United States District Court holds that insurance agent is an independent contractor

Thomas Ruggiero, an insurance agent, sued America United Life Insurance Company (AUL) and its subsidiary OneAmerica Financial Partners, alleging that they had misclassified him as an independent contractor. 

Ruggiero signed a General Agent's contract with AUL in February 2009, with the intent of establishing an agency that would sell AUL products.   AUL lent Ruggiero money to assist him in developing his agency.
 

Under his contract with AUL Ruggiero was to recruit, train and supervise agents and brokers for AUL in Massachusetts without exclusive representation, and to solicit applications for AUL's insurance policies. 

AUL would pay Ruggiero commissions and service fees on policies and contracts serviced by Ruggiero or his agents or brokers, as well as allowances, writing commissions, bonuses, and services fees. 

The contract classified Ruggiero as an independent contractor, and required him to pay his own expenses for maintaining an office. 

Under the terms of the contract Ruggiero was not permitted to act as a general agent, agency manager, or hold a full time contract with another insurer, or to enter into an employment contract or agreement without the approval of AUL. 

During his relationship with AUL Ruggiero also maintained relationships with numerous other insurance companies.  He never asked AUL permission to do so, and AUL did not believe that by doing so Ruggiero violated his contract with it. 

Ruggiero recruited and trained approximately thirty agents during his contract term with AUL.  Those agents entered into contracts with AUL and other insurers, at Ruggiero's direction. 

After winding down his agency, Ruggiero sued AUL and OneAmerica, asserting that he had been misclassified as an independent contractor. 

In Ruggiero v. Am. United Life Ins. Co., __ F. Supp. 3d __, 2015 WL 5822622 (D. Mass.), the United States District Court for the District of Massachusetts held that Ruggiero was an independent contractor under all three prongs of the independent contractor test. 

The court first held that Ruggiero was "free from control and direction in connection with the performance of the service."  Other than general principles the contract did not prescribe how the work was to be performed, and left Ruggeiro discretion in running his agency.  Certain requirements that were placed on Ruggiero were mandated by regulations and therefore did not affect his employment status. 


The court then held that the service Ruggiero performed was outside the usual course of the business of AUL.  Sales of AUL's insurance products were outside of AUL's usual course of business because AUL did not itself sell the insurance and financial products it offers.  Instead, it provides the products through a national network of agents.  While sales of the products are essential to AUL's business, it is not in the business of selling them directly; it is in the business of determining which products to make available, structuring and drafting the policies, and investing the policy premiums.  Within the insurance industry there is a recognized division between producing the insurance product (the insurance carrier) and selling it (the insurance brokerage or agency). 


Similarly, Ruggiero's services in recruiting and training career agents and brokers were outside of AUL's usual course of business.  Ruggiero was acting in his own interest in doing so because he would receive a commission for the sales attributable to them.  Those services were in the interest of AUL only to the extent that they generated sales of AUL products, rather than products of other insurers. 


Finally, the court concluded that Ruggiero was customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.  Ruggiero was in the business of selling insurance products, and  sold the products of both AUL and other insurance companies. 

Superior Court rules that insurer was not required to continue relationship with agent begun under CAR

In Calianos v. Commerce Ins. Co., 2012 WL 414464 (Mass. Super.), Judge Fabricant of the Massachusetts Superior Court held than an auto insurer was not liable to an agent when it terminated high risk policies assigned to it under the Commonwealth Automobile Reinsurers (CAR) program, when CAR was replaced by Massachusetts Automobile Insurance Plan (MAIP).

Under the old CAR program, all insurers who wrote auto insurance policies in Massachusetts were required to accept all high-risk applicants for insurance, but they had the option of merely administering the policies and ceding the profits and losses from such policies to the residual market.

An insurance agent who was unable to obtain a voluntary contract with an insurer could apply to CAR to be assigned as an Exclusive Representative Producer, or ERP. CAR appointed each ERP to an insurer.

The Commissioner of Insurance replaced CAR with MAIP, which I discussed in these posts (hit the link and then scroll down). Under MAIP, insurers are assigned, based on their market share, policies issued to high risk drivers, and are required to absorb any losses from those policies. MAIP became effective in 2008.

