Corporate Financial, Inc. v. Principal Life Ins.

• Decision Date: 20 November 2006
• Docket Number: No. 05-20595-CIV.,05-20595-CIV.
• Citation: 461 F.Supp.2d 1274
• Parties: CORPORATE FINANCIAL, INC., and John O'Day, Plaintiffs, v. PRINCIPAL LIFE INSURANCE CO., Defendant/Counterplaintiffs, v. Corporate Financial, Inc. and John O'Day, Counterdefendants.
• Court: U.S. District Court — Southern District of Florida

461 F.Supp.2d 1274

CORPORATE FINANCIAL, INC., and John O'Day, Plaintiffs, v. PRINCIPAL LIFE INSURANCE CO., Defendant/Counterplaintiffs, v. Corporate Financial, Inc. and John O'Day, Counterdefendants.

No. 05-20595-CIV.

United States District Court, S.D. Florida.

November 20, 2006.

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Barry Adam Postman, Cole Scott & Kissane, West Palm Beach, FL, Joseph Michael Matthews, Colson Hicks Eidson, Coral Gables, FL, for Plaintiffs/Counterdefendants.

Anthony Pogorzelski, Cory V. Calmes, Marilyn Joyce Holifield, Holland & Knight, Miami, FL, for Defendant/Counterplaintiffs.

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

UNGARO-BENAGES, District Judge.

THIS CAUSE is before the Court upon Defendant's Motion for Summary Judgment, filed March 10, 2006 (DE 114), and Plaintiffs' Motion for Partial Summary Judgment on Defendant's Counter Claims, filed March 10, 2006 (DE 122). Plaintiffs responded to Defendant's Motion for Summary Judgment on March 29, 2006, and Defendant replied on April 5, 2006. On March 27, 2006, Defendant responded to Plaintiffs' Motion for Partial Summary Judgment and Plaintiffs replied on April 3, 2006. These matters are now ripe for disposition.

THE COURT has considered the motions and the pertinent portions of the record and is otherwise fully advised in the premises.

FACTS

Plaintiff Corporate Financial, Inc. ("CFI") is an insurance consulting and marketing organization incorporated in Florida with its principal place of business in Miami-Dade County. (Joint Pretrial Stip. Statement of Uncontested Facts ¶ 1, 4.) Plaintiff John O'Day formed CFI in 1993 and is its sole shareholder. (O'Day Dep. 17-18.) Defendant Principal Life Insurance Co. ("Principal Life") is an Iowa stock insurance company that is licensed to conduct business and sell insurance products in Florida. (Joint Pretrial Stip. Statement of Uncontested Facts ¶ 2, 3.) Between September, 1993 and August, 2003, CFI placed Principal Life group insurance policies with CFI clients.

The parties' business relationship was governed principally by a series of Principal Life form contracts.¹ Initially, in September 1993, O'Day, on behalf of CFI, executed Principal Life's Select Broker Contract and Broker Expense Allowance Agreement ("1993 Broker Agreement") (Compl. Ex. A; Principal Form # DD715) pursuant to which, inter alia, CFI was appointed a Principal Life broker. This agreement provided in relevant part that it was terminable at will by either party upon written notice conforming to the requirements of the agreement and provided for the payment of some commissions subsequent to termination. (Id.) In January 2001, CFI and Principal Life entered into a Group Compensation Agreement (the "2001 Group Compensation Agreement"). (Compl. Ex. B; Principal Form # CA 351.) This agreement provided in relevant part for the payment of commissions on "premium received" on group policies in accordance with certain schedules "[w]hile this agreement is in force," and was terminable by Principal Life upon written notice. The 2001 Group Compensation Agreement was amended several times (Joint Pretrial Stip. Statement of Uncontested Facts ¶ 13) and on or about April 29, 2003, Principal Life and CFI executed a new Group Compensation Agreement (the "2003 Group Compensation Agreement"). (Compl. Ex. E; Principal Form # 423.) This agreement also provided in relevant part for the payment of commission on premium received for group policies in accordance with Principal Life's schedules "while this agreement is in force and subject to its provisions," but it was terminable at will by either party "at any time for any reason." Additionally, beginning in 2001, CFI and O'Day participated in Principal Life's Non-Medical Bonus Program for Brokers. (Pls.' Stmt. Facts Not in Dispute ¶ 7.) In this program, brokers could earn production and persistency bonuses calculated in accordance with certain formulas for placing and maintaining group non-medical insurance business with Principal Life. Principal Life's written materials describing the bonus program stated: "Final determination of the bonus amount and/or payment rests solely with Principal Life. The bonus formula may change or terminate at any time without prior written notice." (Def.'s Ex. 89, 90, 91.)

