People sometimes become insurance agents believing that it is an easy career path to a high income. One individual seemed to hear only what he wanted to hear, and he sued the carrier when his expectations were not met.
A newly-divorced Kansas man was employed as a sales representative. With shared custody of his young child, he decided that he needed to change jobs and find something that better fit his parental responsibilities. He had a cousin who was an agent for an insurance carrier that sells its products through exclusive agents. The cousin suggested there might be opportunities for him to take over a couple of agencies, even though he had no experience in the insurance industry. The agent working out of one office was retiring; the agent for the other had left, and no one remained to service the office’s clients.
He contacted his cousin’s district sales manager. The agencies in question were not in her sales territory, but she met with him anyway to discuss the possibility of his taking them over. He also met with the manager for the territory that did include those agencies. Eventually, he agreed to take over the agencies, based in part on what he later claimed were misrepresentations the carrier made to him, including:
- The managers described the two agencies as a “$100,000 a year opportunity” with the potential for double that.
- He was told he might “have a shot” at acquiring a second agency in one of the towns, as the agent in that office was going to retire.
In his initial testimony, he said that the carrier told him the $100,000 was gross revenue. He later amended his testimony to say that he was told it would be net revenue. One of the managers disputed that account, saying he had no way of knowing what the agent would spend on rent or staff salaries.
In accordance with the carrier’s requirements, he took a pre-licensing course, passed the state examination and obtained a license. The carrier also required him to maintain physical locations staffed by at least one person for each agency. He later testified that he invested $11,000 of his own money and a great deal of his time to meet these requirements. The carrier appointed him as an independent contractor agent in late 2018.
In 2019 the agent netted $14,000 from commissions on retained and new business, after paying expenses. The second agency in the one town was sold to someone else after the agent running it retired.
In March 2020, 15 months after signing the independent contractor agreement, the agent sued the carrier for fraudulently and negligently misrepresenting the revenue potential from the agencies. Later that year, the carrier terminated his contract.
The judge ruled that the agent did not produce evidence that would persuade a reasonable jury that the carrier made false representations to him. Accordingly, the judge ruled in the carrier’s favor, and the agent appealed.
The appellate court upheld the judge’s ruling. Although the agency that had been without an agent lost customers during the time the new agent was preparing to take it over, the court said that loss was foreseeable and “(the agent) chose to go forward anyway.” They found that there was no basis for a reasonable jury to conclude that he had been misled.
The agent seemed to believe that he would make $100,000 on autopilot without possibly losing any customers. The court found this to be an unreasonable interpretation: “Although (the agent) was a neophyte in the insurance business,” they wrote, “the concept is commonsensical: Revenue generated through commissions on a periodically renewable product will fluctuate with the number of existing consumers who choose to renew.”
This agent chose to ignore common sense, believing he would make a high income in his first year without putting in the work to build the business. He may have eventually succeeded, but as anyone reading this knows, successful agencies are not built overnight. Anyone entering the insurance production field should do so knowing that success will come with time and hard work, but there are no shortcuts to that formula.
