Harvest Ins. Agency, Inc. v. Inter-Ocean Ins. Co., INTER-OCEAN

Decision Date22 May 1985
Docket NumberINTER-OCEAN,No. 4-484A101,4-484A101
Citation478 N.E.2d 98
PartiesThe HARVEST INSURANCE AGENCY, INC. and the Harvest Life Insurance Company, Appellants (Plaintiffs and Counter-defendants below), v.INSURANCE COMPANY, Appellee (Defendant and Counter-claimant below).
CourtIndiana Appellate Court

Theodore R. Boehm, Terrill D. Albright, Brian K. Burke, John C. Cahalan, Baker & Daniels, Indianapolis, James P. Buchanan, Buchanan & Buchanan, Lebanon, for appellants.

James A. McDermott, Michael Rosiello, Anne N. DePrez, M. Sue Michael, Barnes & Thornburg, Indianapolis, Thomas Whitsitt, Peyton, Giddings, Whitsitt, Baker & McClure, Lebanon, for appellee.

MILLER, Presiding Judge.

Plaintiffs-appellants Harvest Insurance Agency, Inc. and Harvest Life Insurance Co. (collectively "Harvest") and defendant-appellee Inter-Ocean Insurance Co. ("Inter-Ocean") have compiled a voluminous presentation concerning a preliminary injunction issuing from Boone Circuit Court. This injunction in essence prevents Harvest from replacing in-place health and accident insurance policies underwritten by Inter-Ocean in a seven-state area until a trial on the merits, as per a noncompetition covenant between the parties. After reviewing the comprehensive authority cited by both sides and studying the facts, we have reached the conclusion the trial court erred in one very basic respect: Inter-Ocean did not (and very possibly cannot) establish a prima facie case entitling it to relief because the noncompetition clause herein was drafted without limits, particularly geographic and temporal. Order dissolved.

FACTS

Harvest is an insurance agency principally engaged in the sale of various kinds of insurance policies to farm and rural customers. The primary source of such clientele is through subscription lists of magazines targeted for residents of farm communities, such publications in one way or another being directly associated with Harvest either through licensing agreements or as other subsidiaries of Harvest's parent company. Harvest actually sells insurance in twelve states by approximately three hundred agents.

Inter-Ocean is an insurance company which issues accident and health insurance in 25 states. For over 37 years, Harvest has sold accident and health insurance underwritten by Inter-Ocean, and for the six years from 1978 through 1983, their relationship in the states of Indiana, Ohio, Michigan, Missouri, Nebraska, Colorado, and Kansas was governed by six separate written contracts. Each agreement provided an exclusive dealing arrangement for the respective states (except in eastern Indiana) and were substantially identical in their terms. Specifically, Inter-Ocean designated Harvest as its exclusive general agent for the sale of accident and health insurance policies through Harvest's appointed agents. In the event this relationship were ever terminated, the contracts provided that Inter-Ocean would continue to pay to Harvest renewal commissions for policies purchased during the life of those contracts. However, one provision also restrained Harvest's ability to compete with Inter-Ocean after such termination:

"12. Insurance Sales After Termination of Agreement. After the date of the termination of this Agreement either of the parties hereto, directly or through intermediaries, shall have the right to solicit Inter-Ocean policyholders for sales of additional insurance but neither shall have the right to replace existing coverage. Any such solicitation by [Harvest] for sales of insurance underwritten by other than Inter-Ocean shall not be deemed a violation of this Agreement. Additional insurance shall mean insurance sold to supplement or augment the insured's existing coverage and which does not replace such existing coverage."

In June, 1983, Harvest notified Inter-Ocean in writing that their relationship would be considered at an end at the conclusion of the agreements, in December, 1983. In September, 1983, Harvest found cause to file suit against Inter-Ocean and one Bernard Smit, a former Harvest state manager now employed by Inter-Ocean, for misappropriation of trade secrets and confidential information, for unfair competition, and for breach of certain contractual and fiduciary obligations. (Another former Harvest employee, Jack D. Hicks, was added as a party defendant shortly thereafter.) In early 1984, Inter-Ocean filed a counterclaim to prevent Harvest from continuing its systematic replacement of Inter-Ocean's health and accident policies in contravention of the contractual provision, a practice begun shortly after the six agency agreements terminated at the end of 1983. Hearing was held on this counterclaim for purposes of entering a preliminary injunction thereon, and on March 19, 1984, the trial court granted such relief. In doing so, the trial court made the following pertinent findings of facts and conclusions of law:

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7. Each of the Agreements expressly provides, in Paragraph 12, as follows:

12. Insurance Sales After Termination of Agreement. After the date of the termination of this Agreement, either of the parties hereto, directly or through intermediaries shall have the right to solicit Inter-Ocean policyholders for sales of additional insurance but neither shall have the right to replace existing coverage. Any such solicitation by General Agent [i.e., Harvest Agency] for sales of insurance underwritten by other than Inter-Ocean shall not be deemed a violation of this Agreement. Additional insurance shall mean insurance sold to supplement or augment the insured's existing coverage and which does not replace such existing coverage.

