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NED HALL vs FARMERS

A Farmers Agent objects to controversial company actions. The company fires him, silencing the criticism and depriving him of income from renewal premiums. The Court finds the company guilty of wrongful termination and bad faith and liable for future commissions from renewal premiums.

Editor’s note: The following is quoted from a 1986 decision by the Oklahoma Supreme Court concerning former Farmers Agent Ned Hall. This case is significant because, instead of charging wrongful termination, Mr. Hall sued charging termination without cause and claimed bad faith on the part of Farmers.

During the 10-year life of the contract in question, each party performed to the satisfaction of the other. Hall’s agency flourished, and in 1978 he had a gross income of approximately $42,000, of which some $35,000 was derived from renewal premiums paid by policyholders to whom Hall had sold Farmers policies over the years. In that same year, Farmers was sufficiently pleased to write him letters of commendation for his production.

In 1978 however, disagreements arose between Hall and [District Manager] Cassity concerning the types and methods of sales which were to be emphasized by Farmers agents. Their troubles deepened when Hall led a group of other agents in protesting what was considered by them to have been the termination without good cause of a fellow Farmers agent of Cassity. After several months of increasing acrimony between the two men, Cassity notified Hall, by letter dated Sept. 21, 1978, that Farmers was terminating his agency as of Dec. 21, 1978.

In anticipation of the effective date of termination, Hall filed suit for breach of contract, alleging termination without cause and claiming bad faith on the part of Farmers and Cassity. In his Second Amended Petition, the petition upon which the action was eventually tried, Hall asked for $225,000 as the reasonable amount of future commissions from renewal premiums under the agency contract and $6,750 for additional renewal commissions on policies sold by him and accepted by Farmers following the effective date of the termination of the contract.

The matter was tried by a jury in December 1982, and on Dec. 17, the jury returned verdicts for Hall and against Farmers and Cassity in the total amount claimed in his petition.

Based on our examination of this case, we find the opinion of the Court of Appeals [overturning the jury’s verdict] should be vacated and the judgment of the trial court affirmed in part and reversed in part.

The primary issue presented by this case is whether a party to a contract which is terminable at will, upon notice, may be held liable for damages if such termination is done in bad faith. . .

Hall does not contest the right of Farmers to terminate the contract. His cause of action rests on the argument that a party to a contract terminable at will is liable in damages if it terminates without good cause and in bad faith.

Evidence presented at trial shows this to be the standard agency contract drafted by Farmers which must be entered into by all its agents.

This Court has long recognized that parties should be free to contract for any lawful purpose upon such terms and conditions as they believe to be in their mutual interest. Such freedom is not absolute, however, and the interests of the people of Oklahoma are not best served by a marketplace of cut-throat business dealings where the law of the jungle is thinly clad contractual lace.

In this spirit, we have recognized, as have many jurisdictions, that each contract carries an implicit and mutual covenant by the parties to act toward each other in good faith. As we said in Wright v. Fidelity and Deposit Co. Of Maryland:

"A contract consists not only of the agreements which the parties have expressed in words, but also of the obligations which are reasonably implied. . . Every contract contains implied covenants that neither party shall do anything that will destroy another party’s right to receive the fruits of the contract."

The implied covenant of good faith extends to a covenant not to wrongfully resort to the termination-at-will clause. . .

Certainly if Farmers acted with an intent to wrongfully deprive Hall of the fruits of his contract when it terminated his agency, they would stand in breach of the implied covenant of good faith. Whether such an intent existed is an issue of fact to be decided by the jury. Upon review of the record in this action, we find ample, competent evidence to support the jury’s finding that Farmers did terminate Hall’s agency with the clear intent to deprive Hall of the greater part of his future income from renewal premiums and to parcel that income among its other, less obstreperous agents, and so acted by bad faith and without good cause.

The facts and circumstances of this case fall squarely within the philosophy of equities contained in Restatement of Agency, Second, S454, which says:

An agent to whom the principal has made a revocable offer of compensation if he accomplishes a specific result is entitled to the promised amount if the principal, in order to avoid the payment of it revokes the offer and thereafter the result is accomplished as the result of the agent’s prior efforts. The authors of the Restatement have succinctly set down the longstanding rules that a principal may not unfairly deprive his agent of the fruits of that agent’s own labor by a wrongful, unwarranted resort to a clause in the agency contract which provides for termination at will. We find this to be an excellent rule, one which serves the cause of equity as well as the interests of the marketplace.

In his suit, Hall sought to recover the fruits of the contract, in the form of those renewal premiums he reasonably expected to receive in the future. We note he did not seek, nor was he awarded compensation based on any speculation as to new insurance policies he might have sold. His evidence was limited to that which he had already sold on which both he and Farmers assumed would be renewed at a predictable, quantifiable rate during Hall’s lifetime. There is uncontroverted testimony that such renewal premiums constituted the bulk of Hall’s income, and throughout his association with Farmers he had anticipated this income because such was the usual and ordinary course of events in the insurance business and all this was well known to Farmers.

In summary, we hold that Farmers wrongfully invoked its right to terminate Hall’s agency and did so for the unconscionable purpose of depriving Hall of the future payments of renewal premiums as a penalty for his having voiced his objections to controversial company actions. By its act of wrongful termination, Farmers breach the implied covenant of good faith which exists in all contracts, and is therefore liable to respond in damages. The measure of Hall’s damages for Farmers’ breach of contract is the predictable, quantifiable amount of future income which he was entitled to receive as renewal premiums on insurance policies he had sold as a Farmers agent, both before and after he received notice of the wrongful termination.

Editors note: Although this case was tried in Oklahoma, it may have far-reaching effects on Agents in other states. In Illinois, terminated Agents going to their Termination Review Board are not being given a reason for the termination. Their attorneys are now in possession of the pertinent information concerning this case. One Board member suggested it would be prudent for each Agent to not only be a member of UFAA but also to be actively involved in making changes benefiting all Agents. If the Agent is later terminated, it could be argued that the Agent’s involvement was the real reason for termination – just like Ned Hall.

Reprinted from The Voice, Summer 1997

 

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