Brokers

Brokerage Prevails on Restrictive Agreements

Brown & Brown won a temporary injunction against a competitor and the former employees who it accused of taking clients with them when they left.
By: | November 2, 2016 • 4 min read

Recruiting the right people is crucial for insurance brokers. Retaining them can be a challenge.

It’s especially difficult when “nothing short of a corporate raid” takes place, and a broker not only loses key producers, but clients as well. Those are the charges laid against AssuredPartners of Lake Mary, Fla., by Brown & Brown, one of the largest global brokerages.

Advertisement




On Oct. 24, a Florida circuit court judge issued a temporary injunction ordering AssuredPartners to “divest themselves of the former customers of Brown & Brown that are now customers of Assured.”

Brown & Brown was ordered to post a $1.6 million bond, which is “the best estimate we have as to the amount of business employees have effectively stolen in accounts from Brown & Brown through the wrongful solicitation,” said Katheleen Ehrhart, a partner in the litigation practice group at Freeborn & Peters, which represented B&B.

AssuredPartners was formed by two former Brown & Brown executives: Jim Henderson, CEO and chairman of AssuredPartners, was B&B’s vice chairman and COO until his retirement in 2010; and Thomas Riley, president and COO of AssuredPartners, was B&B’s chief acquisition officer.

Katheleen Ehrhart, partner, Freeborn & Peters

Katheleen Ehrhart, partner, Freeborn & Peters

“We disagree with the ruling,” said Walter Smith, chief counsel of AssuredPartners.

“This [lawsuit], I think, was an unnecessary thing that occurred because we’ve always been clear that we wanted to pay for the accounts that followed.”

He said it is a very common practice for brokerages to pay for accounts that want to follow employees to a new firm.

He said the judge “didn’t find there was solicitation of any customers and they are now our customers. The judge ruled that if there was harm to the customers they could stay with us. We believe it would be harmful [to force the clients to move],” Smith said.

According to the lawsuit, at least 10 accounts, representing more than 50 policies transferred their accounts to AssuredPartners.

“The point is we are going to protect our customers and employees from being solicited to compete against Brown & Brown for two years. That’s very reasonable.” — Katheleen Ehrhart, partner, Freeborn and Peters

“Each of them [the former employees] is free to make that decision on their own to go work for a competitor,” Ehrhart said. “It’s the collusion, if you will, of them doing it together that we say is a violation of the restrictive covenant. But the real focus here is the customers.

“The point is we are going to protect our customers and employees from being solicited to compete against Brown & Brown for two years. That’s very reasonable.

“We also recognize when a customer may … choose to go to another broker, but our employees should not be free to go to a competitor and lure that customer to that competitor,” she said.

The restrictive covenant violations “caused substantial harm and loss of customers to [Brown & Brown],” wrote Judge Dennis Craig in his order issuing the temporary injunction.

The order provided, however, that “if evidence arises that a former customer of Brown & Brown which is now a customer of Assured will suffer harm as a result of this order, the defendants may file a motion asking this Court to reconsider or modify this Order as to that customer.”

The litigation accused Assured of “poaching” eight former employees, who were mostly top executives and producers in B&B’s senior care sector (which brokers insurance for nursing homes, assisted living facilities and continuing care retirement community) or for habitational insurance (for condominium boards and units, and other multi-residence properties).

The employees, who left B&B within 15 days, had signed employment agreements with restrictive covenants, in which they agreed not to disclose confidential information, not to solicit clients or to inform clients of their leaving B&B for two years following their voluntary or involuntary termination.

The agreement also required the employees to not “directly or indirectly solicit or seek to induce any of the company’s employees to leave the company’s employ for any reason.”

The ruling did not require the employees to leave their new jobs, but said they must comply with the restrictive covenants.

On June 23, AssuredPartners announced the hiring of Phil Masi as senior vice president, and Negar Sharifi as vice president, to focus on new commercial property and retail clients. Masi had been SVP at Brown & Brown while Sharifi was a commercial insurance agent.

Advertisement




Also named in the suit were Henderson and Riley of AssuredPartners; and former Brown & Brown employees, Richard Schwarz II, Brian Lindahl, Jennica Mandarano, Kathryn Bloodwell, Michael Randall and Danielle Mattson.

The ruling did not require the employees to leave their new jobs, but said they must comply with the restrictive covenants.

Ehrhart said a date has not yet been set for a trial on a permanent injunction.

If Brown & Brown ultimately prevails, she said, damages could include loss of revenue, loss of investment in business lines, loss of investment in employees, and loss of reputation and good will.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance