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Hayes v. Preferred Risk Mutual Ins. Co.

MAY 15, 1975.




APPEAL from the Circuit Court of St. Clair County; the Hon. ROBERT L. GAGEN, Judge, presiding.


Plaintiff appeals from a judgment of the trial court directing a verdict in favor of the defendant at the close of plaintiff's evidence in a case wherein plaintiff sought damages from defendant because of an alleged wrongful termination of an insurance agency contract by the defendant.

Hayes became Preferred Risk's agent in 1954 when he bought the contract rights of an individual who was then employed by the company as its agent. In 1956 he bought the rights of another of the company's agents for $4800. This second purchase gave Hayes the right to be paid commissions by the company out of renewal premiums which were paid to the company on policies that had been sold by Hayes's predecessor. Hayes also acquired the right to solicit new business for the company in the East St. Louis area. The agreement contained the following provisions relevant to termination of the contract:

"7. This Agency may be terminated by either party by giving the other party oral or written notice of its intention to do so, but such notice and consequent termination shall not be construed as fully discharging either party's financial obligations hereunder. Termination, as aforesaid, shall, however, cancel all authority granted the Agent hereunder. The respective financial obligations of the parties shall be discharged as speedily as possible after such termination.

8. In the event of termination by either party:

(a) It is agreed that all books of record, documents and supplies of all kinds pertaining to the business of the company shall, upon demand, be surrendered and delivered by the Agent to any legal representative of the company. This shall include the Agent's records, use and control of all expirations and dailies and it is understood that these expirations and dailies shall not remain the property of the Agent, but shall be turned over to the Company.

(b) Ownership of the business written shall be in the Company and the Agent shall have no right, title or interest therein or in the renewals thereof except as hereinafter specified. It is agreed that the Agent will make no attempt or effort, either directly or indirectly, to induce policyholders to withdraw from the Company or to place their business elsewhere.

(c) The Agent's right to future commissions is hereby recognized as a `limited property right'. This `limited property right' shall be deemed to mean the following: The Agent may receive no further commissions himself or new or renewal business. He shall, however, have a specific right, title and interest in future commissions to the extent that he may transfer, dispose or sell this interest to some other person on such terms as he sees fit, subject to the approval by the Company as to the qualifications of the transferee. In the event the Agent is unable to procure a purchaser or otherwise satisfactorily effect a transfer, the Company may, at its option, purchase the Agent's `limited property right' on the basis of `one times' the renewal commissions payable on policies written during the 12 months preceding and in effect at time of cancellation. It is understood that this limited property right to sell his renewal commissions shall accrue to the Agent only if the total of his gross premimum received and earned under the contract exceeds the sum of $1000 during the last 12 month period preceding termination."

Paragraph 6, section (b), of the agreement said:

(b) If the total of the gross premium received and earned under this contract during any twelve month period exceeds the sum of $5000 (Five Thousand Dollars) the renewal commission as specified in the above paragraph shall from a date approximately one month thereafter be 10% so long as the gross premium for any 12 month period remains in excess of $5000.00."

This agreement was the basis of the relationship between Hayes and Preferred Risk from the date of the execution on February 25, 1956, until the spring of 1971. During the years 1968 to 1971, Hayes's annual gross premiums averaged above $52,000 — $52,959.69 in 1968, $54,496.23 in 1969, $58,488.20 in 1970, and $45,776.42 in 1971. "Gross premiums" is a figure composed of initial premiums paid on new policies sold by the agent during the year and renewal premiums paid during the year on policies sold by the agent in past years.

On April 1, 1971, Hayes received a letter from Preferred Risk telling him that his agency would be placed on suspension after April 1, and that his agency contract would be terminated on May 31, 1971. The letter revealed that being "placed on suspension" meant that no new business would be accepted from Hayes. Termination of the agency contract meant that Hayes would cease to receive commissions out of renewal premiums paid on policies sold by him.

On April 15, 1971, Hayes's customers began to receive letters from the company labeled "Notice of Policy Expiration." The letters stated that Hayes was no longer an agent of Preferred Risk, and that the company assumed that Hayes's customers would prefer to remain his customers rather than renew their policies with Preferred Risk. The letters ended with the words, "If you would rather renew your coverage with our company, please write directly to us, enclosing this letter, and we will process the renewal of your policy(s) immediately." The company sent 393 of these policy expiration letters to Hayes's customers between June, 1971, and January, 1973. All the customers renewed their policies with the company and paid it $35,501 in renewal premiums between June, 1971, and January, 1973.

The company paid Hayes the commissions it owed him for the months of April and May of 1971. On May 31, 1971, the agency relationship between Hayes and Preferred Risk came to an end. After ...

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