Metz v. Allstate Insurance

KRAUSER, Judge. In this dispute between an insurance company and one of its former agents, we are asked to decide who owns the agent’s book of business or “expirations” for purposes of § 27-503 of the Insurance Article. Enacted primarily to prevent insurance purchasers from losing their coverage when their agent and their company parted ways, this legislation transfers, when that occurs, ownership of the information contained in the agent’s book of business to the insurer and then requires the insurer to renew all policies produced by the agent. To off-set the agent’s loss of his “expirations,” it further requires the insurer, under § 27-503(b)(2), to provide the agent -with 90 days’ notice of termination and then, under § 27-503(b)(3), to renew the agent’s policies, through him or her, for at least two years or until the policies are placed elsewhere.

Because the purpose of subsection (2) of § 27-503(b) is to provide the agent with adequate notice of termination and that of subsection (3) is to ensure policy renewal, they are known respectively as the “notice rule” and the “renewal rule.” These rules do not apply, however, when the insurance producer is a “captive agent,” that is, an agent who works exclusively for a company or group of companies, whose termination will not interfere with the renewal of any of the policies of his customers, and whose book of business is owned by that entity. As there is no dispute that appellant David B. Metz worked exclusively for appellee Allstate Insurance Company and that the termination of his agreement did not imperil his customers’ policies with Allstate, the only issue before us is whether he or Allstate owned his book of business. If he did, ³⁸⁹ then he was entitled to the protections afforded by the notice and renewal rules; if he did not, then he fell within the “captive agent” exception to the applicability of those two prophylactic provisions. Determining who owned Metz’s expirations is no mean task.

Under his contract with Allstate, Metz was professionally neither fish nor fowl, that is to say, neither “captive” nor “independent” agent, but a combination of both. He was one of Allstate’s “exclusive independent agents,” a company designation which conveys the paradoxical nature of his position. As a “exclusive independent agent,” he was both an independent contractor and an exclusive agent, traditionally incompatible positions. He did not “own” his book of business, according to Allstate; yet he had an undefined “economic interest” in it, which he could sell to a buyer approved by Allstate or pledge as collateral for a loan.

Indeed, given the novelty and complexity of the parties’ business arrangement, it is understandable that the Insurance Commissioner and the circuit court came to different conclusions as to who owned Metz’s expirations for purposes of §§ 27 — 503(b)(2) and (3). The Insurance Commissioner accepted Metz’s claim that he owned his expirations; the Circuit Court for Baltimore City did not. Reversing the Commissioner’s decision, the circuit court declared that, under the parties’ agreement, the expirations clearly belonged to Allstate and that Metz was therefore not entitled to the statutory benefits he claimed. That ruling was erroneous, claims Metz and the Insurance Commissioner, both of whom are appellants in this matter.

Together, they request that we reverse it and remand this case to the circuit court with instructions that it affirm the Commissioner’s decision. Individually, Metz requests that further proceedings be held to determine the appropriate amount of damages due him, as a result of Allstate’s purported violation of the notice and renewal rules. We decline to grant either request. BACKGROUND Metz’s relationship with Allstate began many years before he became one of Allstate’s “exclusive independent agents.” ³⁹⁰ In May 1986, Metz joined Allstate, signing an “Agent Employment Agreement.” Under that agreement, Metz became a “full-time employee” of Allstate and received a monthly minimum salary and “employment benefits.” That agreement also provided, among other things, that Allstate would designate a “sales location” for Metz, determine “all matters relating to its business and [its] operation,” and “own all business produced under the terms of the Agreement.” It declared that, as an employee, Metz had “no vested interest” in any of the business he might develop on behalf of Allstate.

Almost a decade and half later, to remain competitive, Allstate chose to end its practice of using employees as agents and rely, instead, as its competitors were purportedly doing, on independent agents. 1 For that purpose, it developed an agreement it called the “Allstate R3001S Exclusive Agency Agreement” (“R3001 Agreement”). In July of 2000, Metz signed a copy of that agreement, which incorporated by reference the “Supplement for the R3001 Agreement,” Allstate’s “Exclusive Agency Independent Contractor Manual,” and the “Allstate Agency Standards.” The R3001 Agreement stated, among things, that Metz was now an “independent contractor for all purposes and not an employee,” that his “sole compensation” would be commissions, that he would be responsible for running his own agency, including hiring and firing his own employees, setting their salaries, and so on. It also stated that he would have an “economic interest” in his “Allstate customer accounts,” which he could pledge as collateral for a loan or sell to an Allstate-approved buyer upon the termination of his relationship with Allstate. As to who owned the business generated by his agency, the agreement was emphatic, declaring at least three times in nine ³⁹¹ pages, that Allstate owned all of the business produced byMetz for Allstate.

