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Judge Is On Nationwide's Side In Agent Contract Suit

Nationwide Mutual Insurance Co. did not breach its contractual duties to insurance agent contractors by forcing them to choose between receiving deferred compensation or selling non-Nationwide insurance products, a Texas federal judge ruled Monday.

U.S. District Judge Sam Sparks granted Nationwide's bid to dismiss claims that it violated its implied duty of good faith and fair dealing to members of the Nationwide Insurance Independent Contractors Association Inc., a group of independent contractors who sell and market Nationwide's products.

The suit applied to NIICA members who refused to sign a 2010 agreement under which they would forfeit future accruals under a deferred compensation incentive credits program. Nationwide discriminated against those agents by not allowing them to sell insurance from other carriers and restricting their potential income, according to NIICA.

Although Texas law did not impose a duty of good faith in every contract, the members argued that their status as exclusive Nationwide agents constituted a "special relationship" that created such a contractual duty.

But Judge Sparks rejected that claim, noting that the agents operated independently from Nationwide. He also said Nationwide had acted reasonably by incentivizing third-party insurance sales, which earned money for Nationwide-owned brokers.

"If Nationwide were forbidding agents to sell Nationwide's own insurance, or acting in the face of contractual silence to prevent agents from generating revenue, the court might be inclined to find an implied promise," the judge said.

"However, where, as here, Nationwide is exercising its discretion in accordance with its clear contractual rights, and its agents appear to be receiving all the benefits they reasonably could have expected under the agent's agreement, the court sees no room for any implied covenants or promises,"Judge Sparks wrote.

The judge added that agents who found they were being denied extra income by being affiliated with Nationwide were free to terminate their contracts, but could not "force Nationwide to treat them as they wish to be treated."

The ruling did not address a declaratory claim that Nationwide agents operating under pre-2000 contracts who had not signed the 2010 agreement had a joint right to policyholder information, or the information that agents develop and submit to Nationwide as part of insurance applications. The parties should first supply the court with evidence on that claim, the judge said.

William P. Tedards, an attorney for NIICA, said a similar suit against Nationwide was pending in Texas state court. That suit and the present action were likely to reignite debate over the fact that Texas, unlike most states, does not impose a duty of good faith in every contract, he said.

"The cases that we are dealing with in Texas hold the possibility of a reexamination of that proposition, which I think is wrong and behind the times," he told Law360 Tuesday.

Nationwide spokeswoman Nancy Smeltzer said the company had not yet reviewed the order in detail but was pleased with the decision.

NIICA brought suit May 27 on behalf of 62 of its members based in Texas who place insurance for clients with Nationwide. An amended complaint was filed in January.

NIICA is represented by Patrick H. Cantilo and Pierre J. Riou of Cantilo & Bennett LLP and by William P. Tedards.

Nationwide is represented by Stephanie S. Rojo of Thompson Coe Cousins & Irons LLP as well as by Daniel F. Attridge, Elizabeth M. Locke and Thomas A. Clare of Kirkland & Ellis LLP.

The case is Nationwide Insurance Independent Contractors Association Inc. v. Nationwide Mutual Insurance Co., case number 1:11-cv-00450, in the U.S. District Court for the Western District of Texas.