Beginning in September or October of 2002, Michael Robinson, a Principal Life vice president, had discussions with O'Day regarding compensation strategies for placing Principal Life's products with large hospital clients, a sector in which commissions tend to be driven down by competition. (Robinson Dep. 20-23). Robinson suggested the production and persistency bonus program as a vehicle by which O'Day could reduce his commissions in order to compete successfully for the large hospital business but still earn money on these clients. (Id.) Robinson testified, "We reached a conclusion that Principal [Life] would waive the component of the bonus program that required a certain number of coverages each year, and that if we did that, John [O'Day] would then begin to reduce the commissions that he would charge to a client for a specific client or a specific line of coverage with a client." (Id. at 23: 10-16.)

On February 5, 2003, Robinson wrote a letter to O'Day at CFI "to provide clarification" on the issue of bonuses about which "[O'Day had] been in discussion with Dan Castrillon and [Principal Life] over the past few months." (Pls.' Ex. 21; Robinson Letter 2/5/03.) Robinson wrote, "We are waiving the coverage count requirement in our bonus program for your block of business. This will put you in our bonus program immediately based on 2002 premium received. This waiver is also valid for 2003." Id. Then on April 14, 2003, Daniel Castrillon, Senior Sales Representative for Principal Life, sent O'Day an email stating, "Per our conversation, we are willing to offer you a 4% persistency bonus. The bonus is contingent on premium requirements being satisfied." (Def.'s Ex. 3; O'Day Dep. Ex. 197.)

Among the many clients with whom CFI placed Principal Life non-medical group coverage were Stiefel Laboratories, Inc., Baptist Health South Florida, Mount Sinai Medical Center of Greater Miami ("Mt.Sinai"), BayCare Health Systems of St. Petersburg ("BayCare") and National Beverage Corporation ("National Beverage").² These coverages were placed prior to Robinson's February 5, 2003 letter: specifically, CFI placed Principal Life group coverage with Stiefel Laboratories, Inc. and Baptist Health South Florida prior to 2002 (CFI Dep. 17-18, 62: 20-24); CFI placed Principal Life coverage with BayCare in 2001 effective January 1, 2002; and CFI placed Principal Life coverage with National Beverage and Mt. Sinai in 2002 effective January 1, 2003. (O'Day Dep. 361: 16-19; Reeder Dep.14: 18-25, 15: 1-11, 18: 16-18; Hatcher Dep. 18: 9-12, 21: 19-25, 22: 1-5.) Additionally, in 2001, CFI purchased Principal Life group insurance for its own employees, effective in 2002. (Joint Pre-Trial Stip. Statement of Uncontested Facts ¶ 9; CFI Dep. 18-19.)

Following a conversation with Castrillon about discrepancies in prior claims history for one of CFI's clients, Kim Little, Investigative Consultant for Principal Life, opened an investigation of O'Day and CFI. (Little Dep. 82-84.) On August 25, 2003, by letter from Little, Principal Life terminated CFI's appointments and contracts without cause, effective 60 days thereafter. (Joint Pretrial Stip. Statement of Uncontested Facts ¶ 14; Compl. Ex. F.)

Then, on August 28, 2003, Little sent a letter to the State of Florida, Department of Insurance (the "Department") that Principal Life had decided to terminate CFI and O'Day's appointment³ due to "company request." The letter informed the Department that "[I]t has come to our attention that ... additional prior carrier claim information provided to us by Mr. O'Day was incorrect." (Little Dep. Ex. 64.) The letter also explained that O'Day said that he did not alter the information and did not know who would have. (Id.) The letter concluded that "Since the prior carrier will not communicate further with us to confirm the accuracy of the information, we terminated Mr. O'Day's appointment due to `company request' and provided 60 days notice as provided by Florida Law." (Id.)

Little wrote two subsequent letters to the Department. The first letter, dated March 9, 2004, stated that it was "in response to our recent telephone conversation in which you asked for additional information concerning the earlier reported situation concerning John O'Day." (Pls.' Ex. 71.) The March 9 letter offered information including the amount of commission received by O'Day for the Mt. Sinai policy, the difference in premium calculated by Principal Life between the original quote and the reduced quote based on "altered information" provided by O'Day, and the amount of claims paid. (Id.) The letter also stated, "The policy issued 1-1-03 ... was written with inappropriate Life Insurance rates due to inaccurate information given to us by Mr. O'Day." (Id.) The second letter, dated September 28, 2004, began "In our recent telephone conversations concerning [O'Day], I mentioned to you that we had discovered an additional situation in which Mr. O'Day provided us with incorrect information, causing us to improperly rate an employer Life and Long Term Disability policy." (Pls.' Ex. 79.) The letter then explained that information forwarded directly from BayCare for 2000 and 2001 did not match premium and claim totals for the same period provided by O'Day. (Id.) The letter stated that there were discrepancies in documents and that names on documents from O'Day did not match names on documents from BayCare and that there were significantly more claims on the BayCare documents. (Id.) On January 5, 2005, the Department closed the investigation related to Mt. Sinai in a one page report which stated, "After reviewing the case and speaking...