Burke v. Hawkeye Nat. Life Ins. Co.

• Decision Date: 19 June 1991
• Docket Number: No. 89-1294,89-1294
• Citation: 474 N.W.2d 110
• Parties: Robert J. BURKE, Appellee, v. HAWKEYE NATIONAL LIFE INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 110

474 N.W.2d 110

Robert J. BURKE, Appellee, v. HAWKEYE NATIONAL LIFE INSURANCE COMPANY, Appellant.

No. 89-1294.

Supreme Court of Iowa.

June 19, 1991.

As Amended on Denial of Rehearing Sept. 12, 1991.

Diane M. Stahle, Gene R. La Suer, and Stanley J. Thompson of Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C., Des Moines, for appellant.

Sam S. Killinger of Rawlings, Nieland, Probasco, Killinger, Ellwanger, Jacobs & Mohrhauser and David L. Reinschmidt and Stanley E. Munger of Munger Law Firm, Sioux City, for appellee.

Considered by McGIVERIN, C.J., and LARSON, SCHULTZ, NEUMAN, and SNELL, JJ.

NEUMAN, Justice.

This suit began as a breach of contract action against an insurance company by one of its former independent agents. As originally pled, the suit also claimed that the company interrupted "plaintiff's commercial relationships with others." Four years later, in the midst of a bench trial, the agent was allowed to amend his petition to add a claim for actual and punitive damages caused by the company's alleged tortious interference with prospective business relations. The district court then awarded the agent $117,400 in actual damages and $250,000 punitive damages. On the company's appeal from these awards we affirm in part, reverse in part, and remand for entry of a corrected judgment.

I. The dispute centers on a customer list developed by plaintiff Bob Burke over the fourteen years he sold life insurance as an independent agent for defendant Hawkeye National Life Insurance Company. In fact, Burke developed the customers, not the list. The list was generated at the company's home office in Des Moines in connection with an aggressive scheme to market a new insurance product in late 1981 and early 1982. Unbeknownst to Burke, Hawkeye released the list to newly-hired agents in Burke's territory a month before Hawkeye summarily terminated Burke's agency relationship with the company.

For many years prior to his termination, Burke had been one of Hawkeye's star salesmen. His success was routinely heralded at company banquets and rewarded with expense paid vacations. Over the years he wrote over 2000 Hawkeye policies. Burke's loyal customers were familiarly described at trial as his "nest."

As an independent agent, Burke was licensed to do business with a number of companies, depending on the insurance needs of his customers. He was encouraged to secure renewals and new policies for Hawkeye, however, because of the "vesting" provision of his agency contract. The contract provided that, even upon termination of the agency relationship, the agent would continue to receive renewal commissions on policies written so long as renewal premiums received by the company in any twelve-month period equaled or exceeded $10,000. These "vested renewals" were touted by company officials as security for retired agents.

In the early 1980s the amount of new business generated by Burke for Hawkeye declined. The decline was fueled by several factors. First, Burke suffered a temporary health-related disability. This disability, combined with the knowledge that he had developed a secure "nest" of customers, prompted Burke to cut back on his production. Perhaps more importantly, however, the insurance industry was generally in a state of flux. The products offered by Hawkeye were outdated and less competitive than products offered by other companies Burke represented. While retaining his loyalty to Hawkeye on renewals, Burke tended to place new business elsewhere.

Hawkeye was not insensitive to the industry-wide changes that were impacting its agents' sales. In late 1981 and early 1982 it contracted with Preferred Marketing Associates (PMA) to design and market a new life insurance product called the "twelve-by-twelve." The financial return on this new policy was far superior to former products and created an incentive for policyholders to cash in former policies to invest the cash values in the new product. As part of its deal with Hawkeye, PMA furnished a sizable sales force to market the new product.

Burke sold twenty-three of Hawkeye's twelve-by-twelve policies in the first two months they were marketed. He soon learned, however, that other PMA salesmen were calling on "his" customers in Plymouth County. Burke angrily confronted the company's agency director about this development. Although the evidence is contradictory whether Hawkeye crossed out or highlighted Burke's customers on a list of Hawkeye policyholders given to the PMA sales force, it is clear that Burke's customers were actively solicited and ultimately canceled policies originally written by Burke. As a result Burke's renewal commissions decreased markedly. Burke's agency relationship with Hawkeye was terminated the day following his complaint about the solicitation of his business.

