Monday, October 13, 2008

Non-Competes and Insurance Brokers

Insurance brokers, like many professionals often confront non-compete agreements when they consider making an employment change. Below is a synopsis of two cases dealing with non-competes in the insurance industry:

Spring v. Walthall, Sachse & Pipes, Inc., 2005 Tex. App. Lexis 6825 (Tex. App. - San Antonio 2005, no pet.) Defendant Rosemay Spring was an insurance broker for Plaintiff Walthall, Sachse & Pipes ("WS&P"). Spring resigned from WS&P and within a week contacted thirty-three of her former customers. Twenty-five signed agent of record letters indicating their desire to do insurance business with Spring. WS&P filed suit against Spring and obtained an injunction preventing her from soliciting WS&P customers or disclosing WS&P trade secrets.

The San Antonio Court of Appeals considered Spring's appeal of the injunction. Spring's non-compete with WS&P prevented her from acting as an insurance broker/producer for a period of 1 year within a twenty-five mile radius of WS&P's principal place of business. Her "non-piracy covenant" prevented her from soliciting or accepting WS&P's customers for a period of 3 years. Spring testified during the injunction that she was soliciting WS&P clients and essentially competing.

The court of appeals held that WS&P met its burden to obtain a preliminary injunction. Spring did not challenge and the Court did not address whether the non-compete or "non-piracy covenant" actually were enforceable under Texas law.

Hargrave v. Giuffre, 1999 Tex. App. Lexis 9618 (Tex. App. - Beaumont 1999, no pet.) Richard Giuffre worked for Hargrave as an insurance broker. At the outset of his employment he was required to sign a "Producer's Contract", that among other things, prohibited him from soliciting or accepting any insurance business from any of the insurance accounts of the agency.

The Beaumont Court of Appeals ruled "We find that the covenant in this case is not reasonable with regard to the scope of activity to be restrained in that it is not limited to those clients whom Giuffre serviced or had dealings with while at the agency." The opinion seems to suggest that the outcome might have been different if the non-compete was tailored to Giuffre's customers.

The Hargrave non-compete failed to satisfy Texas Business and Commerce Code 15.50. By drafting a non-compete that was overly-broad, Hargrave lost any opportunity to legally prevent Giuffre from competing.