Gram v. Liberty Mutual Insurance

461 N.E.2d 796, 391 Mass. 333, 44 A.L.R. 4th 1119, 1984 Mass. LEXIS 1389, 118 L.R.R.M. (BNA) 2401

• Court: Massachusetts Supreme Judicial Court
• Decided: March 6, 1984
• Status: Published

Opinions

Wilkins, J.

In Gram v. Liberty Mut. Ins. Co., 384 Mass. 659, 673 (1981) (Gram I), we remanded “the case for a determination of damages, measured by the amount of renewal commissions Gram reasonably could have expected to receive, reduced to reflect the proportion of his time that would reasonably have been expected to have been devoted to the servicing of those renewal policies.” We noted that “Gram has made no specific showing of his loss of any other identifiable, future benefit . . . reflective of past services to Liberty.” Id. We expressly stated that “[t]he amount of the renewal commissions substantially proves the outer limit of the compensation Gram lost for past service.” Id. at 672 n.10. We pointed out that “Liberty benefited from its discharge of Gram without cause” (id. at 672) and that the failure to prove that Liberty Mutual Insurance Company (Liberty) discharged Gram in bad faith did not relieve Liberty of liability “for the loss of compensation that is so clearly related to an employee’s past service” (id.) as are renewal commissions. On remand, a jury rendered a verdict in the amount of $325,000 in favor of Gram. Liberty appealed, and we granted Gram’s application for direct appellate review. The jury’s verdict must be vacated and a new trial must be ordered.

In spite of the direction that damages be measured, in their “outer limit,” by renewal commissions, the remand judge improperly submitted to the jury the question of Gram’s right to career credits — future compensation for future services that, under his compensation agreement, was based on the length of Gram’s service as a sales representative. As a matter of law, career credits are not “renewal commissions.” They compensate for future, not past, services, and are thus not recoverable in these circumstances.¹ Kravetz v. Merchants Distribs., Inc., 387 Mass. 457, 463 (1982).

It is important to recall that Gram served as an employee at will. He is not entitled to damages on the basis of a breach of a contract for life or for a term of years. The recovery allowed Gram in our earlier opinion pressed to the limit the recovery allowed to an at-will employee discharged without cause. Two members of the court even rejected Gram’s limited right to damages expressed in the court’s earlier opinion. See Gram I, supra at 674 (Nolan, J., dissenting in part, concurring in part, with whom Lynch, J., joined). We must be careful not to approach the allowance of contract damages as if Gram had a contract for life or for a term of years. Our goal is and has been simply to deny to Liberty any readily definable, financial windfall resulting from the denial to Gram of compensation for past services.²

Liberty argues that on termination Gram was limited by his compensation agreement to certain final adjustments and no more. In its appeal in Gram I, Liberty did not rely on limitations expressed in Gram’s compensation agreement. That agreement was not printed in the record appendix in Gram l, and we did not consider it. It is too late for Liberty to argue now that Gram’s rights were limited by the terms of his compensation agreement. We need not, therefore, consider the terms of the agreement, or whether, by agreement, an employer and an employee may restrict the rights of an at-will employee to compensation based on the windfall to an employer who, by discharging the employee without good cause, deprives the employee of clearly identifiable future compensation reflective of the employee’s past services.³ There was no error in denying Liberty’s motion for a directed verdict or its motion for a judgment notwithstanding the verdict.

The judge also permitted the jury to consider future commissions expected to result from endorsements on policies procured by Gram. In Gram l, we did not discuss the question of the effect of endorsements on Gram’s lost commissions. Such endorsements result from changes in the policy coverage because of changes in the policyholder’s circumstances, such as the purchase of a less expensive motor vehicle or making improvements in, or an addition to, a building. Changes by endorsement might increase or decrease the premium owed by the policyholder. The question of Gram’s right to credit for anticipated policy endorsements will arise at any retrial of this case and, therefore, we discuss it.

Although the question is not free from doubt, we conclude that commissions on future endorsements and the consequences of any anticipated future inflation should not be included in the measure of Gram’s damages.⁴ Future policy changes and future premium levels are speculative. We think that Gram’s damages should be measured by the amount of annual renewal commissions payable under his compensation agreement in effect at the time of his discharge, recognizing the renewal of coverage but disregarding the effect of endorsements. Attrition in the block of business produced by Gram should be determined for each future year of his anticipated employment,⁵ and anticipated future renewal commissions should be adjusted to present value. The calculation of Gram’s damages should also reflect the proportion of Gram’s time that would have been devoted to servicing renewal policies, but, because we exclude the effects of endorsements in measuring the renewal commissions recoverable, the portion of Gram’s time reasonably expected to be devoted to servicing renewals should not include time devoted to handling endorsements.⁶

We reverse the judgment and remand the case for a new trial consistent with this opinion.

So ordered.

1 The applicable compensation plan provided for “a basic Career Credit” of $7,500 a year for each person who had more than ten years of direct sales or sales management experience with Liberty. The amount paid as a basic career credit was wholly unrelated to the volume of business previously produced by the employee.

2 In Justice Nolan’s dissent on the question of awarding damages to Gram, he said (supra at 674): “The court has restructured an at-will employment agreement to reflect an imposed condition never heretofore recognized by this court and one of doubtful legitimacy.” In dissenting to this opinion, Justice Nolan appears to have abandoned his previous position. If, as he thought, the earlier opinion improperly permitted “[t]he trier of fact to engage in extravagant speculation,” Gram I, supra at 675, it would seem that now is the time to eliminate such speculation, not to endorse it.

The basic difference between the view of the court and the dissent of Justice Liacos lies in the court’s determination that the words “renewal commissions” have a legal meaning and do not offer a question» of fact for interpretation by the jury.

3 The remand judge permitted Liberty, over objection, to argue to the jury that Gram’s employment agreement limited his damages. That was more than Liberty was entitled to.

4 The words “renewal commissions,” which we used in Gram. I, supra, strictly deal only with the renewal of business covering the same risks on the same terms and conditions. See 4 G.J. Couch, Insurance § 26:400, at 372-373 (2d ed. 1960 & Supp. 1982), citing Beardsley v. American Bonding Co., 200 A.D. 452, 457 (N.Y. 1922), modified on other grounds, 235 N.Y. 533 (1923) (“[I]t makes no difference whether the bond was renewed by a renewal certificate or by giving a new bond, providing the terms and conditions thereof were the same”).

5 The actual attrition in the business produced by Gram may be ascertainable for the years since his termination and estimates can be made of anticipated future attrition.

6 We have considered Liberty’s other claims of error and find them to be without merit. These claims involved matters within the discretion of the judge.

Liberty made no claim that the measure of Gram’s future renewal commissions should reflect his life and work expectancy. For the purposes of any retrial, we think Liberty should be held to have waived this point.