Burke sued Hawkeye for breach of contract, claiming the company's distribution of his customer list violated his right to vested renewals under Hawkeye's agency contract. Hawkeye defended on the ground that Burke's contract was terminable at will by either party, and that Hawkeye had every right to contact its policyholders both before and after Burke's termination.

The district court found that just before and immediately following Burke's termination, Hawkeye agents replaced approximately 215 policies written by Burke, thereby eliminating not only his vested renewals from those policies, but reducing the opportunity for sizable first-year commissions on the new policies, subsequent renewal commissions and service fees. The court awarded Burke $65,000 for lost sales commissions, $8000 for renewal commissions, $9400 in service fees, and $25,000 for loss of business opportunity. Because the court found Hawkeye's actions were done deceptively with malice towards Burke, it entered judgment for punitive damages of $250,000.

II. The principal question on appeal is whether Hawkeye's distribution of Burke's customer list either violated the parties' agency contract or amounted to a tortious interference with Burke's business relationships. Hawkeye contends the record does not support recovery, legally or factually, on either theory. Moreover, Hawkeye charges the trial court abused its discretion by allowing a midtrial amendment to allege punitive damages four years after the case was filed.

Our review is for the correction of errors at law. The district court's findings of fact have the effect of a special verdict and are binding on us if supported by substantial evidence. Iowa R.App.P. 14(f)(1); Waukon Auto. Supply v. Farmers & Merchants Sav. Bank, 440 N.W.2d 844, 846 (Iowa 1989).

III. The weight of authority clearly indicates that an independent insurance agent's right to renewal commissions must arise from a contract:

Generally an insurance agent is considered to have no vested rights in commissions on renewal premiums, but rather his right to be paid such commissions must be based entirely upon the terms of his contract....

16B J. Appleman, Insurance Law and Practice § 9001, at 236 (1981). We adhered to this rule in McPherrin v. Sun Life Assurance Company of Canada, 219 Iowa 159, 257 N.W. 316 (1934), where we stated:

[The agent's] right to renewal commissions is in no sense a vested right. It is a contractual right and can be enforced only upon an affirmative showing by appellant that he has fulfilled and carried out the terms of the contract relied upon....

Id. at 161, 257 N.W. at 317; accord Preferred Marketing Assocs. Co. v. Hawkeye Nat'l Life Ins. Co., 452 N.W.2d 389, 394 (Iowa 1990); see also Baker v. Penn Mut. Life Ins. Co., 788 F.2d 650, 659 (10th Cir.1986) ("Plaintiff's right to vestings exists solely because of and is circumscribed by his contract with Penn Mutual, which is the reference point for determining the rights and duties of the parties."); Geiss v. Northern Ins. Agency, 153 N.W.2d 688, 690 (N.D.1967) (same); Lee v. Wisconsin Physicians Serv., 76 Wis.2d 353, 356-58, 252 N.W.2d 24, 26 (1977) (same).

The record reveals that Hawkeye continued to pay renewal commissions pursuant to the contract on those policies remaining in force after Burke was terminated. Burke convinced the district court, however, that he "owned" his list of customers for purposes of writing and replacing additional business. Thus to the extent that Hawkeye interfered with that ownership interest by writing replacement policies that eliminated Burke's renewal commissions, Burke claims Hawkeye violated his vesting privileges under the contract.

The weak link in Burke's contract argument is the lack of any binding agreement between the parties, written or oral, concerning "ownership" of Burke's customers. There appears little dispute that the written contract is silent on the question. Clearly the policyholder information was as accessible to Hawkeye as to Burke. In the absence of an agreement giving an agent the exclusive right to use such information, we have held both agent and principal are free to solicit insurance business based on customer records contained in their respective files. Ballagh v. Polk-Warren Mut. Ins. Ass'n, 257 Iowa 1334, 1342-44, 136 N.W.2d 496, 501 (1965).

As for any oral agreement between the parties, its terms and evidence of its breach are ordinarily questions for the trier of fact. Dallenbach v. Mapco Gas Prods., Inc., 459 N.W.2d 483, 486 (Iowa 1990). Although the district court made a finding that "the customer list belonged to the plaintiff" as a matter of "written and oral contracts," we can find no substantial evidence in the record to support those conclusions. To sustain proof of an oral contract, the terms must be sufficiently definite for a court to "determine with certainty the duty of each party and the conditions relative to performance." Severson v. Elberon Elevator, Inc., 250 N.W.2d 417, 420 (Iowa 1977). Evidence of Burke's reliance on industry custom and vague company promises about the "nest egg" he was...