Agents May Compete in California

To Sue for Intentional Interference With Economic Advantage You Must Prove an Independently Wrongful Act

In California insurance agents and brokers aggressively compete for business. In 1998, by legislative action, repealed a law prohibiting “unlawful rebates” in connection with the procurement of insurance.  When agents lose business to other agents they become upset and try to get the business back by suing the competition claiming unfair and unlawful conduct caused them to lose the business.

In Razmco and Associates, Inc. v. BB & T Insurance, California Court of Appeal, 2016 WL 519868 (February 9, 2016) a jury provided the plaintiffs $140,000 in compensatory and $600,000 in punitive damages on plaintiffs’ cause of action for intentional interference with prospective economic advantage (IIPEA).


At issue in this case was the placement of automobile liability insurance for the large taxi cab fleets of United Independent Taxi Drivers, Inc. (UITD) and San Gabriel Transit, Inc. (SGT).

Plaintiffs’ alleged that defendant BB & T was also in the business of providing commercial transportation insurance and was a direct competitor of plaintiffs; that neither plaintiffs nor BB & T provided insurance to their clientele directly, but rather through broker agreements between their clientele and various insurance providers; that both plaintiffs and BB & T generally offered insurance from common insurance providers, subject to those insurance providers’ premium rates for commercial vehicles garaged in different geographic locations and various discounts allowed for among other things, mounted cameras; and that because of the relatively small number of insurance brokers dealing in the public livery insurance business the defendants were aware at all times relevant of plaintiffs’ existing and prospective economic relationships with various taxi cab companies subject to this lawsuit.

The complaint alleged that when Mercury implemented its public livery coverage, it established guidelines or “basic tenets” that it expected brokers and agents to follow, including, “Mercury will not condone special monetary, gift or favors incentivizing arrangements outside of the premium quote to attract the business in competition with another Mercury [a]gent/[b]roker.”

In addition to other material misrepresentations made by Shahri, the operative complaint alleged that defendants paid “‘kickbacks’ of insurance premiums and/or subsidizing the insurance premiums paid by the large taxi cab fleets”; that they paid “substantial sums of money (a.k.a.bribes) to large taxi cab fleets, disguised as ‘Risk Management Incentives,’ anniversary gifts or other ‘authorized’ discounts”; and that they offered loans to large taxi cab fleets at below market interest rates among other allegedly improper payments.


Mercury’s “Tenets” Do Not Constitute a “Determinable Legal Standard”

Before trial and in response to defendants’ motion to strike, the trial court ruled that Mercury’s tenets could be used as a basis to establish wrongful conduct separate and apart from the interference itself for purposes of an IIPEA cause of action.

The author of the tenets and Mercury’s head of agent relations, Richard Wolak, testified at trial that shortly after the August 2007 board meeting he investigated complaints by Bitaraf and others that Shahri had improperly given checks to UITD. Wolak then found Shahri had done nothing wrong.

Wolak testified that he wrote the tenets. At least with respect to UITD, as noted plaintiffs in large part relied on defendants’ violation of the commissions and incentives tenets to show defendants’ conduct was independently wrongful.

Wolak further testified he used the word “tenet,” and specifically avoided the word “rule,” because Wolak’s whole purpose here was to create a gentleman’s agreement, “something like a guideline. Not a strict and hard[-]fast law, but I wanted to give it some meaning.”  He testified that if the tenets were violated, Mercury “didn’t promote any remedy” and instead, “would take under advisement whatever the violation would be”; that the tenets were not binding but rather were “just suggestions”; that he “absolutely” did not intend the tenets to have “any legal effect,” or to use them to set up some sort of “legal structure”; that he never used the tenets to take any disciplinary action against a “single person”; that the purpose of the tenets was “to keep the Mercury agents from fighting with each other while [Mercury] tried to get [its commercial transportation insurance] business off the ground”; and that he unilaterally withdrew the tenets in March 2008.

Guiding Principles

The elements of an IIPEA claim are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.

Particularly relevant to the case at issue, the interference also must amount to independently actionable conduct. For an act to be sufficiently independently wrongful, it must be unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.

An act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.


The Court of Appeal concluded Mercury’s tenets do not constitute a determinable legal standard as required by the California Supreme Court. Indeed, as noted by their author Wolak, the tenets were not intended to be “rules” but rather a “gentlemen’s agreement” between Mercury and its independent agents/brokers.

As such, the Court of Appeal concluded that the tenets were not well-defined, established rules or standards on which to base an IIPEA claim but rather were nebulous guidelines that would create uncertainty.

However, even if the tenets constituted a “determinable legal standard” for purposes of an IIPEA cause of action, the court of appeal concluded that they unduly restricted free competition. Indeed it is not unlawful for an agent/broker to obtain a competitive advantage by offering incentives, including reducing his or her commission or offering rebates, when placing insurance.  Although former Insurance Code section 7513 prohibited “unlawful rebates” in connection with the procurement of insurance, this anti-rebating statute was repealed in 1988 by the passage of Proposition 103.

As such, it appears Mercury’s incentives tenet, which as noted prohibited “incentivizing arrangements outside of the premium quote to attract … business,” was an invalid restraint on competition. Again, after repeal of the anti-rebating statute in 1988, an agent/broker may properly exercise his or her “entrepreneurial freedom” and compete for business by “relinquishing” commission in order to offset premiums.

Therefore, Mercury’s tenets cannot be used as a “determinable legal standard” for purposes of plaintiffs’ IIPEA claim. Even if such tenets constituted a “determinable legal standard,” the court of appeal further concluded it would be inappropriate to permit a plaintiff to base an interference with prospective economic advantage upon them because, at a minimum, they unduly restricted lawful competition among agents/brokers when placing insurance.

The judgment was reversed. The trial court is ordered to enter judgment in favor of defendants. Defendants to recover their costs of appeal.


The agents who sued were upset because they lost business to the defendants. The defendants got the business by reducing their commissions and managing the client’s accounts in ways that obtained reduced premium. In essence the defendants helped the clients get the same insurance for less money. For its efforts to help the clients the defendants were sued and a large judgment was assessed against it improperly. The trial court punished the defendants’ good work and the Court of Appeal reversed because the defendant did nothing more than compete professionally.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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