Frontier Management Co. v. Balboa Ins. Co.

• Decision Date: 02 December 1985
• Docket Number: Civ. A. No. 85-4220-S.
• Citation: Frontier Management Co. v. Balboa Ins. Co., 622 F.Supp. 1016 (D. Mass. 1985)
• Court: U.S. District Court — District of Massachusetts
• Parties: FRONTIER MANAGEMENT CO., INC., et al., Plaintiffs, v. BALBOA INSURANCE COMPANY, et al., Defendants.

622 F. Supp. 1016

FRONTIER MANAGEMENT CO., INC., et al., Plaintiffs, v. BALBOA INSURANCE COMPANY, et al., Defendants.

Civ. A. No. 85-4220-S.

United States District Court, D. Massachusetts.

December 2, 1985.

James E. Grumbach, Morrison, Mahoney & Miller, Boston, Mass., for plaintiffs.

Jeffrey Swope, Palmer & Dodge, Boston, Mass., for defendants.

MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION

SKINNER, District Judge.

In this diversity action, plaintiffs seek to enjoin the defendants from terminating a managing general agency agreement ("MGA Agreement"). On November 13, 1985, I issued an ex parte temporary restraining order preventing the defendants from cancelling the MGA Agreement, and on November 20, 1985, a hearing was held on plaintiffs' motion for a preliminary injunction.

Briefly, this dispute concerns the decision by defendants Balboa Insurance Company, Meritplan Insurance Company and Newport Insurance Company (collectively "Balboa") to get out of the taxi and related nonstandard automobile insurance business. Since 1983, Balboa has provided liability insurance for taxis, limousines, nonemergency medical vehicles, airport vans and social service vehicles (the "Public Transportation Program") in 48 states. Balboa operates as a "fronting" company in providing this insurance. As the fronting company, Balboa receives a percentage of the premiums for insurance written under the Public Transportation Program. However, the Program is administered by a managing general agent, originally Southern Underwriting Managers, Inc., pursuant to the MGA Agreement, and all risk of loss for the insurance issued under the Program is transferred to Balboa's reinsurer, Omaha Indemnity, pursuant to a Reinsurance Agreement.

On June 28, 1984, Southern Underwriting Managers, Inc. assigned the rights and liabilities under the MGA Agreement to plaintiff Frontier Management Co., Inc. ("Frontier"). The assignment was accepted by Balboa on December 21, 1984. As managing general agent, Frontier actually underwrites and produces the insurance policies, binds the risks, sets the rates, handles and pays claims, appoints producers (agents and brokers), and collects the premiums. Pursuant to the MGA Agreement, Frontier acts as managing general agent in 48 states, including Massachusetts. Although one of Frontier's agents and brokers, plaintiff Jacques and Company Insurance Agency, Inc. ("Jacques"), is a licensed insurance agent in Massachusetts, Frontier is not licensed. Frontier has no business other than the Public Transportation Program.

On September 9, 1985, Balboa notified Frontier that, due to "changes in direction and philosophy", the MGA Agreement would be terminated effective December 31, 1985. Since September 9, Frontier has been unsuccessfully attempting to find a substitute fronting company. This action was filed on November 12, 1985.

Plaintiffs seek a preliminary injunction requiring Balboa to continue the Public Transportation Program until they find a replacement fronting company. In essence, they claim that defendants did not provide enough notice of the cancellation. The MGA Agreement, ¶ 11, requires 90 days' notice before termination other than for cause. Balboa actually gave Frontier 112 days' notice of the intended cancellation.

To obtain a preliminary injunction, a plaintiff must demonstrate:

(1) that plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that plaintiff has exhibited a likelihood of success on the merits; and (4) that the public interest will not be adversely affected by the granting of the injunction.

