State Farm Mut. Auto. Ins. Co. v. Dempster

• Decision Date: 13 October 1959
• Citation: 174 Cal.App.2d 418,344 P.2d 821
• Court: California Court of Appeals Court of Appeals
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, Appellant and Respondent, v. Warren DEMPSTER, Vernon Woolman, John Ralff, Richard Jacobson, Thomas Moore, Gustaf Westmo, Robert W. Sadler, Louis Lent, Joseph Manzella, Roy Martin, Elwood Worsham, Dale Fort and Clyde Holton, Defendants, Appellants and Respondents. Civ. 18270.

Page 821

344 P.2d 821

174 Cal.App.2d 418

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, Appellant and Respondent, v. Warren DEMPSTER, Vernon Woolman, John Ralff, Richard Jacobson, Thomas Moore, Gustaf Westmo, Robert W. Sadler, Louis Lent, Joseph Manzella, Roy Martin, Elwood Worsham, Dale Fort and Clyde Holton, Defendants, Appellants and Respondents.

Civ. 18270.

District Court of Appeal, First District, Division 1, California.

Oct. 13, 1959.

As Amended Nov. 12, 1959.

Hearing Denied Dec. 10, 1959.

David C. Bogert, Long & Levit, San Francisco, for appellants.

McFarland & Ferdon, San Francisco, for respondents.

TOBRINER, Justice.

An injunction against former agents of an insurance company which prohibited solicitation of policyholders by these agents and use of information obtained in the course of their former relationship does not fail because of ambiguity in the contract of appointment or because of adverse equitable considerations or statutory prohibition. The injunction properly required that the agents return certain unused material to the company. The court correctly awarded to the agents 'termination benefits' which represented compensation for past services.

State Farm Mutual Automobile Insurance Company, hereinafter designated 'State Farm,' filed its complaint against 13 of the former agents, hereinafter designated 'Agents,' seeking to enjoin for one year their use of information acquired while representing that company. Praying likewise for similar relief against Meritplan Insurance Company, State Farm asked for an accounting and damages against all defendants.

State Farm undertakes principally the business of underwriting automobile bodily injury and property damage liability as well as automobile physical damage insurance. According to the testimony of its executive vice-president, it is the largest carrier of automobile insurance in the world.

The Agents, licensed as insurance agents under the law of the state, served under a contract entitled 'Local Agent's Appointment' prepared by State Farm, the pertinent portions of which are set out in this opinion infra. State Farm gave the Agents no opportunity to negotiate the contract but only the choice of accepting it or suffering the termination of their agencies.

Prior to April of 1957, State Farm terminated the agency contracts of twelve appellant Agents. It cancelled their contracts because they refused to resign agency appointments which, without the consent of State Farm, they had obtained from other insurance companies. In June, it terminated the other Agent's contract because he refused to procure his wife's resignation of her agency appointment with another insurance company.

After such termination and immediately prior to the expiration date of the policies of their former clients, the Agents proceeded to advise these clients not to renew their insurance with that company. The Agents thus retained a substantial portion of this business. And, at least in the case of one Agent (Dempster), some of his clients thought he still represented State Farm and purchased insurance under this impression, giving Dempster checks payable to State Farm. Dempster, however, placed the insurance with other companies.

In order to curtail this solicitation of State Farm policyholders and to obtain complete records to turn over to new agents for servicing policyholders, State Farm claimed that under the contract it was entitled to the Agents' master files. These files contained the vital data regarding insurance of each policyholder. State Farm admitted it also desired the files because they might contain information State Farm did not possess. While the Agents purchased the master file folders from State Farm, the Agents themselves developed information contained in them.

The court gave judgment: (1) enjoining the Agents from interfering with those policyholders of State Farm whom the Agent had serviced, for a period of one year from the date of termination of the respective Agents; (2) enjoining, for the one-year period above, these Agents from imparting to any insurance company, broker, or agent, information received or developed by themselves while representing State Farm, respecting policyholders assigned to the respective Agents; (3) enjoining the Agents forever from selling to persons whom the Agents knew to 'erroneously believe * * * [the Agents were] insurance agents' of State Farm or from representing themselves as such Agents; (4) ordering the Agents to deliver to State Farm 'all records, files, manuals, blanks, forms, materials and supplies furnished to the agent by the Company or on its behalf'; (5) allowing the Agents to sell to their former clients who came to them unsolicited; (6) ordering State Farm to pay termination benefits to the Agents; and (7) dismissing the suit against Meritplan Insurance Company.

