An Indiana insurance brokerage sued an agent who refused to return the commission he had been paid for a life insurance policy that had been cancelled.
The agent signed a contract with the brokerage in 2014. One provision of that contract held that, should a policy on which he had been paid commission be cancelled for any reason, the commission would be charged back to the brokerage. The provision obligated him to pay the chargeback immediately. It also gave the brokerage the right to offset his future commissions by the amount of the chargeback.
In August 2015, the brokerage obtained a life insurance policy for him from a major insurer for one of his clients. The insurer paid him the commission and the brokerage paid him an override.
Three years later, the insured got into a dispute with the insurer about the policy. In early 2019, they settled the dispute and cancelled it. In March, the insurer sent the agent an invoice for a chargeback in the amount of $117,572.11. The brokerage paid most of that amount to the insurer, then billed him for the commission and the override, a total of $161,847.40. He refused to pay it and the brokerage sued him. They asked the court for “summary judgment,” a verdict in their favor based on the law when there is no dispute over the facts.
The brokerage claimed that he had violated his contract’s Commission Reimbursement Agreement. The agent argued that the agreement was time-limited, not perpetual. He claimed that the agreement applied only to policies that were cancelled within one year of their inception. The policy in this dispute was in effect for more than three years. His point was that life insurance policies by their nature are long-term contracts that could be in effect for 20 years or more. As the judge’s opinion said, “(H)e argues that an indefinite obligation to repay commissions would be illogical.”
The brokerage pointed to the wording in the agreement, which had no time limit. The agent, who had an 11-year history of selling life insurance, said that a one-year limit was the industry standard. Indeed, he said that he had “sold numerous insurance policies issued by (this insurer), both before and after this one, each subject to earning commissions and chargebacks if cancelled within the policy’s first year.”
The brokerage also claimed that the agent unjustly enriched himself by retaining the commissions.
In 2021, the judge refused to grant summary judgment for the brokerage. He said that there was a dispute over the reasonable length of a commission reimbursement agreement. When the facts are in dispute, summary judgment is not appropriate. “Because there is no condition in the agreement that would terminate (the agent’s) obligation at a specific time,” he wrote, “the parties are ‘assumed to have had in mind a reasonable time’ for his performance.” A rational jury could conclude that the industry standard is a reasonable time limit.
He also ruled that the brokerage’s unjust enrichment claim was superfluous and gave a verdict in the agent’s favor on that. On the breach of contract claim, he ordered a trial. This decision was announced in 2021 and there is no further record of court proceedings, indicating that the two sides settled out of court.
The brokerage used overly broad and vague language in the Commission Reimbursement Agreement. The judge found it to be too one-sided and refused to enforce it as written. For the agent’s part, it does not appear that he attempted to negotiate a one-year limit into the agreement, even though he believed that to be the industry standard. This litigation could have been avoided if the two sides had negotiated more precise terms in the contract. Neutral observers might conclude that forcing a producer to return commissions on a life policy in effect for 20 years is unreasonable. Allowing an indefinite agreement to form part of the contract was a mistake for both sides.
