Fred Miller Co. v. Empire Fire & Marine Ins. Co.

• Decision Date: 16 September 1974
• Docket Number: No. 74-1187,74-1187
• Citation: 503 F.2d 751
• Parties: FRED MILLER CO., Appellant, v. EMPIRE FIRE & MARINE INSURANCE CO., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 751

503 F.2d 751

FRED MILLER CO., Appellant, v. EMPIRE FIRE & MARINE INSURANCE CO., Appellee.

No. 74-1187.

United States Court of Appeals, Eighth Circuit.

Submitted June 14, 1974.

Decided Sept. 16, 1974.

L. R. Magee, Kansas City, Mo., for appellant.

William H. Sanders, Kansas City, Mo., for appellee.

Before GIBSON, Chief Judge, and BRIGHT, and WEBSTER, Circuit Judges.

GIBSON, Chief Judge.

This appeal presents an important question regarding the rights and liabilities of an insurance company and a general agent upon termination of a general agency agreement. This diversity suit was brought by Fred Miller Co. (Miller), a general agent, against Empire Fire & Marine Insurance Co. (Empire) to recover for an alleged interference with Miller's use and control of expirations ¹ guaranteed him by the terms of the general agency agreement. ²

The District Court, without objection of the parties and in order to spare them the unnecessary expense of a trial, ruled after a pretrial hearing that Miller could not make a submissible case under principles enunciated in Otto v. Imperial Casualty & Indemnity Co., 277 F.2d 889 (8th Cir. 1960) and entered final judgment for defendant. Miller brings this appeal.

Miller and Empire executed a general agents agreement October 6, 1960, which, except for amendments dealing with commission rates, remained in effect until Empire gave notice of termination July 26, 1972, effective 45 days after receipt. This termination was pursuant to a provision of the agreement which allowed either party to cancel without cause upon 45 days notice.

All of the insurance that Miller placed with Empire was referred to his agency by independent insurance agents. ³ These local agents would forward a particular insurance risk to Miller, who in turn would place it with Empire or another of the insurance companies with which Miller had agency agreements. ⁴

Thus there was in operation a fourtiered system. An insured would go to a local agent to obtain insurance for a particular risk. This local agent might in some instances place the insurance directly with an insurance company or broker the policy through a general agency like Miller. Miller, upon receiving an application from a local agent, would then place the insurance with one of the companies he represented. This four-tiered relationship becomes important to a later analysis of what rights, if any, were secured to Miller upon termination of the agency agreement.

The interference complained of occurred after termination of Miller's agency agreement. Empire in the fall of 1972 undertook a series of mailings to licensed insurance agents as listed in the Missouri Underwriters Handbook in Missouri soliciting them to become agents for Empire. Higher commissions than could be obtained by brokering their policies through a general agent and lines of insurance not previously available were offered. Miller claims the effect of this blanket mailed solicitation was to prevent the local agent from placing renewals of their policies with Miller.

Miller claims that this solicitation by Empire interfered with the undisputed possession of the use and control of expirations guaranteed him by paragraph 16 of the agency agreement upon termination. Empire contends that the person who owns and controls the expirations in question is not Miller but the local agent who brokered the business with plaintiff and thus there could be no interference by a direct solicitation of these agents. The District Court, in granting judgment for defendant on the basis of Otto, apparently agreed with Empire that Miller had no property right in the expirations or renewals of the insurance policies, and, therefore, even if there could be said to be an interference, it would not be actionable.

The question for our decision is whether Otto requires a conclusion that Miller has no property rights which were legally protected by the contract from company interference. ⁵ This interpretation of Otto is based upon our discussion in Otto of Woodruff v. Auto Owners Inc. Co., 300 Mich. 54, 1 N.W.2d 450 (1942). Therein we stated:

There, as here, it was the sub-agent who owned the expirations, not the general agent who was apparently trying to collect for them. * * * We thus conclude that plaintiff had no ownership of or control of the Gordon business such as would entitle him to recover in the circumstances here shown by the evidence.

