Pa. Court Upholds Rights of Terminated Insurance Agents

By Kenneth J. St. Onge
January 29, 2008

A new decision by a Pennsylvania court could have far-ranging implications on what happens to an insurance agency's book of business if a carrier terminates its contract.

The decision, rendered last week by Judge Bonnie Brigance Leadbetter, is being considered as a bellwether case that will likely codify the process of how companies structure the run-off period following a termination.

The ruling upholds an earlier decision by the state's insurance department.

The case centered on Everett Cash Mutual Insurance Co., which terminated its contract with the small Coatesville agency C. Kenneth Grant Inc. That termination was set to take effect in Jan. 2006. Several months before, however, the company began sending non-renewal letters to its clients insured through Grant, saying their policies would no longer remain in effect after the anniversary date of their policies.

According to Leadbetter's ruling, the law required ECM to offer renewals to those clients for 12 months after Grant's contract had been terminated.

Barry Norton, principal of the agency, said the ruling upheld the rights of agents to maintain their books of business in the face of a termination.

"This is a victory for all insurance agents in Pennsylvania," he said.

The Insurance Agents and Brokers, a trade group for agents, echoed those comments, saying the case "solidifies the rights of independent agents" and called it a "substantial victory."

David Eppinger, vice president for research and development at ECM, said the company's whole goal in taking the case to court was establish a case law in how the run-off procedure should go.

"We wanted a legal decision handed down," he said. "We wanted a decision rendered one way or the other. We really didn't care which way it went as long as there now is case law to stand behind so that (insurers) all are treated equally."

Eppinger said the decision would establish once and for all a procedure for handling terminations - one that he speculated would be standardize the practice for all companies doing business in the state.

"While it may be viewed that ECM lost the case, we don't view it this way," he said. "We did a good deed for the industry as whole."