Woodruff v. Auto Owners Ins. Co.

• Decision Date: 05 January 1942
• Docket Number: No. 43.,43.
• Citation: 1 N.W.2d 450,300 Mich. 54
• Parties: WOODRUFF v. AUTO OWNERS INS. CO.
• Court: Michigan Supreme Court

300 Mich. 54

1 N.W.2d 450

WOODRUFF

v.AUTO OWNERS INS. CO.

No. 43.

Supreme Court of Michigan.

Jan. 5, 1942.

Action by H. C. Woodruff, individually and doing business as H. C. Woodruff Agency against Auto Owners Insurance Company, for breach of contractual rights. Judgment for plaintiff and defendant appeals.

Reversed without a new trial.Appeal from Circuit Court, Kalamazoo County; George V. Weimer, judge.

Argued before the Entire Bench.

Jackson, Fitzgerald & Dalm, of Kalamazoo, for appellant.

C. M. Robson, L. F. Porter, and L. J. Crum, all of Kalamazoo, for appellee.

NORTH, Justice.

Plaintiff alleges that in his business of conducting an insurance agency he was damaged by the unlawful conduct of defendant in violation of plaintiff's rights in and to that portion of his insurance business which he had caused to be written in the defendant Auto Owners Insurance Company and for which it had issued its policies. It is agreed that in plaintiff's representation of the defendant company as its agent at Kalamazoo, what is known as the American Agency System was embodied in and was a part of the contractual rights and obligations of the respective parties. The purport of the American Agency System is that upon termination of an insurance agency, if the agent's financial obligations to the company are paid in full, all rights in the expiration data of existing insurance procured by the agent belong to him. In effect it is the preservation of the good will of the established business and the business itself as the property right of the agent, not of the insurance company. For an alleged violation of plaintiff's rights in his so-called expirations or expiration data after defendant had terminated plaintiff's agency, plaintiff brought this suit and on trial by jury had a verdict for $5,000. Judgment was entered on the verdict. Defendant has appealed. The sole ground of appeal is that no testimony was offered from which a jury could find that defendant maliciously interfered with plaintiff's property rights; and therefore the trial court was in error in denying defendant's motion for a directed verdict. Such a motion was made at the close of all the proofs. Later a motion for judgment non obstante was heard and denied.

On this appeal it is of first importance to consider the extent to which the rights of these litigants are affected or controlled by the so-called American Agency System. It is agreed that this system is a custom generally applicable to insurance agencies and is applicable in the instant case; but there is disagreement as to the extent it governs the rights and duties of the respective parties. Several witnesses testified as to what in effect is meant by the American Agency System. Plaintiff testified:

‘One of the main features of this system is that where the Company cancels the agency the entire rights to the expirations and all other information which the agent has assembled belongs to the agency and not to the company with the provision that if the agent's balances are unpaid at the end of the alloted term in the contract the company has a lien upon the business and may sell the agency or continue as they see fit. * * * The expiration as the agents get them is a list or copy of the policy which was written showing the name and address of the person insured, a description of the article insured, and the expiration date and all the necessary information including the permium which is necessary to keep a record of the policy itself.'

In Kerr and Elliott v. Green Mountain Mut. Fire Insurance Company, 111 Vt. 502, 18 A.2d 164, 168, the supreme court of Vermont said: ‘In the insurance field the term ‘expirations' has a definite meaning. As to this it has been stated: ‘The record known in insurance circles as expirations is in effect a copy of the policy issued to the insured, which contains the date of issuance, name of the insured, expiration, amount, premiums, property covered and terms of insurance.’'

We think it is clear that the full purpose of and the need for the application of the custom established by the American Agency System is that the so-called clientele or established business of an insurance agent may be preserved to him as far as possible upon the termination of his agency. To this extent, and no further, the custom should be respected and enforced. This custom does not cut off all right of the insurer to contact persons to whom its policies had been issued through the discontinued agency. Instead the insurer is only denied what would otherwise be legitimate in the way of attempting to appropriate to itself or some other of its agents the business which under this established custom belongs to the agent with whom the principal has severed its relations.

