Legal Precedent Protects Broker's Book Of Business From Solicitation By Wholesaler

Co-Written By Robert C Meder (Kaye Insurance Associates Inc)

This article first appeared in Volume 22, Issue 1 (2001) of The Risk Management Letter

In October 2000, the New York appellate court set an important precedent when it prohibited an insurance wholesaler from soliciting business of a retail broker who had previously placed that business with the wholesaler. The fact that there was no written agreement restricting such solicitation makes the decision even more important. During the course of litigation issues emerged that agents and brokers have been wrestling with for years.

If there's one thing an insurance broker takes seriously, it's the ownership of its book of business. Every retail insurance broker has its own battle stories of how it fought off the opponent when its client base was under siege by competitors. Historically, brokers have been willing to take every measure necessary to protect their portfolio of clients from attack from other brokers, or wholesalers with whom they are placing that business. And for good reason: an insurance broker's book of business is its bread and butter, and customer loyalty is an important determinant of long-term success or failure.

Most insurance brokerage professionals can sympathize with what happened in Clarion Associates, Inc. v. D. J. Colby Co., Inc. Clarion is an independent insurance broker in Huntington, New York that specializes in coverage for the music industry, including musicians, instrument dealers, orchestras and others. While not nearly the size of their international, national or even regional peers, Clarion successfully established a niche in the music field across the country. For 15 years they placed their business with D. J. Colby Co. Inc., a wholesaler, and Colby in turn placed the insurance with the Hartford Insurance Group.

However, in 1998, for a variety of reasons Clarion no longer required Colby's services and decided to place its business directly with another insurer. Shortly after termination of the relationship, Clarion contended that Colby began soliciting Clarion's customers, and did so using proprietary information obtained during their prior business relationship. Clarion felt that Colby was not entitled to use such information, claiming that it owned the business. This concept of a broker's "ownership of expirations" has judicial history going back many years. So Clarion went to court to get an injunction against Colby.

Eventually the lower court's...