An independent insurance agency sued one of its former producers when several of his clients followed him to his new agency.
The Iowa producer’s tenure with the agency was a relatively short one. He started work there in late December 2021 and left just short of one year later. When he joined the agency, he signed a contract that included several restrictions on his activities for 24 months after his employment ended. The contract forbade him to:
- “… (O)ffer, sell, solicit, quote, place, provide, or renew” any insurance policies for the agency’s clients.
- Provide any related services to them.
- Participate in the signing of broker of record letters that would result in clients leaving the agency.
- Take any actions that would cause a client to leave the agency.
- Do anything to cause a vendor, agent, or broker to stop doing business with the agency.
The producer brought to the agency at least eight clients with whom he’d had pre-existing business relationships. He handled the accounts for the agency.
In September 2021, his wife (also a licensed producer) founded an independent agency. On December 1, 2022, he resigned his position with his agency and began work as a producer for his wife’s agency a month later.
The eight clients he’d brought to his former agency did not stay there long. According to the trial judge’s opinion, each of them stopped doing business with the agency and “submitted declarations stating they would have done so regardless of whether they could or could not have done business with (the producer) through (his new agency).” One of the clients did not buy insurance from the new agency. The judge’s opinion noted, “Other insurance agents would have been able to provide rates and quotes similar to those offered by defendants.”
In June 2023, the former agency sued the producer and his new agency for breach of contract, interference with contractual client relations, and violations of Iowa state and federal law. They asked for an injunction of further activities, damages equal to the lost revenue from the clients, along with litigation costs and attorneys’ fees. The following winter, the producer and his agency asked the court to grant summary judgment, a ruling in their favor based on the law where the facts are not disputed.
In May 2024, the judge found it very easy to grant that motion and rule in favor of the producer and his new agency. The central question was whether their deliberate conduct had caused the damages suffered by the prior agency. The judge concluded that the answer was no. He based that conclusion on submitted evidence showing that the clients:
- Had been doing business with the producer or been referred by someone who did business with him before he joined the agency.
- Used the agency only because he was a producer there.
- Found the agency’s service to be unsatisfactory or their pricing too high after he departed.
- Sought him out at the new agency, as opposed to him soliciting them.
The judge found that the prior agency neither produced evidence to contradict these conclusions nor submitted evidence that the producer caused its damages in some other way. Accordingly, he granted judgment in favor of the producer and his wife’s agency.
The agency in this case followed standard practice by requiring its producer to sign a non-solicitation agreement. Well-managed agencies do this. It is important to remember, however, that these agreements limit what the producer can do after leaving the agency. They do not limit what the clients may do. These clients were loyal to this one individual, not any particular agency where he worked. A producer who does not seek out clients from a former agency is not violating his contract when they seek out him. The best non-solicitation agreement in the world will not stop clients from following a producer they like.
