COURT DECISIONS

Rough Notes, Feb 2008

INSURANCE-RELATED COURT CASES

Digested from case reports published in Westlaw, West Publishing Co., St. Paul, MN

Agent sues for termination pay

On February 5, 1974, Gerald Reisbeck entered into an "Appointment Agreement" governing his employment as a district manager for several insurance companies, including Farmers Insurance Exchange (Companies). Pursuant to the agreement, Reisbeck was paid an override commission on all business produced by the companies' agents. An addendum to the agreement provided that the Companies would retain $1,610 per month from Reisbeck's override amount. There was no explanation in the agreement as to why the money was retained or what it was to be used for.

On November 9, 1999, the Companies informed Reisbeck that he was to be terminated effective December 11, 1999. They offered to pay him seven times his last six months' override, which amounted to $836,222.73; however, they did not pay him the funds they had retained during the term of his employment. Reisbeck claimed that the Companies breached the agreement by not reimbursing him this retained amount, which he calculated as $495,880. He filed a lawsuit, alleging breach of the written agreement as well as oral representations. He also asserted negligence, emotional distress, and breach of the covenant of good faith and fair dealing.

The lower court found in favor of the Companies, concluding that the agreement contained express provisions governing termination pay, and that those provisions did not provide for reimbursement of retained funds. The court found that the agreement was unambiguous, and it would not consider any other evidence outside of the agreement itself. Furthermore, because the agreement expressly required modifications to be made in writing, and no modification had in fact been made, the court would not consider Reisbeck's argument that the Companies made subsequent oral representations concerning the retained amounts. Reisbeck appealed.

On appeal, Reisbeck argued that the court should have considered evidence supporting his claim that the Companies made verbal representations concerning the retained funds after the original agreement was executed. He claimed that the agreement was ambiguous concerning the retained funds because, while it did not indicate that the funds would be returned to him, it also did not indicate that the funds would not be returned to him. According to Reisbeck, returning retained funds in these circumstances was "custom, practice, and [his] expectation," and he should have been allowed to present evidence supporting this argument.

The Supreme Court of Montana was not convinced by Reisbeck's arguments. It found that the agreement provided a "precise formula for calculating the monies to be paid to Reisbeck upon termination, and [that] that formula [did] not contemplate or even mention the inclusion of any retained funds." The court further noted: "If the Agreement's failure to explain the purpose and the ultimate disposition of these funds was a cause of concern to Reisbeck, he should have addressed it when the Agreement was made, or sought written modification at some point over the life of the contract." Thus, the terms of the agreement prevailed, and Reisbeck was not entitled to provide additional evidence of oral representations.

The decision of the lower court was affirmed.

Reisbeck vs. Farmers Insurance Exchange-No. DA 06-0234-Supreme Court of Montana-July 17, 2007-163 Pacific Reporter 3d 1289.

Did faulty generator service cause house fire?

Anthony and Debra Adams owned a home in the Biltmore Forest section ofAsheville, North Carolina. On August 9, 2004, they hired Genelect Services, Inc., to service their home generator. Genelect's service technician performed the work and completed a standard service report. The report indicated that the generator was in good working order.

Between August 9 and September 18, 2004, two hurricanes hit the Asheville area: Hurricane Frances and Hurricane Ivan. During that time, the generator operated sporadically until September 16, 2004, when it began running more or less continuously. On September 18, fire broke out near the generator, causing more than $400,000 worth of damage to the home. The Adamses filed a claim with their homeowners insurer, Peerless Insurance Company. Peerless paid the claim and then, as subrogee of the Adamses, sued Genelect. According to Peerless, the fire was caused by Genelect's negligence because the generator had been improperly serviced. After hearing the evidence, the trial court found in favor of Genelect. Peerless appealed.

On appeal, the Court of Appeals of North Carolina reviewed the evidence and found there was not enough evidence to prove that Genelect had created the condition that caused the fire. The fire inspector testified that the extension pipe connected to the exhaust pipe was facing the ground and buried in about 2 inches of mulch. (The Genelect service technician had indicated that the pipe should typically be at a 45-degree angle.) Another generator inspector, hired by Peerless, observed the same condition as the fire inspector; however, he could not conclude that the condition caused the fire.