Under MAIP, agents are no longer assigned on an involuntary basis to insurers. Only agents who are licensed as Assigned Risk Producers, or ARP's, service the high-risk market.

While CAR was still in effect in 2006, CAR assigned insurance agent Jason Calianos as an ERP to Commerce.

In January, 2009, after MAIP replaced CAR, Commerce informed Calianos that he would no longer have authority to solicit or bind new policies and that Commerce would non-renew his existing policies. Commerce then issued notices of nonrenewal to Calianos's customers.

Calianos sued Commerce, alleging that Commerce had amended or terminated its agreement with him without the requisite notice, and that it declined to renew his customers' policies, depriving him of commissions.

The court held:

• Commerce did not breach Calianos's contract. His CAR contract terminated when CAR was replaced by MAIP.



• Commerce was not required by MAIP to continue its relationship with Calianos.



• Commerce did not act in bad faith when it did not renew Calianos's policies on a voluntary basis, because it was not required to do so and never had a voluntary relationship with him.



• Commerce was not liable for intentional interference with contractual relationships, because Commerce had no contractual duty to renew the CAR policies.

Okay -- an insurer should be bound by a mutual mistake over the terms of the policy . . . sometimes

Last week I wrote a somewhat snide post about a Superior Court decision in Caron v. Horace Mann Ins. Co., a decision that was reported in Massachusetts Lawyers Weekly but that I have not seen. The judge apparently held that an insurance company is bound by a mutual mistake between an insured and an agent over the terms of the policy.

My knee-jerk reaction was that the terms of the policy always trump, and that an insured is presumed to have read and understood the policy. But I can certainly see how a case could be made that if an insured believes that he or she is purchasing certain coverage, and the insurance agent, acting on behalf of the insurer, believes that he or she is selling that coverage, such coverage should be read into the policy.

Such a result could only apply in specific circumstances. Take, for example, Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, __ F.3d __, 2011WL 5027445 (1st Cir.), the other case I discussed in last week's post.

If the insured had said to the agent prior to purchasing the policy, "I want to make sure that there is coverage for claims of deceptive trade practices," and the agent, speaking on behalf of the insurer, had looked at the policy and said, "Yep, there's no exclusion for that," but there actually was such an exclusion hidden under a label "AntiTrust Exclusion," then it would be fair that the insurer be bound by the mutual mistake. And maybe as the insurer is suing the agent for negligence, it could send a memo to its underwriting department to label the policy provisions more accurately.

More on why it's good to comparison shop for insurance

This article also demonstrates how the rich are different from us.

SJC rejects insurance agents' challenge to MAIP rules

I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

The Massachusetts Association of Insurance Agents (MAIA) challenged MAIP Rule 30.C. That rule establishes a process by which an insurer may opt to move a high-risk driver assigned to it under MAIP to its voluntary portfolio. Under the rule, insurers doing so must currently continue to pay a commission to the agent who submitted the application to MAIP; but after April 1, 2011 they will no longer need to do so.

MAIA argued that 1) Mass. Gen. Laws ch. 175 § 113I requires that a commission continue to be paid; 2) the rule violates Mass. Gen. Laws. ch. 175 § 162F which codifies the "American Agency System," by giving agents the exclusive right to data necessary to solicit insurance policy renewals.

The court held that policies assigned under MAIP do not come within the American Agency System because the insurance agents have a statutory rather than contractual relationship with the insurers. The agents submit the MAIP application on behalf of a high-risk driver. The application is randomly assigned to an insurer. The agent has no contract with the randomly-assigned insurer.

The court also rejected MAIA's argument that Mass. Gen. Laws ch. 175 § 113I requires the insurer to continue to pay "fair and reasonable" commissions because insurers who take advantage of the rule to offer voluntary renewals are acting "pursuant to the plan approved under § 113H." It held that the term "pursuant to" only requires insurers to pay commissions for policies involuntary assigned to them. Policies that have been transferred to the voluntary market no longer come within the statute.