Federated Mut. Implement & Hardware Ins. Co. v. Erickson

• Decision Date: 15 August 1961
• Docket Number: No. 50331,50331
• Citation: 110 N.W.2d 264,252 Iowa 1208
• Parties: FEDERATED MUTUAL IMPLEMENT & HARDWARE INSURANCE COMPANY, Appellee, v. Richard E. ERICKSON, Appellant.
• Court: Iowa Supreme Court

Page 264

110 N.W.2d 264

252 Iowa 1208

FEDERATED MUTUAL IMPLEMENT & HARDWARE INSURANCE COMPANY, Appellee, v. Richard E. ERICKSON, Appellant.

No. 50331.

Supreme Court of Iowa.

Aug. 15, 1961.

Fred S. Nordenson, and Ronald E. Runge, Sioux City, for appellant.

Shull, Marshall, Mayne, Marks & Vizintos, Wiley E. Mayne, Sioux City, for appellee.

PETERSON, Justice.

This is an action brought by Federated Mutual Implement and Hardware Insurance Company of Owatonna, Minnesota, against Richard E. Erickson to enjoin him from engaging in a certain type of insurance business in Woodbury, Monona and Plymouth Counties for a period of two years, contrary to the terms of a written contract between them.

Plaintiff hired defendant in June 1956, and at its expense brought him to the home office for two weeks training. Plaintiff is a direct writing insurance company and they assigned him to the three above-named counties. The contract provided he should devote his full time to the work of plaintiff, and that if he left the employ of plaintiff he was prohibited from engaging in similar type of insurance business in said three counties for a period of two years thereafter. Defendant violated the contract by accepting the agency for three other companies during the time he was working for plaintiff, and also by declaring he was going to engage in a similar business in the Sioux City area immediately after his resignation from plaintiff company.

On a hearing on January 14th and 15th, 1960, as to temporary injunction, the trial court granted such injunction. On the trial of the case on June 28th and 29th, 1960, the trial court entered judgment and decree making the injunction permanent for two years from November 30, 1959, the date of defendant's resignation.

Defendant has appealed.

In 1956 defendant was a resident of Montevideo, Minnesota, when he was hired by plaintiff as one of its direct selling agents. He moved his family, consisting of wife and three children, to Sioux City. The parties entered into a written contract on June 1, 1956. This was later superseded by a new written contract dated February 26, 1957. The only change was in connection with method of payment for his services. The following paragraphs were contained in both contracts:

'Paragraph 4. Salesman expressly agrees and states that any and all insurance business at any time or times procured by the Salesman while employed by the Company is and shall be the permanent and exclusive property of the employer and for the employer's exclusive benefit; that the records, use and control of expirations on all such insurance business shall be and remain the absolute and exclusive property of the employer.

'Paragraph 5. Salesman agrees that he will not, within a period of two years following the date of the voluntary or involuntary termination of his employment with employer, either directly or indirectly, by and for himself, or as the agent of another, or through others as his agent:

'(a) Engage in, or in any way be connected with, the fire, casualty and accident and health insurance business in the territory assigned to him or worked by him under this or under any other previous Contracts or Employment, if any, with Employer;

'(b) Divulge the names of Employer's policyholders and accounts to any other person, firm or corporation;

'(c) In any way seek to induce, bring about, promote, facilitate or encourage the discontinuance of, or in any way solicit for and in behalf of himself or others, or in any way quote rates, accept, receive, write, bind, broker or transfer any renewal or replacement of any of the insurance business, policies, risks, or accounts, written, issued, covered, obtained (whether through the efforts of the Salesman or not) or carried by the Employer in any territory or territories assigned to the Salesman under this or under any other previous Contracts of Employment, if any, with Employer.'

Defendant proceeded to perform his services under the contract and made good progress on behalf of both plaintiff and himself during the period he worked. When he came on the job plaintiff had in force and effect policies of insurance on which the annual premiums were approximately $50,000. In 1957 they rose to $68,700. In 1958 they increased to $79,700, and in 1959 the premiums were approximately $99,000. Defendant's earnings through the years were as follows: last half of 1956 $3,284.78; 1957, $6,694.21; 1958, $8,630.17; 1959, (through November 30th) $7,501.

Without any previous discussion with his superiors, defendant called the home office on November 30, 1959, and advised them he was resigning as of that date.

Plaintiff sells a full line of fire, casualty, health and accident insurance. It is what is known as a direct writing company, as distinguished from an agency company. A direct writing company operates through full-time field representatives or salesmen, who represent only one company. The agency company operates through independent insurance agents, who usually are agents for several companies.

