West Virginia Court Sides with Insurer on Antitrust Claim by Cancelled Agent

An insurance company has won a victory over one of its former West Virginia agents who claimed the insurer violated state antitrust law when it cancelled his contracts to sell its life and property/casualty insurance products.

The ruling by the West Virginia Supreme Court reversed a previous Mercer County Circuit Court $4 million verdict against Erie Insurance of Pennsylvania.

The state’s high court said the lower court should not have even held a trial on agent Kevin Webb’s complaint that Erie’s termination of his contracts involved a conspiracy among parent company Erie and its subsidiaries that violated antitrust law. Instead, the five Supreme Court justices in a per curiam opinion said that the subsidiaries were all part of one company and that officers and employees of the same company “cannot conspire with each other within the meaning of antitrust law.”

Agency History

Beginning in the early 1990s, Princeton Insurance Agency had contracts with Erie Family Life and Erie Property and Casualty to sell their policies in West Virginia. In 2001, Webb also negotiated a separate contract with Erie under his own name as a licensed agent in Virginia. Under this agreement, he was authorized to write automobile, homeowners and general commercial insurance in Virginia on behalf of Erie Insurance Exchange and Erie Insurance Co. Webb also entered into an agency agreement in 2001 allowing him to write life insurance on behalf of Erie Family Life in Virginia. Princeton was not a party to his Virginia contracts with Erie.

In 2002, Princeton also began selling policies for another carrier, State Auto Insurance, through a relationship it established with a separate agency, Princeton Insurance Associates. A portion of this separate agency’s business came from a transfer of a State Auto book of business from one of Insurance Associate’s owners, Rita Kidd.

Shortly after Webb began doing business with Insurance Associates, Erie noticed that the volume and profitability of its business from Webb declined. Erie introduced evidence at trial that by the end of 2003, personal automobile applications had declined by 73 percent; the number of commercial automobile policies had declined by 79 percent; and commercial property/casualty applications had declined by 78 percent. Based on these declines plus the agency’s purported losses of over $4.3 million during the preceding decade, Erie said it began to question its relationship with the Princeton Agency. Erie said it had a hunch that Princeton Agency was steering business to Insurance Associates.

Production Data

Erie sought to obtain the production reports of Insurance Associates for sales of State Auto policies. This occurred through an email sent by Erie employee and at a meeting with Webb that occurred at a local restaurant. Webb did not produce the requested production reports during the restaurant meeting, but he did scribble one production number relating to State Auto policies on a napkin. Following this meeting, Erie repeated its demand for the production reports but in a letter, Webb told Erie that Princeton Agency would not comply.

In March, 2004, Erie terminated its relationship with the Princeton Agency and with Webb, giving the required 90-day notice.

Erie continued to conduct business in the area through two other independent insurance agents and Princeton Agency continued to sell insurance products for State Auto, Zurich, SAFE, Progressive, Dairyland, Assured Health and Blue Cross/Blue Shield.

Unfair Practice, Antitrust Claims

Webb sued, claiming Erie’s termination of his contracts amounted to an unreasonable restraint of trade in violation of West Virginia antitrust law and that its insistence on being given what he said was confidential customer information on his State Auto policyholders was an unfair trade practice under state law.

Webb lost on the unfair trade practice claim in lower court but jurors there agreed with him on the restraint of trade. They awarded Webb $1.4 million to compensate for future commissions he lost, an amount that was tripled to more than $4.2 million under antitrust law.

Erie’s Challenge

Erie challenged the antitrust finding. It argued that its corporate structure precludes the concerted action required to establish a restraint of trade in violation of state antitrust law. The parent company and its subsidiaries have a “complete unity of interest” and do not compete against each other, the insurer noted. The fact that Erie’s insurance products are organized through separate subsidiaries does not translate into distinct treatment for sales purposes and the same insurance agent could sell any of Erie’s products. Also, Erie’s managers supervise the sales of all the various Erie products in a heterogeneous fashion.

Single Company

Erie’s argument was persuasive before the high court. The high court criticized the trial court for failing to examine the facts of Erie’s corporate structure to determine whether the various Erie companies were sufficiently independent of each other to prevent them from serving a unified corporate interest. “All the trial court did was to summarily conclude with no accompanying analysis that ‘there was substantial evidence that those defendants were separate economic actors, and not merely a single firm,'” the high court noted. In so doing, the trial court overlooked the established precedent that “employees of the same company cannot conspire with each other within the meaning of antitrust law.”

The court said that officers and employees of a single firm are not separate economic actors pursuing separate economic interests and thus do not provide the plurality of actors required for a conspiracy under the state antitrust law.

The opinion by the state’s high court further held that just as Webb failed to prove an actionable conspiracy under antitrust law, he also similarly failed to demonstrate an antitrust injury. Webb’s damages were solely attributable to lost income and were not antitrust related. The court said his damages could have been sustained whenever the agency agreement was terminated, whether the termination was by Webb or by the insurer for any other reason.

Webb failed to prove that competition among insurers in his geographic market was harmed as a result of the termination of his Erie relationship. At best, Webb demonstrated a “personal economic injury” and the “antitrust laws are not aimed at protecting individual competitors from sustaining economic loss,” the court added.

Information Sharing Legal

On the issue of sharing the State Auto customer information, the court said that the tendering of the napkin with production information relating to State Auto sales was not an illegal act, under antitrust law or otherwise. Webb testified that he had provided similar production information concerning Erie sales to State Auto and that this was customary within the industry.

“As an intended benefactor of the agency agreement, Erie had the clear right to inquire of Webb whether policy sales that previously went to it were now going to State Auto,” the court stated. “The fact that the agency agreement could be terminated by either party with 90 days notice indicates that whenever either Erie or Appellees [Webb] determined that the arrangement was not economically advantageous, the agreement would be discontinued.”

Topics Carriers Auto Agencies Virginia Property Casualty West Virginia