ROBERT J. McRELL ASSOC. v. Ins. Co. of N. America, 86 Civ. 0005 (RWS).

• Decision Date: 23 December 1987
• Docket Number: No. 86 Civ. 0005 (RWS).,86 Civ. 0005 (RWS).
• Citation: 677 F. Supp. 721
• Parties: ROBERT J. McRELL ASSOCIATES, INC., Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Southern District of New York

677 F. Supp. 721

ROBERT J. McRELL ASSOCIATES, INC., Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant.

No. 86 Civ. 0005 (RWS).

United States District Court, S.D. New York.

December 23, 1987.

Robinson, Silverman, Pearce, Aronsohn & Berman, New York City, for plaintiff; Robert A. Wolf, of counsel.

Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski, New York City, for defendant; Thomas A. Martin, Virginia B. Curry, of counsel.

OPINION

SWEET, District Judge.

Defendant Insurance Company of North America ("INA") has moved for summary judgment under Rule 56, Fed.R.Civ.P., dismissing the complaint of plaintiff Robert J. McRell Associates, Inc. ("McRell"). McRell has similarly moved for partial summary judgment granting the relief sought in the first two causes of action set forth in the complaint. Both motions will be granted in part and denied in part as set forth below based upon the following findings and conclusions.

Prior Proceedings

This action was commenced in the state court in December 1985 and removed to this court on January 2, 1986. McRell moved for preliminary injunctive relief to bar INA from direct communication with the local agents who had participated through McRell in certain plans that had been insured by INA. After a hearing and an oral opinion setting forth findings and conclusions, the request for injunctive relief was denied on January 8, 1986.

Following discovery and the submission of affidavits and Local Rule 3(g) statements, oral argument was heard on September 11, 1987. Except where noted, the facts are not in dispute.

FINDINGS

The Parties

McRell is a New Jersey corporation with its principal place of business located at the Middlesex Business Center in South Plain-field, New Jersey. McRell designs, promotes, administers and manages insurance programs on behalf of industry associations, and contracts with local insurance agents and brokers who place insurance policies through McRell on behalf of subscribers to such programs. In 1984 INA, a Pennsylvania corporation with its principal place of business in New York City became the insurance carrier of the insurance program that is the subject of this action.

The UBOA and NSTA Programs

In March 1979, McRell was retained by the United Bus Owners of America ("UBOA") to serve as UBOA's Insurance Coordinator for a period of ten (10) years. McRell's responsibilities as Insurance Coordinator were to provide, maintain and develop programs of insurance beneficial to the UBOA membership. UBOA is a major nationwide bus association with members in approximately 49 states and the District of Columbia who own charter buses, municipal buses, tour and sightseeing buses, airport transportation vehicles and other passenger transportation services.

McRell designed and developed an insurance program ("UBOA Program") to provide automobile liability, automobile physical damage, general liability, excess liability, workers' compensation and related insurance coverage to UBOA members. Between September 1979 and June 1980, Guarantee Insurance Company was the underwriting carrier of the UBOA Program which was administered by McRell. From July 1980 through June 1983, National Union Fire Insurance Company of Pittsburgh, Pennsylvania was the carrier of the UBOA Program, and from July 1983 through June 1984, Central National Insurance Company of Omaha served as carrier. At all times, McRell continued as the developer and administrator of the UBOA Program.

In December 1981, McRell also became the administrator of a second insurance program run on behalf of members of the National School Transportation Association ("NSTA") (the "NSTA Program"), which, at the time, was also insured by National Union. The NSTA Program afforded NSTA members insurance coverage similar to that offered UBOA members under the UBOA Program.

INA as Underwriter of the Programs

In the spring of 1984, McRell communicated with various insurance carriers and their agents to explore their interest in becoming the underwriting carrier of the UBOA and NSTA Programs (the "Programs") commencing July 1, 1984. In June 1984, INA made a proposal to act as the underwriting carrier of the Programs which included a commitment of a minimum of three years to the Program.¹ At a meeting in INA's offices in New York City, INA, McRell and Contractors Planning Group, the liaison broker between INA and McRell, executed a memorandum agreement (the "Memorandum Agreement") in which it was agreed that INA would act as the underwriting carrier of the Programs administered by McRell effective July 1, 1984, and that "it is the intent of all parties that this commitment (with the exception of the rates quoted) be for a minimum of 3 years."

