Did a carrier terminate an agency because of the principal’s age or because of the way it did business? That was the question before a federal district court in Michigan.
Worldwide Underwriters, an agency located in a suburb of Detroit, had an agency contract with Liberty Mutual and Safeco. The contract permitted the carrier to terminate it and seize the agency’s ownership of expirations for a material breach of the contract, including “gross and willful misconduct.”
They went a step further and accused the carrier of engaging in a pattern of terminating the contracts of agencies with “older” principals. The principal of Worldwide Underwriters was 60 years old at the time of the termination.
They based on the age discrimination claim on these facts:
- The carrier set the agency’s operating hours
- A carrier representative frequently visited the office and looked through customer files
- The rep made jokes about the principal needing to sell more policies before poor health killed him
- The rep hung out with younger agents at carrier gatherings
The carrier, on the other hand, argued that the termination was justified by gross misconduct, not age bias. By its own admission, the agency had quoted three personal auto policies for African-American individuals who resided within the Detroit city limits. When the principal input their actual addresses, the rating system produced six-month premiums of $49,287.80, $54,864 and $76,142.80. These premiums, he concluded, violated the Michigan law that insurance rates must not be excessive or unfairly discriminatory.
Based on this belief, he re-rated the policies, but this time he used his agency’s physical address (which was outside the city limits) as the garaging address for the vehicles. The result was that the six-month premiums fell to $2,162.90, $4,125.70, and $2,768.50. The principal concluded that rating the policies with the correct address amounted to prohibited redlining.
Since the facts of the case were not in dispute, the carrier asked the court to rule in its favor based solely on the law.
The judge did so, finding that there was no basis for the age bias claim and that the agency actually had engaged in gross misconduct. “Although defendants’ rating criteria may indeed calculate exorbitant insurance rates for applicants who reside in Detroit,” he wrote, “knowingly providing an inaccurate garaging address on customers’ insurance applications was a fraudulent and material misrepresentation. … Defendants were therefore within their rights to terminate their contract with plaintiffs …”
He also found that the carrier did not use termination for cause as a pretext for getting rid of an older agent. One element of proving a pretext is showing that the reasons stated had no basis in fact. The allegation of misconduct was, however, well-supported by the facts.
The amounts of the six-month auto premiums the rating system produced with accurate information were shocking. However, the way to address that situation was to look for alternative markets that might offer more affordable premiums. Misrepresenting the garaging locations on the applications was the wrong way to do it. Had there been covered losses, the carrier might have been within its rights to deny coverage based on material misrepresentation.
Not only did the agent place his clients’ financial well-being in jeopardy, he also risked his license. The model producer licensing law adopted by most states permits the insurance regulator to suspend or revoke a producer’s license for “intentionally misrepresenting the terms of an actual or proposed … application for insurance,” “using fraudulent … practices, or demonstrating … untrustworthiness” in the conduct of business.
The agent made false statements on applications and risked his license to artificially reduce premiums and make a point. The carrier was fully justified in ending the relationship. No agency should ever try these things. The ending is never good.