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.

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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.

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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

More from Risk & Insurance

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]