The business of insurance always has been competitive. Many insurers are loyal to the broker who brought them profitable business. When a broker or agent attempts to take a profitable piece of business from another broker, a responsible insurer will work to keep the business with the original broker. The actions of the insurer to keep the profitable business is, in most jurisdictions, privileged unless the plaintiff broker who loses the business can prove the actions were not privileged.
The Restatement (Second) of Torts is followed in Ohio and most jurisdictions regarding the privilege. It directs courts, when determining whether interference is privileged, to consider the following seven factors:
- The nature of the actor's conduct
- The actor's motive
- The interests of the other with which the actor's conduct interferes
- The interests sought to be advanced by the actor
- The social interests in protecting the freedom of action of the actor and the contractual interests of the other
- The proximity or remoteness of the actor's conduct to the interference, and
- The relations between the parties.
In Havensure LLC v. Prudential Insurance Co. of America, No. 09-3367; 2010.C06.0000127 (6th Cir. 02/12/2010), the U.S. Court of Appeal for the Sixth Circuit held that the actions of an insurer were privileged. In that case, Havensure LLC (Havensure), an insurance broker, sued Prudential Insurance Co. of America (Prudential), an insurer, for tortious interference with Havensure's business relationship with York International Corp. (York). Havensure claimed that Prudential offered York a better rate quote through Havensure's competitor than through Havensure to prevent Havensure from winning York's business. The district court granted summary judgment in favor of Prudential. The Sixth Circuit Court of Appeal agreed with the trial court that Prudential's interference was privileged as a matter of Ohio law.
Factual background
In early 2004, Havensure approached York with a proposal for obtaining group life and disability insurance through a "group purchasing organization." At the time, York's broker of record was Universal Life Resources (ULR), and its group life insurer was Prudential. After meeting with Havensure and Corporate United (a group purchasing organization), York issued Havensure a letter of authorization that enabled Havensure to obtain confidential information from Prudential regarding York's group life insurance plan and compete for the insurance business. Upon reviewing this information, Havensure projected that it could save York $125,000 per year on group life insurance and $93,500 per year on long-term disability insurance. Part of this savings apparently arose from the elimination of $135,000 in hidden broker fees built into York's existing plan.
After reviewing Havensure's projections, York authorized Havensure to send out a request for proposals (RFP). On May 25, 2004, Havensure sent an RFP to various insurers, including Prudential. Havensure's RFP sparked discussion at Prudential. On June 3, a Prudential executive strongly supported the incumbent broker, giving three justifications for his position.
He did not believe that incumbent carriers (like Prudential) fared well when a client granted a letter of authorization to a new broker. He believed that Prudential would "most likely lose business when a [letter of authorization] is received." In light of Havensure's receipt of a letter of authorization, Hettrich believed that it was critical to support the incumbent broker throughout the bidding process to preserve Prudential's existing relationship with York.
Hettrich noted that he did not understand Havensure's business model, and found that it failed to produce the results (mutually benefitting the client, the broker, and Prudential) that Prudential preferred.
He asserted that Prudential needed "to stand with the broker/consultant that brought us to the dance."
Despite Prudential's apparent reluctance to deal with Havensure, on June 28, 2004, Prudential produced a quote for Havensure. This bid was identical to the current York plan, except that it removed $135,000 in hidden fees and added Havensure's 4 percent commission rate.
At the close of the bidding process, Havensure presented its results to York. The lowest bidder was not Prudential; Cigna submitted a bid that was $90,020 less per year than the lowest quote provided by Prudential. York did not provide an immediate response to these results. Instead, York's manager of worldwide benefits shared both Prudential and Cigna's bids with ULR, "with the intention that ULR would pursue negotiations with Prudential based on that information."
On September 7, 2004, ULR sent an e-mail to Prudential executives indicating that both ULR's and Prudential's positions were in jeopardy because of Cigna's rate quote. Prudential responded by matching Cigna's bid, but it made this lower bid available only through ULR. Prudential executive Frank Corsi explained Prudential's decision to match Cigna's bid:
This case is running a 42% loss ratio and in the end the only reason I landed on making this concession was to support [ULR] and to be honest, try to prevent Havensure from winning this account.
After receiving Prudential's reduced bid through ULR, York decided to remain with Prudential and ULR. York informed Havensure and Corporate United that it had decided not to accept any of the bids obtained by Havensure.
Havensure sued Prudential in the U.S. District Court for the Southern District of Ohio. In its second amended complaint, Havensure alleged that Prudential violated the Sherman Antitrust Act; tortiously interfered with Havensure's business relationship with York, committed civil conspiracy, and had been unjustly enriched. The court held that Havensure had failed to provide evidence indicating that Prudential's interference actually caused York to sever its relationship with Havensure and also held that Prudential's interference was privileged as a matter of Ohio law.
Under Ohio law, a claim for tortious interference with a business relationship arises when a person, without privilege to do so, induces or otherwise purposely causes a third person not to enter into or continue a business relation with another. As this definition suggests, interference with a business relationship is not tortious if the interference is privileged. The Ohio Supreme Court has adopted the approach of the Restatement (Second) of Torts in determining whether interference is privileged.
Under that approach, a court must consider seven factors:
- The nature of the actor's conduct
- The actor's motive
- The interests of the other with which the actor's conduct interferes
- The interests sought to be advanced by the actor
- The social interests in protecting the freedom of action of the actor and the contractual interests of the other
- The proximity or remoteness of the actor's conduct to the interference, and
- The relations between the parties.
Ohio courts place the burden on the plaintiff to show that the defendant's conduct was not privileged.
Prudential's conduct in supplying ULR with a lower quote was not independently criminal, tortious, nor even wrongful. Generally speaking, there exists no duty to deal. No one, not even an insurer, is required to deal with a particular broker or insured. In fact, it is clear that an insurer:
[h]as the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks. (Robinson v. Occidental Life Ins. Co. [1955] 131 Cal. App. 2d 581, 586, 64 Cal. App. 3d at p. 273.)
The ability to discriminate in who an insurer will agree to insure and who may act as the broker or agent for the person seeking insurance is the essence of insurance. Insurance is not a right. Insurance is a contract between parties who wish to do business with each other. The fact that ULR brought profitable business to Prudential, and that Prudential believed that Havensure would place the business elsewhere or would not be as profitable, was appropriate and certainly not the use of "illegal means." The record established that Prudential's desire to prevent Havensure from becoming York's broker was coincident with Prudential's desire to keep York's business. Uncontradicted evidence indicates that Prudential believed it would lose York's account if Havensure became York's broker. This conclusion was consistent with the profitability of the York account that was running a 42 percent loss ratio. In fact, Havensure itself concedes that "Prudential understood its options to be (a) potentially lose York's business, or (b) interfere with Havensure's business opportunity . . . ." The Sixth Circuit concluded that "No rational jury could conclude that a desire to retain a profitable account was an improper motive."
Neither Prudential's desire to avoid a broker who produced less profitable outcomes for Prudential nor Prudential's concern with preserving its existing business relationships constitute improper motives. Rather, they were both valid business considerations. Given that all available evidence indicates that Prudential acted in a permissible fashion with proper business motives, no rational jury could conclude, on the basis of those factors, that Prudential's actions were not privileged.
This case clearly explains to all insurance agents and brokers that the mere fact that someone kept you from taking business from an incumbent broker is not tortious nor is it criminal. If you lose business to a competitor, it is not necessarily something worth litigating, but an indication that you need to sharpen your competitive skills.