And that fact was reiterated in the Allstate manual that accompanied the agreement. The first paragraph of the R3001S Agreement stated that “[t]he Company will own all business produced under the terms of th[e] Agreement”; later, it provided all confidential information including “the names, addresses, and ages of policyholders of the Company; types of policies; amounts of insurance; premium amounts; the description and location of insured property; [and] the expiration or renewal dates of policies ...” are “wholly owned by the Company.” And, still later, it stated that “[a]ny confidential information ... recorded on paper, electronic data file, or any other medium, whether provided by the Company or by [the agent], is the exclusive property of the Company as is any such medium and any copy of such medium.” Moreover, the first paragraph on the first page of The Exclusive Agency Independent Contractor Manual avowed: Allstate “owns all business produced by [its agents].” And consistent with these assertions of Allstate’s ownership, the Agreement prohibited Metz from disclosing any “confidential information” to a third party without Allstate’s consent and from using that information for a period of one year, following the termination of the Agreement, to solicit the customers he had produced for Allstate. Less than two years after signing the R3001 Agreement, in a letter dated February 5, 2002, Allstate terminated it, effective June 1, 2002, because of Metz’s “continued failure to comply with Allstate Agency Operations Standards.” The letter stated that “Allstate w[ould] immediately assume full responsibility for servicing [Metz’s] book of business.....” It advised Metz that he had “the option of accepting a termination payment from Allstate or selling [his] economic interest in [his] entire book of business to an approved buyer.” After receiving Allstate’s letter, Metz filed a complaint with the Maryland Insurance Administration (“MIA”). The allegations of that complaint were summarized in the Insurance ³⁹² Commissioner’s Memorandum of Law and Final order. 2 According to the Insurance Commissioner, Metz “alleged that: (1) Allstate had unlawfully cancelled its agency agreement with [him]: (2) Allstate [had] unlawfully failed to provide [him] with two years of his customers’ policy renewal; and, (3) that Allstate [had] unlawfully prohibited [him] from soliciting, submitting application/or binding policies to Allstate for ninety days following the day that Allstate cancelled its agency agreement with [him].” At the time he filed his complaint, Metz entered negotiations with his brother, another Allstate agent, to sell his business, including his expirations, to his brother’s agency, the “William P. Metz Insurance Agency.” Even though he terminated those negotiations after receiving a favorable ruling from the Associate Insurance Commissioner of Property & Casualty (“associate commissioner”), he nonetheless instructed Allstate to transfer all of his accounts, including the revenue stream, to his brother’s agency.

Indeed, According to the Insurance Commissioner, Metz’s brother received commissions totaling $28,000 for the months of June, July, August, September, and October, 2002. Although the associate insurance commissioner concluded that Metz’s termination was not “arbitrary, capricious [or] unfair,” he ruled that Allstate and Metz “jointly owned the ‘business’ produced under the Agreement.” He therefore ordered Allstate “to renew through Mr. Metz any policies that have not been replaced by Mr. Metz with other insurers as the expirations occur for a period of two (2) years from the termination date of Mr. Metz’s Agreement with Allstate” and “to rescind its February 5, 2002 cancellation notice; and, if it still chooses to cancel Mr. Metz’s Agreement, to issue a new notice providing ninety (90) days in which Mr. Metz may solicit, submit applications, or bind policies for Allstate.” The parties were notified that that order would become final if ³⁹³ neither party requested a review hearing within thirty days of its filing date. Both sides did. At the conclusion of that hearing, the Insurance Commissioner 3 found, as the associate commissioner had, that Metz’s termination was not arbitrary, capricious, or unfair.

He also agreed with the associate commissioner that Allstate was not the sole owner of the expirations and that, as a result, Allstate had violated Maryland law “by failing to provide Metz with two years’ renewal policy expirations and by ... failing to accept new or renewal business from Metz for ninety (90) days after [its] notice of cancellation.” He further found that “no where in the. Allstate Agency Agreement does the term expiration appear”; that “the Allstate R3001S Agreement granted Metz more than the right to receive commissions from Allstate”; that Metz was required to maintain a profitable book of business; that the agreement “repeatedly [makes references] to the ownership interest of the R3001 Agent as ‘your business’ or refers to the sale of ‘your agency,’ or the sale of the agent’s ‘book of business’ ”; that “Allstate does not assist in the valuation or the'sale of the agent’s interest in his business”; that “the terms of any sale are negotiated between the buying and selling agents”; and that an agent’s interest may be pledged as collateral for a loan. Although he made many of the same findings as the associate commissioner, the Insurance Commissioner granted Metz different relief: He ordered Allstate to pay restitution to Metz in the amount of the commissions due on policy renewals for a period of two years from the termination of Metz’s agency agreement. Mutually dissatisfied with that order, the parties filed cross-petitions for judicial review in the Circuit Court for Baltimore City.

