An insurance agent or broker taking over the servicing of a policy from another agent or broker on an agent or broker of record letter should read the contract carefully before taking on the work. The Benefit Options case teaches that an agent or broker who does not read an agreement or have his lawyer read the agreement before taking on work will find himself working for free with no recourse.
When Benefits Options Agency took over a program for the city of Chillicothe, Ohio ("the City"), the agency thought it would get a part of the commission paid by the City's insurer to the original broker. If the agency had read the contract, it would have known that the commission was fully earned by the original broker and the insurer had no obligation to pay a commission to Benefits Options Agency. Had he agency understood the contract, it would have avoided an unnecessary and expensive lawsuit and would have negotiated with the City for payment of fees for service.
The case arose when Benefit Options Agency Inc. and Mark Sharnsky ("plaintiffs") lost their action at summary judgment. The trial court dismissed the suit in favor of Medical Mutual of Ohio ("Medical Mutual") and Neace & Assocs. Insurance Agency of Ohio Inc. ("Neace") (collectively the "defendants"). Benefit Options had sued for breach of contract because it believed it were entitled to commissions after the City signed an agent of record letter. The Ohio Court of Appeals affirmed the judgment in favor of the defendants because it could find no breach of contract.
In 2005, Neace contracted with the City to act as the City's insurance agent for employee benefits. Effective Jan. 1, 2008, the City changed its group health insurance company to Medical Mutual. The agreement with Medical Mutual listed Neace as the City's agent of record and noted that "[t]he first contract year is the period between Jan 1 and Dec 31″ of 2008. As a result of placing the City's health insurance plan with Medical Mutual, Neace received a lump sum of $50,000 plus $8,255 monthly in commissions.
In June 2008, the City terminated its contract with Neace and notified Medical Mutual in writing that plaintiffs were the City's new "Agent of Record effective June 2, 2008." The relationship between Medical Mutual and an insurance agent is governed by an Ohio Insurance Producer Agreement ("the global agreement"). Medical Mutual had a global agreement with Neace and separate, identical global agreements with plaintiffs. Under the heading "Commissions," Section 1.F of the global agreement states as follows:
[Medical Mutual] will honor a Producer of Record letter from the group designating the Producer to receive commissions for the group if that Producer has been appointed by [Medical Mutual], or if [Medical Mutual] agrees to prospectively appoint the Producer. Producer of Record changes will not be accepted on any new group during the first twelve (12) months following the group's effective date of coverage. After the initial twelve-month (12) period, Producer of Record changes will be accepted, and commissions shall be paid to the Producer pursuant to Producer of Record designation. (Emphasis added)
On June 24, 2008, Medical Mutual sent letters to plaintiffs and the City stating that Medical Mutual received the City's request to change its insurance agent of record to plaintiffs, and that "[t]his change will occur effective Jan. 1, 2009, upon receipt of your single case agreement specifying applicable commission." Per the City's request, plaintiffs began and Neace stopped servicing the City's account with Medical Mutual in June 2008. However, per section 1.F of the global agreement, Medical Mutual continued to pay Neace the $8,255 monthly commission through December 2008. Plaintiffs were not paid for servicing the City's account from June through December 2008.
On Feb. 13, 2009, plaintiffs filed suit against defendants, alleging breach of contract and unjust enrichment based on the unpaid commissions. On Nov. 3, 2009, the court granted summary judgment to both defendants. In its journal entry, the court stated in pertinent part:
Plaintiffs were specifically informed by Medical Mutual in June 2008 that they would not be compensated for services rendered in 2008. Nor can plaintiffs argue they are treated unjustly here. They are simply held to the bargain that they reached with Medical Mutual. The Producer Agreements unambiguously provide that the originating Producer of Record is entitled to commissions for the first twelve (12) months after a new group's effective date.
The Court of Appeals noted that the "construction of a written contract is a matter of law" that appellate courts review as if there was a new trial before the Court of Appeals. The plain language of Section 1.F of the global agreement supports the opposite conclusion–that Neace remained the agent of record–in that agent of record changes would not be accepted during the first 12 months of a new group's coverage.
Additionally, should this contractual language be deemed ambiguous, other evidence in the record supports the trial court's conclusion that Medical Mutual did not breach its contracts with plaintiffs. First, the June 24, 2008, letters from Medical Mutual to plaintiffs and the City expressly state that the agent change will be effective Jan. 1, 2009. Second, Sharnsky's deposition testimony reflects that he knew that he and Benefit would not be paid a commission on the City's account until Jan. 1, 2009. Sharnsky testified that in June 2008, he had lunch with three Medical Mutual representatives and discussed taking over the City's account. The discussion included acknowledgment that Medical Mutual was bound by Section 1.F of the global agreement to pay commission to Neace for the remainder of the year. Nonetheless, plaintiffs agreed to service the City's healthcare plan with Medical Mutual starting in June 2008, knowing that they would receive no commission until 2009.
Medical Mutual's representative testified in deposition that Neace, and not plaintiffs, was the agent of record eligible for commission on the City's account for the entire year of 2008. Medical Mutual's representative further testified that insurance agents put a lot of time and effort into bringing in new business, and Medical Mutual's policy "guarantees a minimum 12-month commission for bringing business to the organization. It's earned as of the effective date, it's administratively paid out over 12 months, but we view commissions as earned when it's sold and it's paid out over 12 months for that minimum commission commitment when a new case is brought on for that effort and work performed." Finally, Medical Mutual and Neace executed a single case agent agreement that specifically governed only the City's account and listed Neace as the agent of record from January 1 through Dec. 31, 2008. It states in pertinent part as follows: "On the first renewal date of this Agreement, or on any anniversary date thereafter, the group may, at its own discretion, execute an Agent of Record Letter designating a new Agent to receive commissions for the group." This provision is consistent with Section 1.F of the global agreement. There is no evidence of such an agreement between Medical Mutual and plaintiffs regarding the agent of record for the City's account.
The Court of Appeals found no unjust enrichment because there was a contract controlling the payment of commission.
Since there are no genuine issues of material fact regarding the contract, the Court of Appeals found that defendants are entitled to judgment as a matter of law on plaintiffs' breach of contract claim.
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