Otto v. Imperial Casualty & Indemnity Co., supra, 277 F.2d at 894-895. ⁶

It is important then in interpreting Otto to determine the circumstances shown by the evidence in that case. Otto was appointed an agent of Imperial Casualty in July, 1957. During the continuance of the agreement and with the knowledge of Imperial the majority of the insurance written through Otto came from a G.E.M. store insurance counter operated by a subagent, Milton Gordon. Otto had no contract with Gordon requiring him to place this insurance through Otto. Imperial terminated Otto's agency agreement March 1, 1958. Sometime in March, 1958, Gordon approached Imperial and requested and received appointment as an agent. Otto then brought suit against Imperial alleging that Imperial 'entered into a plan to purloin the 'block of business' generated by Plaintiff.' The trial court granted a directed verdict and this was affirmed on appeal.

The facts in Otto were stated to be identical with Woodruff v. Auto Owners Ins. Co., supra. In Woodruff, an agent sued for an alleged interference with his rights in expirations after termination of his agency by the defendant company. Plaintiff received a $5,000 jury verdict but this was reversed and judgment entered for defendant on appeal. In Woodruff, a Mr. Keyser solicited business in defendant company for Woodruff's agency. After termination of the agency, Keyser requested and received appointment as one of defendant's agents. This was determined not to be a malicious interference by the company with any of plaintiff's rights. The court noted that to make a case for the jury 'there must be competent testimony tending to prove that defendant maliciously interfered with plaintiff's property rights in his expirations or expiration data.' Woodruff, supra at 457. In discussing the extent of plaintiff's rights the court noted:

We think it is clear that the full purpose of and the need for the application of the custom established by the American Agency System is that the so-called clientele or established business of an insurance agent may be preserved to him as far as possible upon the termination of his agency. To this extent, and no further, the custom should be respected and enforced. * * * The insurer is only denied what would otherwise be legitimate in the way of attempting to appropriate to itself or some other of its agents the business which under the established custom belongs to the agent with whom the principal has severed its relations.

Woodruff v. Auto Owners Ins. Co., supra, 1 N.W.2d at 453.

The court in Woodruff, as was this court in Otto, was impressed by the fact that the expirations there in question were actually a property right of the subagent and not the agent recently terminated. This same situation is admittedly true in the present case. However, to recognize this does not require a conclusion that the terminated agent has no right in the expirations, nor does Otto or Woodruff appear to go this far. It is important to place the rights involved in the insurance field within perspective. Paramount of course are the rights of the insured. No matter who, as a matter of custom or contract, may be considered to own the expirations to a given policy, it is always open to the insured to place his business with whomever he pleases. But cf. Kerr & Elliott v. Green Mountain Mut. Fire Ins. Co., 111 Vt. 502, 18 A.2d 164 (1941). Thus, even though a subagent or local agent may be considered owner of the expiration, the insured may bypass the subagent or local agent and go directly to the general agent or the company and assert his unwillingness to purchase through the subagent. A renewal of the policy in these circumstances will not be considered an interference with expirations. Northwest Underwriters, Inc. v. Hamilton, 151 F.2d 389, 392 (8th Cir. 1945). But this is no support for the converse of that proposition, that a general agent or the company may bypass the subagent or local agent and go directly to the insured on their own initiative.

Next within the structure of the insurance field is the agent who deals directly with the insured. This agent may be a general agent in some instances, or like the present case a local agent who brokers the insured's business through a general agent with a particular insurance company. Unless otherwise modified by contract, this agent is considered to own the expiration in a particular insured's business. Otto v. Imperial Casualty & Indemnity Co., supra; Woodruff v. Auto Owners Ins. Co.,supra. This ownership and control of expirations is a protection of the work product of the individual agent and in this ownership and control he is protected from any interference with his relationship to the insured by the insurance company, or in a situation like the present case, a general agent through which he brokered the policy. ⁷ Woodruff v. Auto Owners Ins. Co.,supra; Kerr & Elliott v. Green Mountain Mut. Fire Ins. Co., supra; 16A J. Appleman, Insurance Law and Practice, 9025 at 179-80 (1968). However, as we noted previously, he is not protected against acts of the insured which may defeat his ownership and control of the expirations.

Apart from this pattern of the industry which can be considered a three-tier system where there is the insured and his agent who deals directly with the insurance company, there exists a pattern personified in the present case where a fourth party is inserted between the company and the insured's agent. A general agent such as Miller who places policies with a company...