Court Case Addresses Thorny Issues Faced By Young Agents

The Alabama Supreme Court has denied a motion for a new trial in the case of a Mobile insurance agent who was “fraudulently induced” to sell life and property/casualty polices on behalf of Farmers Insurance Exchange.

The court, however, ordered a new hearing on punitive damages of $1.8 million awarded to the agent, Robert Kyle Morris.

The case brings to light thorny issues faced by young agents. They are looking to make a name for themselves, yet cognizant of the advantages they hold by dint of the loyalties and the relationship forged by a previous generation of insurance agents.

It also underscores the conflicts between information gleaned from face-to-face discussions and written employment standards buried in employee manuals.

Morris sued Farmers on the grounds that the carrier had fraudulently induced him to become an agent even through nothing in the agent agreements Morris signed with Farmers pointed to any conflict of interest between him and his father’s agency.

A jury in 2013 found in favor of Morris and awarded him $600,000 in compensatory damages and $1.8 million in punitive damages.

Last week, the Alabama Supreme Court agreed.

“Morris presented sufficient evidence of fraudulent inducement for the matter to be decided by the jury,” the court ruled in a 5-4 decision.

Writing for the minority, Chief Justice Roy S. Moore pointed to the “at-will language” in the employment contract Morris signed with Farmers as “terminable by either party for a good reason, a bad reason, or no reason at all.”

At-will language in the contract removes any basis to rely on assurances from Farmers employees that continuing to work for his father’s agency “would not be a cause for separation from employment with Farmers,” Moore wrote.

A Promising Start

Robert Kyle Morris was working for Morris Insurance Agency, an independent agency owned by his father, when he contacted Farmers about becoming a Farmers agent.

Morris testified that he was interested in Farmers because the company had a policy whereby a Farmers agent could place insurance with a different carrier even if the customer was not eligible for insurance issued by Farmers.

Farmers thought that Morris, through his own book of business and the name recognition of his father’s agency, would bring in business. Morris signed on with Farmers in 2007, working out of Morris Insurance Agency.

In 2009, however, when Farmers managers insisted Morris open his own office with a Farmers sign, they never mentioned anything about a conflict of interest working through Morris Insurance Agency. Morris testified that he repeatedly asked Farmers about the potential conflict of interest presented by his father’s agency before he was hired.

“The only information contrary to what Morris had been told was buried in a 200-page manual among dozens of other documents provided for training modules, and even longtime Farmers employees were not aware of the existence of the statement,” the Alabama Supreme Court wrote in a 46-page ruling.

As reasons for Morris’ termination, Farmers managers argued that Morris had sold coverage through his father’s agency even though the coverage was eligible to be written through Farmers. In addition, Farmers contended that Morris had placed other business in violation of the carrier’s underwriting guidelines, and that Morris hadn’t met sales minumums.

Morris testified when he asked why he was being fired, Farmers’ managers told him it was because of a conflict of interest as his father was also in the business.

Morris sued and the trial court ruled in his favor.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].