In determining the scope of the rights and duties of the insurer and its agent it is important to be mindful of the character of the agency because that materially bears upon what the insurer may rightfully do relative to servicing its policies after termination of an agency or in giving notices of cancellation. As will be noted later, these are two matters of which plaintiff herein complains.

Plaintiff in the instant case acted as a solicitor of applications for insurance in defendant company; and such applications were submitted by him to the defendant company for acceptance or rejection. If accepted defendant wrote the policy which was delivered through the agency. Plaintiff did not write the policy and deliver it to the insured before submitting the application to the insurance company as is generally done with fire insurance. Further, policies issued by defendant provided it might cancel them upon five days notice to the insured; and during all the years that plaintiff acted as defendant's agent the uniform and accepted practice was for the insurer to send notices of cancellation direct to the insured, not to have such notices given by the agent, though his name as agent appeared on the notices of cancellation. Obviously plaintiff's right under the American Agency System would not be violated by a continuation of this established practice after termination of the agency, provided defendant did not by its conduct maliciously interfere with plaintiff's right in his established business.

We are decidedly not in accord with plaintiff's contention as to the scope or effect of the custom prevalent under the American Agency System. Plaintiff's extreme and unsound position is indicated by the following from his brief:

‘It follows from this that if the agent owns the expiration data, that he owns the name and address of the person insured, and the purpose of his ownership of that name and address is so that the insurance company cannot communicate with those persons for any reason whatsoever. The ownership of the name and address is an exclusive right in the agent. * * *

‘We insist that any communication sent to the policyholders of the plaintiff's agency violated the contractual rights between these parties, since plaintiff Woodruff owned their name and address solely and exclusively.'

The issue here presented is whether there is any evidence that in any of the particulars asserted by plaintiff the defendant maliciously interfered with plaintiff's property rights in the expirations or expiration data of his established business. In support of plaintiff's claim that defendant unlawfully and maliciously interfered with plaintiff'sproperty rights in the expiration data of insurance he had caused to be written in defendant company, plaintiff relies much upon the contents of three letters written by defendant shortly after plaintiff's agency was terminated to holders of policies solicited and obtained by him. There are certain other acts of alleged interference to which reference will also be made.

Plaintiff had been conducting an insurance agency in the city of Kalamazoo for some time prior to 1926. In that year he became the local agent of the defendant company, which is an automobile insurance company incorporated under the law of Michigan. At the time plaintiff's agency was terminated by defendant the written agency contract between these parties provided: ‘This contract may be cancelled at any time by either party herewith without prior notice, in which event all supplies shall be immediately surrendered to the Company.’ Because of the quoted provision there would be no purpose in reciting the matters of dissatisfaction which led to the termination of plaintiff's agency by defendant. It was terminated on March 30th as of April 1, 1937, and the office supplies in plaintiff's possession were demanded and received by defendant's representatives. On April 5, 1937, defendant from its home office in Lansing mailed to some of its policyholders whose insurance had been procured by plaintiff the following letter:

‘Dear Policy Holder:

‘Please be advised that the H. C. Woodruff Agency of Kalamazoo, Michigan has been discontinued as an agent for the Auto Owners Insurance Company effective April 1st., 1937.

‘Therefore, for the time being, any reports of accidents or changes in your policy should be reported to T. M. Alexander, 803 Hanselman Building, telephone Number 2-2054. Also if there are any questions regarding your policy or adjustments with this company they may be discussed with Mrs. Alexander.

‘Mr. Clarence Naze will continue to promptly and courteously take personal charge of your loss adjustments the same as he has been doing during the last serval years.

‘Assuring you of our continued prompt and careful attention to all matters pertaining to your policy with us, we are,

‘Very cordially yours,'

The complaint or objection appellee makes to this letter is stated in his brief as follows:

‘The letter was contrary to the American Agency System. Sending plaintiff's clientele to Mrs. Alexander and letting her discuss with them questions regarding their policy was taking the interest away from the agent in that respect; and there was no...