminated his contract without notice.
Allstate left the daughter’s agency alone but warned her about improper practices and told her not to give her mother’s boyfriend a role in her agency. According to Allstate, those warnings fell on deaf ears, and they terminated her contract a year later.
The following summer, three former employees of one of the independent agencies wrote to Allstate’s attorney that their employer had a list of more than 5,000 Allstate customers and that employees were expected to call them. Allstate sued him, the daughter and the agency.
The defendants argued that much of the information on the spreadsheets was publicly available and could not be considered confidential. The judge called this reasoning “nonsensical.” He noted that anyone having the information would have a competitive advantage and that compiling it would be difficult. “The fact that some of the information can be obtained from public sources does not prevent a business from requiring that it be kept confidential …” The agents, he held, had breached their contract by using Allstate’s confidential information for their own purposes.
It is common practice in the industry for contracts to forbid producers and employees from taking the business’s information with them when they go. These individuals brazenly ignored that, mistakenly thinking Allstate wouldn’t notice. In some states, actions like these would be grounds for revocation of a license.
When an agent signs a contract, he or she is bound to its terms provided those terms comply with state non-complete laws. There are plenty of legitimate ways to develop transition from Captive to Independent. A good attorney in your state should be able to help you strategize by telling you what you can and can’t do. The methods these individuals used is not a legitimate to conduct business in relation to transitioning from a captive to an independent agency.