Battles in the Insurance Industry
There is an ongoing information war throughout the insurance industry between the big insurance companies and their sales agents. The battles are taking place in state and federal court in every state, involving work restriction disputes and claims of “trade secret” theft or misappropriation. There’s no end in sight.
How did it start?
Insurance Industry Shake Up
The traditional model for selling insurance (home, auto, boat, or renter’s coverage) involved local insurance agents, selling insurance in their local communities. A person having ties in his community could do fairly well, by simply educating his family and friends about the value of insurance and selling to them:
- Should you get uninsured or underinsured motorist coverage? (Yes!)
- Do I need full tort or limited tort auto insurance? (Get full tort!).
In this model, each sales agent or group of local agents would sell insurance for one insurance company, typically, operating under the State Farm, Liberty Mutual, or Nationwide logo, for example. Even today, you may see a local insurance rep’s face on a billboard. Beside it: the slogan of a major insurance company: “You’re in good Hands.”
Then came the internet…
With it, customers could go online to buy insurance directly from the insurance companies, bypassing their local agents. Each insurance company advertised rates lower than competitors.”Switch and save!” But to local insurance reps, this meant, switch to buying insurance directly from the insurance company — not the agent — if you want to “save.”
Local insurance sales people wanted out of this business model, but they felt cornered. They were bound by work restriction clauses and other trade restrictions in their contracts, preventing them from starting their own insurance companies to compete. In fact, their restrictive clauses included language deeming practically everything a “trade secret” that the local agent had learned form the insurance company, preventing him from working anywhere else.
A Relationship On the Rocks
In the mid-to late 1990s, insurance companies and their local sales agents had some decisions to make. Neither could afford to immediately split from the other. The internet was relatively new. The future of online sales was speculative. So the insurance companies said the right things to the agents, “Don’t worry. We’ll sell directly, but we’ll also steer customers your way,” etc. Perhaps the intent was there. But for many local agents, the business dried up. Many local agents had to leave the insurance company that was both holding them captive and competed directly with them.
Playing Dirty: The Noncompete and Trade Secret Wars
In the late 1990s, yours truly represented a group of former Nationwide Insurance sales reps that had broken-off and started their own insurance company. Nationwide sued these former employees, for allegedly violating their agreements with Nationwide. The agents countersued, claiming that Nationwide had acted in bad faith, by competing directly with the former agents, and also violating the implied duty of good faith and fair dealing clause implied in every contract in Pennsylvania. That war raged on for seven years, ending in a stalemate.
Each side claimed “victory,” aside from the time and legal fees both sides spent on a 7 year war. Similar battles between insurance companies and the former agents have raged on during the past twenty-five years and into the present time. For example, in once recent case, Bert Co. v. Turk, 298 A.3d 44 (Pa. 2023), an award of punitive damages to compensatory damage of 8:1 (for poaching employees and trade secrets) was upheld by the Supreme Court.
Allstate Insurance Company v. Fougere, Court of Appeals, 1st Circuit 2023
The current case in the news involves Allstate, which sued two of its former agents, claiming they:
- were in breach of contract,
- took “spread sheets” that were a trade secret, in violation of the Defend Trade Secrets Act, 28 U.S.C. 1836,
- wrongfully started a competing insurance company, and
- improperly solicited customers of Allstate.
The former agents filed counterclaims against Allstate, alleging that Allstate had violated a Massachusetts state law, prohibiting “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” (Note that PA has a similar statute prohibiting unfair trade practices, but it only applies to consumer transactions, not commercial agreements for profit.) Allstate won at the trial court level. The Defendants-former Allstate agents appealed.
The Court Of Appeals Weighed In
The Court of Appeals issued a fifty-two (52!) page opinion. In it, the appellate court did a perfect summary of its decision simply titled “Our Take”:
III. Our Take.
Our analysis begins by reviewing [the former agents’] counterclaims under Mass. Gen. Laws ch. 175, § 163, which entitles independent insurance agents to 180 days of notice before termination of their contracts, and Mass. Gen. Laws ch. 93A, § 2, which prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” After concluding that neither apply to [former insurance agents] due to their exclusive relationships with Allstate, we move on to the company’s trade secret misappropriation claims against [the former agents]. Because we hold that the spreadsheets at issue contained trade secrets under the DTSA and Massachusetts common law, and that [former agents] misappropriated them, we affirm the district court’s summary judgment rulings in favor of Allstate across the board.
There you have it. Unless the Supreme Court of the United States “grants cert” (agrees to hear the case), it’s over. It is the opinion of the undersigned that Allstate did an excellent job building a record in support of its claims against the Defendant-former agents. Either that, or the facts were simply more heavily slanted toward Allstate in that matter. Regardless, it always pays to engage experienced litigation counsel early on, to best develop a record to have a chance of winning such complex litigation.
Contact our Trade Secret and Noncompete Lawyers Today!
412.342.0992
Each Pittsburgh attorney at our firm is available to talk to you about how to protect your rights regarding any post-separation matter from an employer.
