Agents Sue State Farm Over Client 'Raids'

Agents are seeking relief from the courts to stop State Farm from unfairly poaching their client base.

The National Association of State Farm Agents Inc. filed suit last month in Federal District Court in the group's headquarter city of Baltimore on behalf of members, claiming breach of contract. The action was taken after the Bloomington, Ill.-based State Farm began “raiding” the agents' books of business, said Bob OConner, general counsel for NASFA, with the law firm OConnor and Associates in Omaha, Neb.

Sometime between July and August, alleges Mr. OConnor, the company began using agent customer lists to solicit additional insurance and financial business. Agents received no commission from sales, and in some cases the company tried to steer clients to other agents with financial service licenses, he said.

Once NASFA started looking at this practice, the association also examined other State Farm practices that have affected the agents' business in the past and “mentioned them” in the suit, Mr. OConnor explained. However, none of the other complaints were as “egregious” as the “partner” program, he said.

The suit, the text of which is posted at www.nasfa.com, seeks to protect agents from changes to their contracts without their consent, protection of their relationship with policyholders, and protection of their business.

In addition to the allegations that the companys “partner” program allows for the raiding of their business, the suit also charges that State Farm requires payment of $1 per insured for the use of the companys customer service center. This, the suit claims, undercuts the understanding that the company and agents “work together to profitably develop business.”

The suit goes on to say that the companys practice of selling insurance over the Internet violates the agreement that they would be free of encroachment. Mr. OConnor added that agents receive no compensation for servicing these clients.

The company, the suit continued, stopped selling health insurance and other lines through agents, “imposed new and onerous requirements” in selling some lines, reduced commissions, and made selling “more burdensome, expensive and oppressive.”

A State Farm representative said the company has not yet been served with papers on the suit. She said the company would examine the allegations and respond accordingly.

Mr. OConnor said no hearing dates have been set.

This is the second such suit filed against a company by its captive agent association. The Canton, Mich.-based National Association of Professional Allstate Agents filed suit last month in a Florida Federal District Court alleging breach of contract. Among the associations claims are that the Northbrook, Ill.-based company changes requirements for a proposed buyer of a book of business without consulting with the selling agent; imposes quotas not part of the contract; and does not pay commission to agents on leads forwarded by the agent to the company that result in a successful sale.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Contact Webmaster

Special Reports /

Agents Sue State Farm Over Client 'Raids'

Related Stories

Recommended For You