Potter Ins. Agency, Inc. v. Nationwide Mut. Ins. Co.

374 F. Supp. 3d 572
CourtDistrict Court, W.D. Virginia
DecidedMarch 18, 2019
DocketCase No. 2:18CV00021
StatusPublished

This text of 374 F. Supp. 3d 572 (Potter Ins. Agency, Inc. v. Nationwide Mut. Ins. Co.) is published on Counsel Stack Legal Research, covering District Court, W.D. Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Potter Ins. Agency, Inc. v. Nationwide Mut. Ins. Co., 374 F. Supp. 3d 572 (W.D. Va. 2019).

Opinion

James P. Jones, United States District Judge *574In this diversity action, an insurance agency and its individual owner seek declaratory and injunctive relief against an insurance company, in an effort to preclude the company from enforcing certain changes in the financial arrangements between the parties. The insurance company has moved to dismiss the Complaint for failure to state a claim. The motion requires the court to construe the contract between the parties under Virginia law. For the reasons stated hereafter, the Motion to Dismiss will be granted in part and denied in part.

I. BACKGROUND.

As alleged in the Complaint, the defendant Nationwide Mutual Insurance Company and its affiliated companies (collectively, Nationwide) "operate[ ] a property and casualty insurance business throughout the United States using a network of independently contracted insurance agents who agree to place their clients exclusively with Nationwide." Compl. ¶ 1, ECF No. 1. Effective May 1, 1994, Nationwide entered into a Corporate Agency Agreement (Agency Agreement) with the plaintiffs, Potter Insurance Agency, Inc., (Agency) and the owner of the Agency, Patrick A. Potter (Principal or Mr. Potter). The Agency Agreement provides that the Agency will represent Nationwide exclusively. The Agency Agreement has an indefinite term, but is subject to cancellation by either the Agency or Nationwide at any time with or without cause upon written notice. It is also automatically canceled upon the death, disability or retirement of the Principal.

Central to this dispute, the Agency Agreement includes a section entitled "Agency Security Compensation." Compl. Ex. A, Agency Agreement ¶ 12, ECF No. 1-2. The provisions in this section allow the Agency to earn two types of deferred monetary benefits payable upon the death, disability, or retirement of the Principal. One type, called Deferred Compensation Incentive Credits (DCIC), pays a benefit based on the number of years as an exclusive Nationwide agency. The other, called Extended Earnings, pays additional compensation equal to the Agency's final twelve months of insurance renewal service fees.

In April of 2018, Nationwide announced that it would move from an exclusive agency model, where agencies can sell only Nationwide products, to fully independent agencies that can sell for any insurance company, including Nationwide. As part of this plan, Nationwide will cancel all of its exclusive agency agreements as of July 1, 2020, including that of the plaintiffs. The plaintiffs do not dispute Nationwide's right to do so under the Agency Agreement.

In 2016 Nationwide issued a unilateral amendment to all agency agreements in which it was provided that the DCIC benefit would no longer accrue after December 31, 2016. This amendment did not affect agency DCIC benefits already accrued.

Effective April 16, 2018, Nationwide issued another unilateral amendment to all agency agreements that changed the Extended *575Earnings benefit by providing that it would be phased out beginning August 1, 2019. Beginning on that date, the Extended Earnings benefit would be decreased on a monthly basis. Thus, if an agency agreement was cancelled before August 1, 2019, the agency would receive the full twelve months of earnings; eleven months if canceled in August, ten months if cancelled in September, and so on until July 1, 2020, when the Extended Earnings benefit would end. As noted above, July 1, 2020, is the date for cancellation of all exclusive agency agreements.

At some unidentified date, Nationwide presented - in connection with the future cancellation of exclusive agency agreements - an Agent Contract Exchange proposal to the Agency. The Agent Contract Exchange included an option to the Agency to purchase from Nationwide what the plaintiffs refer to as their "Book of Business." Compl. ¶ 40, ECF No. 1. The plaintiffs do not quote or attach to their Complaint the wording of the Agent Contract Exchange proposal, but Nationwide explains it as follows, which the plaintiffs do not dispute:

By July 1, 2020, agents must choose whether to (1) purchase the policies and data; (2) allow Nationwide to transfer the policies and data to them at no charge, but pay taxes for the value received; or (3) do nothing.... In each scenario, Plaintiffs' contract will be cancelled. But under the first two, the Potter Agency would continue to be a Nationwide agent, as an independent agency rather than an exclusive agency.

Def.'s Reply Supp. Mot. to Dismiss 12, ECF No. 32. Thus, by this proposal, Nationwide is requiring as a condition of remaining as a non-exclusive agency, that the Agency either buy from Nationwide the "policies and data" - which the plaintiffs characterize as the Agency's "Book of Business" - or pay taxes on the value of the policies and data.1

In Count 1 of the Complaint, the plaintiffs allege that the discontinuance of the DCIC on December 31, 2016, was a breach of the Agency Agreement, as well as the implied covenant of good faith and fair dealing. They seek a judgment so declaring and an injunction restoring that benefit retroactively. In Count 2, the plaintiffs contend that the phasing out of the Extended Earnings benefit is an anticipatory breach of the Agency Agreement and of the implied covenant of good faith and fair dealing. They seek a judgment so declaring and an injunction prohibiting the elimination of that benefit.

In Count 3, the plaintiffs assert that the Agency Agreement impliedly confirms that the Agency already owns its "Book of Business" and thus Nationwide has no right to require the Agency to buy it from Nationwide as proposed in the Agency Contract Exchange. They seek a declaration by the court to that effect.

The Motion to Dismiss has been fully briefed and argued and is ripe for determination.

II. ANALYSIS.

The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of a claim. Randall v. United States , 30 F.3d 518, 522 (4th Cir. 1994). A court considering a Rule 12(b)(6) motion must accept as true all of the claimant's factual allegations and all favorable inferences that may reasonably be drawn from those allegations. Mylan Labs., Inc. v. Matkari , 7 F.3d 1130, 1134 (4th Cir. 1993). A motion to dismiss should *576not be granted "unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief." Id.

Subject-matter jurisdiction exists in this case based on diversity of citizenship and amount in controversy. See 28 U.S.C. § 1332(a)(1). In a diversity case, I must apply the conflict of law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co.

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Bluebook (online)
374 F. Supp. 3d 572, Counsel Stack Legal Research, https://law.counselstack.com/opinion/potter-ins-agency-inc-v-nationwide-mut-ins-co-vawd-2019.