Every insurance carrier that appoints an agency expects that agency to meet production targets. Agencies that fail to meet those targets often lose those appointments. When a carrier terminated a Michigan agency’s appointment for lack of production, the agency argued that it met the targets by requesting quotes.
The agency had sold personal lines policies for the carrier for 25 years, but production fell off in the last two years. The carrier introduced an online platform that accepted only bundled auto and home submissions. They required agencies to submit business only through that system. The record does not explain why the agency stopped placing business with the carrier; it does not explicitly say, for example, that the carrier’s pricing was uncompetitive. Whatever the reason, the agency submitted only five actual applications through the system in one year.
The agency maintained that this was not accurate – they requested at least 45 rate quotes during that period, though only five resulted in policy applications. Michigan law prohibits carriers from terminating agencies unless the agencies fail to submit at least 25 applications for home and auto insurance in the 12 months before termination. The carrier used this law as the basis for terminating the agency.
They sent a termination letter to the agency, stating that they would renew policies through the agency for 180 days.The letter also acknowledged the agency’s ownership of its expirations, told the agency to notify them of any accounts it was unable to replace with other carriers, and stated that it would renew policies with other appointed agents upon the requests of insureds.
When the 180 days were up, the carrier sent notices to the agency’s customers informing them of the termination and suggesting that they contact the agency about obtaining coverage from another carrier. The notices also explained that customers could keep their coverage with the carrier if they wanted, but informed them that their policies would not be renewed if they did not switch to another agency.
The agency sued the carrier for breach of contract and other reasons. They argued that the 25-application threshold did not apply because the carrier’s new mandatory system would accept only bundled accounts. They also claimed that the 45 rate quotes they requested met the threshold in any case. In addition, they claimed that the language in the notices sent to their customers interfered with the ownership of their expirations.
The carrier argued that requests for rate quotes are not the same thing as submitting applications, and the agency did not submit enough applications. They also stated that Michigan law required the customer notices and nothing in them violated the agency’s ownership of expirations rights.
The trial court ruled in the carrier’s favor on all six counts. The agency appealed on the counts of wrongful termination and breach of contract resulting from the customer notices.
The appellate court upheld the decision in the carrier’s favor. It agreed that the online platform differentiated between quotes and applications, and that Michigan law viewed them as separate activities. It also ruled that the carrier was obligated to send the customer notices, and “there is nothing wrong about them.” They were factually correct and explained the insureds’ options.
The court opinion does not say whether the agency protested to the carrier about the new system or whether the two sides made any attempt to work together to maintain the appointment. The agency virtually stopped submitting applications to the carrier, and state law allowed the carrier to end a 25-year relationship.
It can be difficult for an agency to keep all its carriers happy. Sometimes a parting of ways is unavoidable. However, agencies have to expect that their carriers will not tolerate insufficient production for long.