Planned Parenthood League of Mass. v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981), quoting Women's Community Health Ctr., Inc. v. Cohen, 477 F.Supp. 542, 544 (D.Me.1979). I find that, while the three other requirements may have been satisfied, plaintiffs have not demonstrated a likelihood of success on the merits of their claims so as to warrant the requested injunction. Accordingly, the motion for a preliminary injunction must be denied in great part.

In the complaint, plaintiffs set forth six causes of action: breach of contract, promissory estoppel, defamation, and violation of various provisions of M.G.L. c. 175. For reasons which will become apparent, the hearing on the preliminary injunction focused upon the alleged statutory violations, and I will begin discussion with them.

Plaintiffs' strongest claim that the notice was inadequate despite the fact that it apparently satisfied the requirements of the MGA Agreement is that the notice was less than the 180 days required by M.G.L. c. 175, § 163, which provides, in pertinent part:

No company shall cancel the authority of any independent insurance agent for ... casualty insurance ... if said agent is not an employee of said company ... unless the company gives written notice of its intent to cancel ... at least one hundred and eighty days before the proposed effective date of such cancellation ...

* * * * * *

Any insurance company and any insurance agent may by written contract agree to modify the provisions of the preceding two paragraphs, other than the requirement of a one-hundred-eighty day notice in the event of a cancellation ...

However, as defendants argue, it seems unlikely that this section applies to the instant situation. Section 163 is not specific, but it apparently pertains to the situation in which an insurance company switches from one agent to another rather than a situation, like the instant case, where an insurance company stops writing a line of insurance. This is apparent from the remedy provided by the statute. A terminated agent may seek reference to referees who will make a finding regarding

whether or not such cancellation ... will so affect the renewal, continuation or replacement of any policies placed with the company through the efforts of the agent, or the services needed by any policyholder doing business with the company as a result of the efforts of the agent, as to justify renewal or continuation of any policies then in effect having been placed with such company by such agent.

M.G.L. c. 175, § 163. In other words, the referees must determine whether cancellation of the agency relationship will have an effect on the continued policies. If the referees find the required effect, the affected policies must be renewed and the cancelled agent given compensation for an additional year. Id. In this case, all policies will terminate on December 31, 1985, so the situation contemplated by § 163 does not exist and the section does not apply.

Further, § 163 does not apply to this case because it applies solely to agreements between licensed insurance agents and insurance companies. Frontier is not a licensed insurance agent. Plaintiffs allege that plaintiff E. Cooper Jacques assigned his insurance agency license to Frontier. Neither party has cited any persuasive authority relating to the validity of such an assignment, but the language of § 163 indicates that an agent's license is personal and cannot be assigned. In light of the above, I conclude that it is unlikely that Frontier will succeed in demonstrating that § 163 applies to this case.

Plaintiffs next argue that M.G.L. c. 175, § 193R, which prohibits an insurer from modifying the rates applicable to certain group marketing plans, prevents Balboa from cancelling the program. The first question is whether § 193R applies. The section only covers "motor vehicle insurance", defined as

any policy of insurance or bond as defined in section thirty-four A of chapter ninety or described in this chapter insuring private passenger vehicles for individuals.

M.G.L. c. 175, § 193R. The parties differ in their reading of this definition as to whether the phrase "insuring private passenger vehicles for individuals" modifies both the "policies ... defined in section thirty-four A of chapter ninety" and "described in this chapter". I would read it to modify both phrases, thus possibly barring application of the section to a program of insurance for commercial taxis and limousines, which may not be considered "private passenger vehicles". However, the Massachusetts Division of Insurance has opined that the Continental Transportation Association, Inc., an association of taxicab and truck owners insured through the Public Transportation Program, is an association which may purchase a group policy on behalf of its members under § 193R. See Letter from Victor A. Fanikos, Counsel, Massachusetts Division of Insurance, to David M. Donovan, Vice President, Jacques & Company Insurance Agency, Inc. (November 8, 1983). I need not decide this question because the portion of § 193R which is alleged to apply to this case only states that

every insurer providing insurance in accordance with this section shall keep ... data on the losses

...