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A federal choose has dominated {that a} captive agent’s swimsuit towards GEICO can proceed on claims of breach of contract, renewal commissions owed, unjust enrichment, and worker misclassification. The case facilities on allegations that GEICO wrongly withheld earned commissions, renewal fee, and misclassifying the captive agent as an unbiased contractor and never as an worker.
From zero gross sales to seventh within the nation in two years
In 2020, Richard Hurwitz shaped SRH Holdings, LLC for the aim of promoting insurance coverage on behalf of Authorities Workers Insurance coverage Firm and GEICO Insurance coverage Company, Inc.. (collectively, “GEICO”). On Could 13, 2020, SRH Holdings and GEICO entered right into a GEICO Subject Consultant Settlement (“Consultant Settlement”).
Beneath this settlement, GEICO appointed SRH Holdings as an unbiased contractor captive agent to solicit and procure insurance coverage purposes on its behalf. The Consultant Settlement allowed both social gathering to terminate upon thirty days’ discover.
SRH allegedly incurred $1.9 million in startup prices to grow to be profitable
SRH started enterprise operations in September 2020 from an workplace in Shrewsbury. Allegedly, the startup incurred bills and money owed totaling $1.9 million.
SRH’s stellar gross sales efforts over the 2 years following its appointment by GEICO as an agent resulted in it rapidly turning into GEICO’s primary captive agent in Massachusetts and quantity seven within the nation.
Thirty-day discover canceling the company settlement
Round December 2022, GEICO allegedly found that SRH’s workers have been sharing unauthorized log-on data and passwords to their laptop methods. Consequently, on December 29, 2022, GEICO suspended SRH’s laptop entry pending an investigation. On January 12, 2023, GEICO gave SRH Holdings a thirty-day discover of termination, with termination efficient on February 12, 2023.
SRH sues GEICO for commissions and treble damages
Two months after the termination of its Consultant Settlement, SRH sued GEICO asserting claims for breach of contract (Rely I), renewal commissions (Rely II), unjust enrichment (III), breach of the implied covenant of excellent religion and truthful dealing (Rely IV), misrepresentation (Rely V), misclassification in violation of Mass. Gen. L. c. 149, § 148B (Rely VI), and declaratory judgment on the Consultant Settlement having an invalid non-competition provision(Rely VII).
GEICO’s movement to dismiss is allowed partly and denied partly
In response to SRH’s lawsuit, GEICO moved to dismiss all seven counts primarily based on the unique phrases of the Consultant Settlement making use of.
The Court docket famous that the Consultant Settlement had a selection of regulation clause making the regulation of Maryland the regulation it needed to apply. Since Maryland doesn’t acknowledge an unbiased declare for the breach of the implied covenant of excellent religion and truthful dealing in a contract motion, the Court docket dismissed that depend.
The Court docket additionally dismissed the misrepresentation depend primarily based on SRH’s failure to adequately allege, as required, the precise misrepresentations GEICO made that have been legally actionable and the declaratory judgment depend as a result of the supposed unlawful non-competition clause within the Consultant Settlement truly said a permissible ant-piracy (nonsolicitation) provision.
Court docket permits the lawsuit to proceed on 4 counts
In its ruling on GEICO’s movement to dismiss, the Court docket allowed the breach of contract depend to proceed on the difficulty of GEICO having wrongfully terminated SRH’s entry to its laptop information through the thirty-day cancellation interval.
The Court docket additionally allowed the second depend looking for renewal commissions below the Consultant Settlement. The Court docket discovered the Consultant Settlement’s provisions on the possession of renewal commissions ambiguous, requiring additional courtroom proceedings.
Likewise, the Court docket discovered that the third depend alleging GEICO’s alleged retention of $250,000 in SRH’s earned commissions said a sound explanation for motion.
Declare Geico misclassified SRH as an unbiased contractor
The fourth depend the Court docket allowed to proceed was that GEICO improperly categorized SRH as an unbiased contractor within the Consultant Settlement in violation of Mass. Gen L. c. 149, § 148B.
Beneath this statute, an individual is simply an unbiased contractor until the person is free from management and route in reference to the efficiency of the service, each below his contract for the efficiency of service and actually.”
The Consultant Settlement states, “[SRH] acts solely as an unbiased contractor and workout routines his or her personal judgment as to the style through which he or she might present providers below the phrases of this Settlement.” In its opposition to GEICO’s movement to dismiss, SRH alleged, opposite to the Consultant Settlement’s phrases, GEICO utterly managed SRH’s gross sales operation as a result of it:
- Owned and managed SRH’s listing of potential clients.
- Owned and managed the telephones, phone numbers, laptop methods, {hardware}, and infrastructure SRH and its employees used with out providing SRH any capacity to barter buy costs.
- Owned and managed the entire advertising supplies, together with logos and indicators, SRH used.
- Required SRH to observe particular advertising scripts when promoting GEICO’s insurance coverage merchandise to potential clients.
- Owned and managed that the entire phone scripts SRH and its employees used.
- Maintained the correct to assign extra tasks to SRH, and its workplace employees
- Maintained management over SRH’s enterprise hours.
- Maintained management over SRH’s staffing selections, together with prohibiting SRH employees from working remotely.
- Managed SRH’s worker self-discipline.
- compelled SRH to buy or lease from GEICO the entire instruments wanted for SRH to use its commerce and solicit and procure insurance coverage insurance policies at charges and above regular retail costs
If the Court docket finds that the information set up GEICO misclassified SRH as an unbiased contractor, SRH would have the correct to hunt treble damages for the alleged $250,000 in unpaid commissions and legal professional charges.
The lawsuit will now proceed to discovery
Provided that the Court docket allowed 4 counts of SRH’s grievance to proceed, GEICO should reply the 4 remaining counts in SRH’s grievance. The events will then conduct discovery, adopted by abstract judgment motions. If the Court docket doesn’t totally determine the swimsuit on abstract judgment, the open claims will proceed to a jury trial.
Company Checklists will maintain its readers posted.
Owen Gallagher
Insurance coverage Protection Authorized Skilled/Co-Founder & Writer of Company Checklists
Over the course of my authorized profession, I’ve argued quite a lot of circumstances within the Massachusetts Supreme Judicial Court docket in addition to helped brokers, insurance coverage corporations, and lawmakers alike with the complexities and idiosyncrasies of insurance coverage regulation within the Commonwealth.
Join with me instantly by calling me at 617-598-3801.
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