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CONCLUSIONS OF LAW

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6. The contractual obligation not to replace Inter-Ocean Coverage is not unreasonably overbroad. Agreements prohibiting solicitation of existing customers to protect the goodwill for which one has been paid are enforceable, even though lacking geographical or time limitations. Because replacement is forbidden only as to a specific and limited class--Inter-Ocean policyholders who purchased their coverage through Harvest Agency--there is no need for limitations in other terms. Seach v. Richards, Dieterle & Co. (Ind.App.1982), 439 N.E.2d 208; Ebbeskotte v. Tyler (1957), 127 Ind.App. 433, 142 N.E.2d 905.

7. Inter-Ocean has established a prima facie case that Harvest Agency has breached, and intends to continue to breach, Paragraph 12 of the Agreements. State ex rel. Haberkorn v. DeKalb Circuit Court (1968), 251 Ind. 283, 291, 241 N.E.2d 62, 67. See also Tuf-Tread Corp. v. Kilborn (1930), 202 Ind. 154, 172 N.E. 353; Indiana Annual Conference Corp. v. Lemon (1956), 235 Ind. 163, 131 N.E.2d 780.

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13. Inter-Ocean has established a prima facie case and an injunction is needed to preserve the status quo.

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20. Harm to the Harvest Companies must also be weighed against the degree to which Inter-Ocean is likely to succeed on the merits. Securities & Exchange Comm'n v. World Radio Mission, Inc. (1st Cir.1976), 544 F.2d 535; Teledyne Industries, Inc. v. Windmere Products, Inc. (S.D.Fla.1977), 433 F.Supp. 710. Moreover, the importance of the balance of the hardships test is diminished where, as here, Harvest has willfully violated a known contactual [sic] right of Inter-Ocean. Flower Haven, Inc. v. Palmer (Colo.App.1972), 502 P.2d 424, 426; Orkin Exterminating Co. v. Burnett (1967), 259 Iowa 1218, 146 N.W.2d 320, 326-27. Inter-Ocean has shown a strong probability of success on the merits of its claim that Harvest has breached, and is breaching, Paragraph 12 of the Agreement.

21. In light of the facts presented and the law, the Court finds that the balance of hardships tips in favor of Inter-Ocean.

22. The public interest is served by enforcement of voluntarily made contracts whose terms make them neither illegal nor contrary to public policy. Unishops, Inc. v. May's Family Centers, Inc. (Ind.App. [1980], 399 N.E.2d 760, 764; Oxman v. Profit[t] (1962), 241 S.C. 28, 126 S.E.2d 852. Thus, issuance of this injunction will not disserve the public interest.

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24. The public will not be prejudiced by enforcement of Paragraph 12. Enjoining Harvest Agency from replacing existing coverage will not limit the availability of accident or health insurance in the seven-state area since there are many other competitors in that area.

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Preliminary Injunction

WHEREFORE, the court hereby enters the following preliminary injunction against the Harvest Companies with respect to its insurance sales in the states of Ohio, Michigan, Indiana, Kansas, Missouri, Nebraska, and Colorado:

1. The Harvest Companies are ordered to use an application procedure which requires their agents to determine from the applicant, and to record in writing at the time of application: (a) all types of Harvest coverage applied for; (b) all types of Inter-Ocean Coverage in force; and (c) whether an application involves a replacement or intended replacement of Inter-Ocean Coverage.

2. The Harvest Companies are ordered to instruct and require their agents not to solicit or accept any application that involves replacement or intended replacement of Inter-Ocean Coverage.

3. The Harvest Companies are ordered to review all applications submitted by their agents, and to take all reasonable steps to ensure that none of the applications involves replacement or intended replacement of Inter-Ocean Coverage.

4. Where the Harvest Companies know, or should know, that an application submitted by an agent involves a replacement or intended replacement of Inter-Ocean Coverage, the Harvest Companies are ordered to reject the application and to return the application materials immediately to the applicant. If an application seeks insurance that does not constitute a replacement, in addition to insurance that would replace Inter-Ocean Coverage, the application shall still be rejected and returned immediately to the applicant,...

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