In late August 1984, INA prepared and submitted to McRell for execution a proposed Administrative Agency Agreement (the "Agency Agreement") between INA and McRell respecting the Programs which contained a provision enabling either party to terminate the relationship for any reason upon ninety (90) days notice. A meeting between the parties was held in late August 1984 at INA's offices in New York to discuss the proposed Agency Agreement and the inclusion therein of the 90-day termination clause. In response to an inquiry from McRell concerning INA's prior representations, including the statement in the Memorandum Agreement that INA was committed to being the underwriting carrier for a minimum of three years, Michael G. Repoli, Vice President of INA's Special Risk Facilities ("Repoli") indicated to McRell that the 90-day provision was merely a standard clause in all of INA's contracts, and that, notwithstanding the clause, INA was bound by the three-year commitment embodied in the Memorandum Agreement.

McRell executed the Agency Agreement on August 23, 1984. Under the Agency Agreement, McRell was responsible for reviewing insurance applications, analyzing the insurance risk, determining whether to accept the risk, calculating the premium rate for the risk, quoting the rate to the prospective insured or agent, processing and issuing the policy if the rate were accepted, billing and collecting premiums, sending out nonrenewal and cancellation notices where applicable, and maintaining records with respect to all of the foregoing. McRell was entitled to net commissions equal to 14% of the gross written premiums for the substantial majority of policies insured under the Programs. McRell promoted the UBOA Program to UBOA members and entered into agreements with certain local insurance agents and brokers throughout the United States ("Local Agents"). Pursuant to these agreements the Local Agents were appointed by McRell to solicit, in their respective localities or regions, applications from UBOA members desiring to subscribe to the UBOA Program and to transmit those applications to McRell for processing. The Local Agents received commissions from McRell based on premiums written under the UBOA Program pursuant to those applications.

Among the provisions of the Agency Agreement pertinent to this dispute are the following:

— Section 2(B) granted McRell the exclusive right to service all business under the programs and precluded INA during the term thereof from entering into any competing bus insurance program, either with an administrator or insurance producer network.

— Section 3, entitled "Authority and Duties of the Administrator," set forth provisions relating to underwriting, quality of service, legal compliance, premiums, maintenance of records, reporting, advertising, policy forms and ownership of printed matter, expenses, sub-producers, and appointment of other agents. The underwriting provisions contained in Section 3(A) authorized McRell, inter alia, to solicit and accept insurance policies and to bind INA as underwriter with respect thereto. The provisions in Section 3(A) are prefaced by the following language:

Underwriting. Subject to requirements imposed by law, the terms of this Agreement and the written instructions and limitations as may be provided by COMPANY INA from time to time, ADMINISTRATOR McRell has authority and the duty;

— Section 7(A) provided (i) that the term of the Agency Agreement was to be for three years and was to "automatically renew for successive one-year terms at the third and each subsequent anniversary of its effective date, unless either party shall have given not less than ninety (90) days' written prior notice of termination at the anniversary date to the other party" and (ii) that limits of liability, premium rates and McRell's commission were to be subject to adjustment at each annual anniversary of the Agency Agreement.

— Section 7(B) provided that each party had the right to terminate the Agency Agreement for any reason by giving the other party written notice received no less than ninety (90) days prior to the effective date of termination.

— Section 7(E) provided that in the event of termination, INA could elect one of the following options:

(a) to have McRell continue to provide the services required under the Agency Agreement ("Run-Off Services") with respect to policies in force on the effective date of termination ("Run-Off Policies"); or

(b) to require McRell to refund to INA that portion of commissions on premiums written but unearned on the effective date of termination and to relieve McRell of any obligation to provide further services under the Agency Agreement.

INA and McRell proceeded thereafter under the Agency Agreement to provide coverage for the UBOA and NSTA members.

Termination of the Agency Agreement

In January 1985, INA revoked McRell's underwriting authority for the NSTA portion of the Agency Agreement. McRell accepted the withdrawal of its underwriting authority. Both parties recognized that the NSTA Program had not been producing financial results in accordance with expectations and that it would be mutually beneficial to cease writing any further business thereunder.

In April 1985,...