I. Appellant's first assignment of error is that the restrictive covenants in the agreement between the parties are illegal, as contrary to public policy.

In considering violation of public policy in an agreement such as in the case at bar, four factors are involved: size of the restricted area; the time element; the type of service performed by the covenantor; and the reasonableness of the situation, as applied to the facts of each case. Swigert & Howard v. Tilden, 121 Iowa 650, 97 N.W. 82, 63 L.R.A. 608; Rowe v. Toon, 185 Iowa 848, 169 N.W. 38; Oates v. Leonard, 191 Iowa 1004, 183 N.W. 462; Proctor v. Hansel, 205 Iowa 542, 218 N.W. 255; 58 A.L.R. 153; Haggin v. Derby, 209 Iowa 939, 229 N.W. 257; McMurray v. Faust, 224 Iowa 50, 276 N.W. 95; Sioux City Night Patrol v. Mathwig, 224 Iowa 748, 277 N.W. 457; Larsen v. Burroughs, 224 Iowa 740, 277 N.W. 463; Brecher v. Brown, 235 Iowa 627, 17 N.W.2d 377; Mutual Loan Co. v. Pierce, 245 Iowa 1051, 65 N.W.2d 405; 41 A.L.R.2d P. 15; 43 A.L.R.2d, P. 159; 17 C.J.S. Contracts § 254; Restatement of the Law, Contracts, Section 516(f).

The case of Sioux City Night Patrol v. Mathwig, supra [224 Iowa 748, 277 N.W. 458], is somewhat similar to the case at bar. Plaintiff was engaged in a night patrol business in Sioux City. It hired defendant as an employee. A written contract was entered into between the parties which provided: '[The second party] shall not engage in the business of Night Patrolling or guarding of the exterior of business properties in Sioux City, Iowa, for a period of two years after the termination of this contract * * *'. The services of defendant were terminated, and he proceeded to solicit business houses to engage in patrol duty in competition with plaintiff. The court said: 'The defendant admitted that he had solicited some of the customers of the plaintiff. The list of customers was valuable property of the plaintiff and constituted the main assets of its business. The plaintiff sought to protect this valuable asset and good will by requiring an express covenant from the defendant that he would not engage in the business of night patrolling for a period of two years after the termination of the contract.'

The trial court sustained a demurrer to the petition. This court reversed saying: 'The allegations of the petition, if proven, made a case for injunction.'

Contracts similar to the contract between the parties in this action have been sustained in various business and professional fields. There are numerous cases involving professional men, particularly doctors.

In Larsen v.Burroughs, supra, defendant was hired by the LeMars Clinic. As a part of his written agreement with the Clinic he agreed that he would not engage in the practice of medicine or surgery in the city of LeMars for a period of ten years after severing his connection with plaintiff. A statement by the court as to the relationship between the parties is as follows:

'The privilege of a duly licensed physician to practice his chosen profession when and where he may wish is a right which the courts will zealously protect, but it is also a privilege which, by valid, voluntary contract, the physician may restrict; providing that such contractual restrictions are reasonable, and not contrary to public policy.' [224 Iowa 740, 277 N.W. 465.]

The restricted period in this case was lengthy, but the injunction was granted by the trial court and sustained by this court.

Another case involving doctors is McMurray v. Faust, supra. The restricted time in said case was five years. It was approved by this court.

The case of Proctor v. Hansel, supra, was a similar action as between osteopathic physicians. The period agreed upon during which defendant should not engage in a competing business in the city of Ames was three years. The trial court granted injunction, which was approved by this court.

In case of Mutual Loan Co. v. Pierce, supra, an injunction was not granted, on the basis that defendant was simply an employee in the office without any services rendered as to solicitation of customers. His only contact with customers was trying to collect delinquent accounts. The court held he had no opportunity to pirate plaintiff's business. A good statement, however, appears in the case as to the elements which should be present to grant an injunction: 'Plaintiff would not be entitled to the injunction without some showing that defendant, when he left plaintiff's employment, pirated or had the chance to pirate part of plaintiff's business; took or had the opportunity of taking some part of the good will of plaintiff's business; or it can reasonably be expected some of the patrons or customers he served while in plaintiff's employment will follow him to the new employment.' [245 Iowa 1051, 65 N.W.2d 408.]

The case of Masden v. Travelers' Ins. Co., 8 Cir., 52 F.2d 75, 77, 79 A.L.R. 469, involved a contract between the insurance...