Insurance Center, Inc. v. Taylor, 10730
| Citation | 499 P.2d 1252,94 Idaho 896 |
| Decision Date | 27 July 1972 |
| Docket Number | No. 10730,10730 |
| Parties | INSURANCE CENTER, INC., Plaintiff-Respondent, v. Dallan C. TAYLOR and Darwin M. Packard, Defendants-Appellants. |
| Court | United States State Supreme Court of Idaho |
Ronald G. Carter, Boise, for defendants-appellants.
Dale Clemons and Max Eiden, Jr., of Clemons, Cosho, Humphrey & Samuelsen, Boise, for plaintiff-respondent.
This appeal brings before this Court for consideration a restrictive covenant 1 contained in two separate employment agreements entered into by each appellant, Dallan C. Taylor and Darwin M. Packard, with respondent Insurance Center, Inc. The Taylor agreement is dated April 1, 1968, and the Packard agreement is dated March 18, 1968. After the case was tried to the court sitting without a jury, findings of fact, conclusions of law and judgment were entered in favor of Insurance Center, Inc., which modified the covenant, and enforced the modified agreement by injunctive relief in favor of Insurance Center, Inc.
Insurance Center, Inc., a corporation with its principal place of business at Boise, is engaged in the insurance brokerage business for several insurance companies. Primarily its business is the placing of group health and accident policies with unincorporated associations and groups that have joined together because of a common interest. Generally, a master policy written by a particular insurance company issues through Insurance Center to the particular group or association. Agents of this insurance company initially contact the individual members of the group for a limited period of time, and then respondent's agents solicit on behalf of the insurance company. The soliciting agents in contacting the members of the group attempt to sell the members certificates of insurance based on the master policy. Occasionally however, a 'franchise' operation is employed where members of the group or association are issued individual policies of insurance by the particular company. The franchise operation, consequently, does not utilize master policies.
Both the appellants were employed by Insurance Center to serve as agents. Taylor was with the agency from November 1, 1965, to August 26, 1968, and Packard was with the agency from June 15, 1967, to August 10, 1968. Each of the appellants executed an employment agreement with respondent in the spring of 1968. These agreements contain the restrictive covenant now before the Court. The appellants terminated their association with Insurance Center and went to work as agents for another insurance agency also dealing with health and accident insurance. While in their new employment the appellants sold a small number of health and accident policies of insurance to individuals who then had policies or certificates of insurance which were issued through Insurance Center. The respondent, Insurance Center, sought to enjoin by this action the solicitation of its insureds by the appellants.
In its complaint Insurance Center sought not only injunctive relief, but also damages for breach of the covenant contained in the agreements. After answering the complaint the appellants in a counterclaim also asserted that the restrictive covenant in question was null and void as being contrary to public policy and being unconscionable and overly restrictive to them, and they further claimed that it was vague and ambiguous.
On motion of the appellants, the trial court entered its order pursuant to I.R.C.P.42(b), to first try the case on the issue of the validity of the restrictive covenant, reserving for subsequent proceedings any issue on the damages. Pursuant to this order trial was held on the validity of the restrictive covenant.
In its findings of fact the trial court determined that the phrase in the covenant in question 'or to any member of an association or group serviced by the Agency' refers to all members of an association or group holding a master policy serviced by Insurance Center, and also determined that such phrase was divisible from the remainder of Paragraph 7, supra, n 1. It also found that the restriction in Paragraph 7 was unlimited in time or territory, but by reasonable implication it was limited in application to the State of Idaho and limited to those insureds of or persons serviced by Insurance Center at the time defendants terminates their employment. Accepting the defendant's contention that the restricted subject matter covered too broad an area, the district court found the term 'insureds' to encompass individuals who not only held certificates or policies of insurance issued under a 'master plan' through a group or an association, but, to include any member of such an association or group. The court found that there were approximately 5,000 insureds of Insurance Center, and that the total membership in the associations or groups serviced by it in Idaho was approximately 15,000. The court found that Insurance Center had a business interest in protecting its insurance business with those associations, groups and persons who were insured but that it had no legitimate business interest in preventing defendants from selling life or health and accident policies to uninsured members of associations or groups holding a master policy serviced by it. The court further found that subsequent to the defendant's termination of employment they sold accident and health policies of insurance to insureds in violation of the restrictive covenant. The court also found that five to seven years was the average length of time holders kept in force certificates under master policies issued by Insurance Center to associations and groups.
In its conclusions of law the court ruled that public policy requires individuals to have liberty in contracting and that courts should not declare contracts void if by any reasonable construction they can be upheld. It further held that restrictive covenants ancillary to contracts of employment will be enforced when reasonable as to scope of restricted activities and when reasonable as to territory and time. If no time or territory is fixed therein, a court in construing such covenants may imply and fix a reasonable time limit and territorial scope. The court then concluded that the plaintiff was entitled to a decree enforcing the restrictive covenant, limited to a time of five years from termination of employment and limited to the territory of Idaho.
In its judgment, the trial court enjoined the defendants for a period of five years from the respective termination of their employment with Insurance Center from selling life or accident and health policies or certificates to any master policy holder serviced by Insurance Center, or to any person holding a certificate under a master policy, or to any insurance policy serviced by Insurance Center, Inc., in force as of the date of termination of defendants' employment by plaintiff.
In effect, the district court determined that the restrictive covenant as written was unlimited in its temporal and territorial scope and overbroad in its subject matter. Applying a rule of law not previously considered by prior decisions of this Court, the district court modified and supplied the parameters of the covenant in respect to duration, area covered and activities restrained. As modified, the covenant was enforced.
The thrust of the appellants' appeal is simply that the covenant is unenforceable because the proscribed activity is too comprehensive and because the essential terms of time and geographic area were unlimited in scope. Further, the appellants argue that the district court by modifying the scope of restricted activities and supplying terms for the time and geographic area when such terms were omitted in the original covenant exceeded its authority. Thus, they contend the covenant is unenforceable as modified and the judgment should be reversed.
This Court is committed to the rule that restrictive covenants ancillary to employment contracts which are reasonable to the employer, the employee and the public are enforceable....
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