Both State Farm and the Agents have appealed.

We discuss the validity of three principal rulings of the trial court which emerge from these facts: (1) the injunction against the Agents' solicitation of former policyholders; (2) the order to the Agents to return materials received from State Farm; and (3) the award of termination benefits to the Agents.

While State Farm urges that the first problem is moot because two of the three provisions of the injunctive relief limited the prohibition to one year from termination of the agency, and that year has now expired, the third provision of the injunction was not so limited. Moreover, the injunctive provisions are interrelated, as, indeed, are all three of the above topics. We therefore first proceed to discuss the injunctions.

The Agents' contention that they can freely and lawfully compete with State Farm for the business represented by expirations and that no injunction should have been issued to prevent for a period of one year their solicitation of former policyholders serviced by them calls for an examination of the nature of the State Farm's asserted protected interest, the contract which clothed this interest, and the validity of the trial court's enforcement of the contract and protection of that interest.

State Farm asserts that the Agents come into possession of the 'most vital trade secrets' of the company: information consisting of 'the names, addresses and telephone numbers of policyholders, the amounts and types of insurance purchased from * * * [State Farm] and its affiliated companies, due dates of premiums and the amounts thereof, the character, description and location of insured property, the make and model of insured automobile and personal information as to the insured, such as age, birth date, physical condition, dependents, automobile drivers, driving records, financial and credit standing, and particularly the renewal and expiration dates of policies in force.' The Agents necessarily and inevitably acquired the information in the course of their relationship with the company, and the possession of it opened the company to competitive attack at that most dangerous moment, the expiration date of the policies. The court found (paragraph XV) that the 'information thus obtained' was 'in the nature of * * * trade secrets.' The company seeks to seal this information in the protective insulation of equity.

The company's contract with the Agents carried two provisions which apparently sought to insure this protection. Section I.G. ¹ provided that '[u]pon termination of this agreement' the agent 'shall thereafter refrain from further solicitation for or servicing of policyholders of the Companies and from interfering in any way for a period of one year with existing policies and policyholders.' Section IV.B.4. ² stipulated that termination benefits be paid to the agent provided 'the Agent has agreed in writing not to service policyholders of the Company or to compete with the Company or interfere with its business for one full year from the date of termination.'

The Agents claim these provisions of the contract are ambiguous and unenforceable. Initially we point out that the trial court found no such ambiguity in the contract. Recognizing that we may not override that court's construction unless it is unreasonable (Universal Sales Corp. v. California Press Mfg. Co., 1942, 20 Cal.2d 751, at page 772, 128 P.2d 665), we examine the Agents' two arguments:

(1) The Agents contend that the contract provides that only 'records' and 'supplies' 'furnished to the Agent by the Companies' shall 'remain the property of the Companies' and that this mandate does not apply to the business or information obtained by the Agents themselves. However, the equitable protection extends to confidential trade information 'whether prepared by the employer or by the employee.' I Nims, The Law of Unfair Competition and Trade-Marks (4th ed., 1947), § 157, p. 436. The reference to the employment relationship does not exclude the confidential relationship between independent contractors. Gordon v. Landau, 1958, 49 Cal.2d 690, 321 P.2d 456; Ingrassia v. Bailey, 1959, 172 Cal.App.2d 117, 341 P.2d 370.

(2) The Agents contend that the language of the contract specifies only that the terminated agent may no longer deal with State Farm as to its policies, not that he cannot solicit a State Farm policyholder as to insurance with another company, and that the custom of the industry supports this interpretation. The language of the contract, reading, 'Upon termination of this agreement, the Agent shall * * * refrain * * * from interfering in any way for a period of one year with existing policies and policyholders' obviously aims to protect the company at the vulnerable time of renewal of the policy. Policies are not cancelled during the life of the contract but at their termination, and it is to this date that the prohibition against 'further' solicitation or 'interference' must apply. It is true, as the Agents suggest, that this language differs from that used in contracts or...