Streiff v. American Family Mut. Ins. Co., No. 82-599

• Court: United States State Supreme Court of Wisconsin
• Writing for the Court: ABRAHAMSON
• Citation: 348 N.W.2d 505,118 Wis.2d 602
• Parties: Dennis C. STREIFF, Plaintiff-Appellant-Petitioner, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Defendant- Respondent.
• Decision Date: 30 May 1984
• Docket Number: No. 82-599

Page 505

348 N.W.2d 505 118 Wis.2d 602 Dennis C. STREIFF, Plaintiff-Appellant-Petitioner,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin
corporation, Defendant- Respondent. No. 82-599. Supreme Court of Wisconsin. Argued March 26, 1984.
Decided May 30, 1984.

Page 506

[118 Wis.2d 603] Charles J. Howden, New Glarus (argued), for plaintiff-appellant-petitioner; Waltz, Howden & Franken, New Glarus, on brief.

Charles R. Wellington, Monroe (argued), for defendant-respondent; Kittelsen, Barry, Ross & Wellington, Monroe, on brief.

ABRAHAMSON, Justice.

This is a review of a published decision of the court of appeals, Streiff v. American Family Mutual Insurance Company, 114 Wis.2d 63, 337 N.W.2d 186 (Ct.App.1983), affirming the order of the circuit court for Green county, William C. Sachtjen, Reserve Circuit Judge, granting summary judgment to American Family Mutual Insurance Company on Dennis Streiff's claim for "extended earnings" under the standardized printed agency agreement in effect between American Family and Streiff.

Page 507

The issue presented on review is a question of law, namely, the enforceability under sec. 103.465, Stats.1981-82, of the provisions of the agency agreement requiring that Streiff forfeit his extended earnings if after termination of the agreement he engages in certain competitive practices. ¹ We conclude the restrictive provisions[118 Wis.2d 604] are unenforceable as an unreasonable restraint of trade and reverse the decision of the court of appeals.

The facts of the case--to the extent that they affect the issue before the court--are not disputed. From 1967 until March 31, 1980, Streiff worked as an agent for American Family Mutual Insurance Company under American Family's standard Career Agent's Agreement. Streiff's residence and place of business were located in the village of New Glarus, Green county, Wisconsin; he operated primarily in northern Green and southern Dane counties. The agent's agreement, which was terminated as of April 1, 1980, provided that upon its termination Streiff was entitled to "extended earnings" (which in this case amounted to $33,830.45), if he complied with all of the terms and conditions of the agreement.

Immediately after termination Streiff publicly announced that he would no longer be working for American Family, that he had made arrangements with other insurers, and that he would continue to do business as an insurance agent. Streiff also communicated with his clients who had insurance with American Family and encouraged them to buy insurance with another insurer through him.

At the time of termination, Streiff had approximately 1,264 clients who had at least one policy with American Family, most of whom lived in Green and Dane counties. After termination, Streiff obtained the business of approximately 300 of these persons; the others apparently continued to do business with American Family.

[118 Wis.2d 605] Following Streiff's public announcement and his communication with his American Family clients, American Family refused to pay Streiff his extended earnings, asserting that Streiff had failed to comply with two conditions of the agency agreement. American Family wrote Streiff as follows: "Because you have solicited our policyholders and associated yourself in a sales capacity with another insurer, you have forfeited your rights to extended earnings." ²

American Family withheld payment of the extended earnings, apparently relying on two provisions of the agent's agreement: Section 5h and the fourth paragraph of section 5i, hereafter referred to as section 5i(4).

Section 5h of the agent's agreement prohibits the terminated agent from (1) soliciting and servicing American Family policyholders and (2) for a period of one year after termination and within a 50-mile radius of the agent's place of business, inducing, attempting to induce, or causing another to induce any policyholder to replace, lapse, or cancel any American Family policy. Section 5h provides as follows:

Page 508

"After termination of this agreement, the agent shall refrain from further solicitation of policyholders for the company and from further servicing of policyholders of the company and for a period of one year after such [118 Wis.2d 606] termination anywhere within the radius of 50 miles from the location of the agent's place of business under this agreement on the date of such termination shall not induce or attempt to induce or cause another or others to induce or attempt to induce any policyholder to replace, lapse, or cancel any policy of insurance written by the company." ³

Section 5h is silent as to any penalty for its violation and does not refer to extended earnings. American Family and Streiff interpret section 5i, which is directly concerned with extended earnings, as providing that extended earnings will not be paid if the agent fails to comply with section 5h. The penalty for violation of section 5h is apparently set forth implicitly rather than explicitly in section 5i where the first paragraph states that if the agent's agreement is terminated, "provided ... the agent has complied with all the terms and conditions of this section and of this entire agreement, the company ... will pay the agent ... extended earnings...."

The second provision in the agent's agreement upon which American Family originally relied before litigation to deny Streiff his extended earnings was section 5i(4), which states that if the terminated agent associates himself or herself with or performs services for another insurer engaged in writing any of the kinds of insurance written by American Family, the terminated agent forfeits all rights to extended earnings. Section 5i(4) provides:

[118 Wis.2d 607] "If, while being paid extended earnings, the agent associates himself in any sales or sales management capacity with another insurer engaged in writing any of the kinds of insurance written by the company, and if the agent performs services in any such capacity for such other insurer within any of the States of the United States in which the company operates as a licensed insurer, the agent, from and after the date of such association, shall forfeit all his rights to extended earnings otherwise thereafter payable by the company."

When the matter came to court, American Family no longer relied on section 5i(4) as a justification for not paying Streiff extended earnings. American Family concedes that sec. 5i(4), which apparently restricts a terminated agent's employment opportunities in the insurance industry throughout this country, is overly broad and unreasonable as to the territory described, violates sec. 103.465, Stats.1981-82, and is unenforceable.

American Family now relies solely on section 5h as the justification for Streiff's forfeiting payment of extended earnings. American Family asserts that section 5h is a reasonable restraint and that sec. 103.465, Stats.1981-82, does not mandate that section 5h be held invalid merely because section 5i(4) is invalid.

Sec. 103.465 provides as follows:

"A covenant by an assistant, servant or agent not to compete with his employer or principal during the term of the employment or agency, or thereafter, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint."

Page 509

Before the enactment of sec. 103.465, this court followed the so-called blue pencil rule: if the terms of a [118 Wis.2d 608] restraint were divisible the court struck the overly broad language of a restraint and enforced the valid restraints in the contract. See, e.g., General Bronze Corp. v. Schmeling, 208 Wis. 565, 243 N.W. 469 (1932) (geographical restraint found divisible and reasonable part upheld). Under the blue pencil rule, if the terms of a restraint were indivisible, that is, the contract itself furnished no basis for dividing the restriction into reasonable...