State Farm Mutual Automobile Insurance Co. v. Hedberg

• Decision Date: 29 June 1964
• Docket Number: No. 4-64 Civ. 134.,4-64 Civ. 134.
• Citation: 236 F. Supp. 797
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, State Farm Life Insurance Company, State Farm Fire & Casualty Company, State Farm General Insurance Company, Plaintiffs, v. Robert E. HEDBERG, Defendant.
• Court: U.S. District Court — District of Minnesota

236 F. Supp. 797

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, State Farm Life Insurance Company, State Farm Fire & Casualty Company, State Farm General Insurance Company, Plaintiffs, v. Robert E. HEDBERG, Defendant.

No. 4-64 Civ. 134.

United States District Court D. Minnesota, Fourth Division.

June 29, 1964.

Marvin E. Lundquist, of Johanson, Winter, Lundquist & Sherwood, Wheaton, Minn., for plaintiffs.

Joe A. Walters and Robert J. Christianson, Jr., Minneapolis, Minn., for defendant.

NORDBYE, District Judge.

This cause comes before the Court on plaintiffs' application for a preliminary injunction.

Until March 2, 1964, when he was discharged by the plaintiffs, defendant represented the so-called State Farm companies under a written "Local Agent's Appointment". Since March 2, 1964, he has been actively engaged in representing an insurance company which is one of plaintiffs' competitors and has carried on a studied campaign to obtain for his present insurance company the insurance business of the present policyholders in plaintiffs' companies which he formerly secured and serviced during the years of his employment with the plaintiffs. At times he has used cards which would indicate that he is still connected with the plaintiffs and there are occasions, according to the showing made herein, when he was collecting moneys due plaintiffs and has interfered in diverse ways with plaintiffs' policyholders in direct violation of some of the covenants of his contract. The plaintiffs were unable to recover their records, files, manuals, blank forms, material and supplies from defendant without proceeding against him by way of a replevin action. However, the single question presented to this Court on this motion is whether plaintiffs are entitled to a preliminary injunction restraining defendant for a period of one year from March 2, 1964, from soliciting the insurance business of any present policyholder in plaintiffs' companies which he formerly secured and serviced.

The provision of the contract between the parties upon which plaintiffs rely is Section I-G. It reads:

"* * * Upon termination of this agreement, the Agent shall deliver to the Companies or their authorized representative all such property remaining in the Agent's possession or control and 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 the existing policies and policyholders."

Plaintiffs are mutual companies and the policies they issue are issued directly to the insured by the insurers. The companies bill the policyholders directly each six months for the premiums due. The agent has no authority to cancel the policies and usually does not collect the premiums, at least upon renewal. The procedure of the plaintiffs upon the termination of the contract with an agent is to assign the business of the terminated agent in the plaintiff companies to another agent of the company for servicing. The situation is similar to that which Judge Devitt discussed in Hedlund v. Farmers Mutual Life Automobile Ins. Co., D.C., 139 F.Supp. 535, 537, and wherein he considered the difference between an agent of the American Agency System and the Mutual Insurance companies. In a note he quotes from Words and Phrases, Vol. 3, page 474, as to the definition of the American Agency System as follows:

"`* * * Upon termination of an insurance agency, if the agent's financial obligations to the insurer are paid in full, all rights in the expiration data of existing insurance procured by the agent, belong to him' in order that the `* * established business of an insurance agent may be preserved to him as far as possible upon the termination of his agency, and to that extent and no further * * *.'"

And in discussing the comparison between the rights of such an agent with the rights of an agent of a mutual company, he stated, page 537,

"The evidence here shows that the contractual relationship between the plaintiff and defendant falls into a different category. The defendant is a mutual insurance company. It is owned by its policyholders. The agent occupies a different position than he does in the traditional stock insurance company-agent-relationship. The policy is issued directly by the insurance company and not by the agent. The agent has no authority to cancel it; he usually does not collect the premiums; the policy is written on a continuous basis, and each 6 months the company bills the insured directly for future premium, and, upon payment, sends a `continuation certificate' directly to the insured. Upon payment of the renewal premium, the agent receives a renewal commission of from 8 to 10 per cent from the company."

Defendant recognizes that Section I-G is binding upon him, but he contends it is so ambiguous that it cannot be given the meaning which plaintiffs seek to ascribe to it, asserting that "In case of ambiguity a contract should be construed against its author." Combined Insurance Company of America v. Bode, 247 Minn. 458, 77 N.W.2d 533 (1956). He recognizes that under this provision he must refrain from further solicitation of any business for the plaintiff companies and that he must not interfere with any claims or problems which may arise under the policies which, prior to March 2, 1964, he had secured and serviced for the plaintiffs. He strongly contends, however, that the language to the effect that he must not interfere in any way for a period of one year with existing policies or policyholders is so vague and ambiguous that it should be disregarded by this Court.

Defendant relies primarily on the Bode case, supra, where the court refused to enforce certain restrictive covenants in an insurance agent's contract to the effect that former agents of an accident insurance company should be restrained from soliciting insurance for a competing company in the territory in which they had formerly...