Agricultural Insurance Company v. Aetna Insurance Company

• Decision Date: 10 October 1925
• Docket Number: 26,312
• Citation: 239 P. 974,119 Kan. 452
• Parties: AGRICULTURAL INSURANCE COMPANY, of Watertown, New York, et al., Appellants, v. AETNA INSURANCE COMPANY, of Hartford, Connecticut, et al., Appellees
• Court: Kansas Supreme Court

239 P. 974

119 Kan. 452

AGRICULTURAL INSURANCE COMPANY, of Watertown, New York, et al., Appellants, v. AETNA INSURANCE COMPANY, of Hartford, Connecticut, et al., Appellees

No. 26,312

Supreme Court of Kansas

October 10, 1925

Decided July, 1925.

Appeal from Shawnee district court, division No. 1; JAMES A MCCLURE, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

CONSPIRACY--Combinations Constituting--Insurance Unions--Evidence. The proceedings in an action to enjoin accomplishment of a conspiracy considered, and held, the findings of fact are sustained by evidence.

Ralph T. O'Neil, John D. M. Hamilton, both of Topeka, and Fred D. Silber, of Chicago, for the appellants.

Bennett R. Wheeler, S. M. Brewster, John L. Hunt, Robert Stone, George T. McDermott, Robert L. Webb, Beryl R. Johnson, all of Topeka, E. H. Hicks and R. J. Folonie, both of Chicago, Ill., for the appellees.

Burch J. Marshall, J., not sitting.

OPINION

BURCH, J.:

The parties to the action are two groups of fire insurance companies who have been represented in certain instances by common agents known as mixed agencies. The form of the action was injunction to prevent defendants from accomplishing a conspiracy. The nature of the conspiracy was to oust plaintiffs from mixed agencies and monopolize the insurance business of the mixed agencies in the territory in which plaintiffs and defendants operate. The method of carrying out the conspiracy was to coerce mixed agencies to resign representation of plaintiffs and to represent defendants only. Plaintiffs were defeated, and appeal.

The stage setting which plaintiffs arranged for the conspiracy was this: In the year 1879 a voluntary association was formed to promote reforms in underwriting. The association was called "The Union," and it is still in existence. The members of the union are officers and managers of fire insurance companies. Membership is personal, not representative. The union has by-laws, rules and regulations for its own government and for the accomplishment of its objects. The governing body is called the governing committee, which is composed of nine members. The activities of the union embrace questions relating to rates, commissions to agents, rules of practice, and in general matters of common interest in the insurance field, subject, however, to the insurance laws and regulations of the various states. The means of communicating "legislation" of the union and disseminating information to members is by publication of confidential bulletins. The union membership includes officers and managers of about 200 insurance companies, including the oldest, richest and best known companies in the United States. Defendants' managers are members. Because of their weight and influence due to past success, the companies affiliated with the union have a dominating position in the insurance world and do eighty-five per cent of the premium business in territory in which they operate. This territory embraces eighteen Middle states of the United States, including Kansas. Insurance companies have no direct contact with the source of premium supply. This contact is made through agents, who procure customers, issue policies and collect premiums. By means of service to the insurance-purchasing public, a reliable, active agent builds up a business which has an income and sale value to him, and marks him as a desirable representative. He becomes agent for different companies, and employment of the same agent by union companies and by nonaffiliating companies produces a mixed agency. Companies supervise their agencies through special representatives called field men. These men are experts who, through capability and experience, are not only able to render technical engineering assistance and advice to local agents, but are also able to engender confidence and good will, and so to exercise personal influence over agents. Plaintiffs for the most part are small companies in respect to capital and volume of business. They lack the prestige of the powerful defendants, do no national advertising, are unable to compete with the service rendered by union companies, and do but fifteen per cent of the insurance business in union territory.