While Metz claimed that the Insurance Commissioner ³⁹⁴ erred in “failing to order Allstate to reinstate [him] as an Allstate agent for ninety (90) days and to ‘renew’ insurance policies through [him] for two (2) years[,]” Allstate alleged that he erred in finding that Allstate had violated Maryland law and in ordering restitution. The circuit court agreed with Allstate and reversed the Insurance Commissioner’s decision to the extent it found that Allstate had violated Maryland law, specifically §§ 27-503(b)(2) and (3), in terminating Metz’s agreement. The circuit court explained that the R3001 Agreement’s references to “confidential information” were actually references to what are known, in the insurance business, as “expirations” and that information, the Agreement repeatedly avowed, was the property of Allstate. And there were more indicia of Allstate’s ownership, the court asserted, pointing specifically to the non-disclosure and the non-competition provisions of the agreement.

Under the former, Metz was prohibited from disclosing any information regarding the business he generated for Allstate to a third party without Allstate’s approval, and, under the latter, he was prohibited from soliciting Allstate’s customers, including those he had produced for Allstate, for a period of one year following his termination. The circuit court dismissed Metz’s claim that his “economic interest” in his book of business constituted ownership under § 27-503(b)(ii)(2), stating that “[although Metz had an ‘economic interest’ in the book of business written under the Agreement, Allstate clearly owned the book of business, or the expirations.” It further observed that, although Metz could transfer this information to a buyer, such a transfer could only occur with Allstate’s approval and then only if the transferee agreed to be bound by the provisions of Metz’s contract. “[J]ust because the contract provided that Metz could use and transfer his right to use the expirations to another producer, Allstate did not,” the court opined, “lose ownership of the expirations.” That information, the court declared, was “at all times ... wholly owned by Allstate.” ³⁹⁵ DISCUSSION I. Appellants contend that the circuit court erred in reversing the Maryland Insurance Commissioner’s finding that Allstate violated § 27-503 of the Insurance Article, when it failed to comply with the “notice” and “renewal” rules of that statute in terminating Metz’s contract. Compliance with those rules is required when the agent to be terminated owns his expirations; when he does not, he falls within the captive agent exception of that statute and no such compliance is necessary. Were it otherwise, the insurer would, in effect, be required by law to compensate a former agent for expirations that it, not he, owns.

Finding that Allstate, not Metz, owned the “expirations,” the circuit court held that Allstate was not required to give Metz 90 days’ notice of his termination, under the “notice rule” of § 27-503(b)(2), or to renew policies that Metz was unable to place with other companies, under the “renewal rule” of § 27-503(b)(3). It therefore reversed the decision of the Insurance Commissioner. But it is not the circuit court’s decision that we review. It is the agency’s.

Annapolis Mkt. Place, L.L.C. v. Parker, 369 Md. 689, 703 , 802 A.2d 1029 (2002) (citation omitted) In so doing, our role “ ‘is limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and ... if the administrative decision is premised upon an erroneous conclusion of law.’ ” Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-68 , 729 A.2d 376 (1999)(quoting United, Parcel v. People’s Counsel, 336 Md. 569, 576 , 650 A.2d 226 (1994)). Applying that standard, we turn to appellants’ contentions. Appellants assert that Allstate did not exclusively own Metz’s expirations, but shared ownership with Metz.

Metz’s agreement with Allstate, they point out, granted Metz an “economic interest” in his “book of business,” which he could either sell to an Allstate-approved buyer or accept a termi ³⁹⁶ nation fee from Allstate, based upon the value of the expirations. That arrangement, they claim, made Metz and Allstate co-owners of the expirations, placing Metz within the protective scope of the notice and renewal rules. Section § 27-503(b)(2) or the “notice rule” states: If an insurer intends to cancel a written agreement with an insurance producer or intends to refuse a class of renewal business from an insurance producer, the insurer shall give the insurance producer at least 90 days’ written notice. Md.Code (1957, 2002 Repl.

Vol), § 27-503(b)(2) of the Insurance Article (“Ins.”). And Section 27-503(b)(3) or the “renewal rule” provides: Notwithstanding any provision of the agreement to the contrary, the insurer shall continue for at least 2 years after termination of the agency agreement to renew