The action of the conspiracy was this: The union field men were confederately launched against the mixed agencies, and the plaintiffs were to be routed by threats of the field men that if the agencies were not cleared union by a fixed date, union policies would be canceled, service to union patrons would be inhibited, union expirations would be transferred, and the union business would be diverted to some other agent. The denouement was terror to the mixed agencies, and if they did not clear union, loss of business, good will and clientele; destruction of the profitable relation between plaintiffs and their agents, and pecuniary and irreparable injury to plaintiffs; and monopoly by defendants of the business of the mixed agencies.

Defendants threw a different picture on the screen. One subject which plaintiffs failed to mention in their petition was that their managers belong to an association organized about the year 1910, called the Western Insurance Bureau, which was patterned after the union in respect to membership, object, character of organization, and method of operation. The bureau has a membership of about 150, and its governing body is called the executive committee. There was no allegation in the petition that the union is an organization existing contrary to law, or morals, or public policy.

On the basis of experience, defendants determined that agents should be compensated by allowing them a percentage of premiums collected, and established a rate. The commission fixed was fifteen per cent, which was acceptable to agents, and was regarded as a fair adjustment of this item of expense, chargeable to cost of insurance to patrons. Afterward, but before the bureau was organized, the union companies were obliged, in order to meet competition for business, to adopt a graded scale of commissions. The scale was fifteen per cent, twenty per cent and twenty-five per cent, based on classification of risks. A competitive weapon of the smaller and less influential bureau companies, particularly since rate-making has been taken over by the states, has been payment of larger commissions to agents, who, like insurance companies, engage in the business of insurance for gain. Use of this weapon has been a disturbing influence upon the business of insurance, similar to rate-cutting, and leads to chaos.

In 1911 the union and the bureau entered into an agreement known as the conference agreement, the purpose of which was to stabilize the business of insurance by adopting safer and more conservative methods, especially with reference to expense of conducting the business. That meant especially with reference to commissions, although there were opportunities for concord in respect to other subjects. The agreement provided that in mixed agencies the union graded scale should be paid, and that neither union nor bureau companies should enter clear agencies of the other. Union companies paid the graded scale in both mixed and clear union agencies, but the bureau companies paid higher commissions in their clear agencies, the differential amounting to 33 1/3 per cent of the union scale upon preferred classes, which constitute the business most desired.

The success of any company depends not only on the alertness and energy, but also on the loyalty of its agents. The relation is fiduciary in respect to the authority of supreme importance which agents possess; but besides that, in mixed agencies the agent must be confidently depended on to distribute business impartially in respect to both quantity and quality. The settled conviction of defendants' managers, long entertained, is that in the hot strife for business there are those who are willing to tempt, and that thirty pieces of silver have power to allure. Under the influence of higher pay for the same service, an agent's service will in fact be different, whether consciously or unconsciously, in quality, degree and manifestation. In any event, mixed agencies in which some companies are willing to pay excessive commissions require more supervision than clear agencies, and separation is sound business policy.

In 1923 the conference agreement was abrogated. Several causes contributed to its collapse, but in the opinion of union managers the differential between union and bureau scales was the primary cause. Abrogation of the conference agreement meant separation, and left union companies and bureau companies free to pursue their divergent policies. Ninety days' notice was necessary before abrogation could become effective. Before the period commenced to run, the bureau gave notice that its scale of commissions would be put into effect in mixed agencies, and this was of course an invitation to the mixed agencies to clear bureau. Of necessity, abrogation became an immediately accepted fact, and plaintiffs actively propagated their seductive influence in the mixed agencies. Some of the defendants acted promptly. Efforts to prevent strife demoralizing to the business failed, and other of the defendants sent their field men to the mixed agencies. The agents were put to their election whether they would represent defendants, and were given time in which to decide. There was no threat of cancellation of policies. Expirations were not taken away. If a union agent went bureau, he took his expirations with him, and his authority to indorse policies, and the like, continued.

The term of agency is at will, and, believing that a principal has the right to say who its own agent shall be, defendants were inclined to view the action as an...