Court backs broker in dispute over buying his book of business

Ontario’s Appeal Court has denied an appeal by a St. Catharines, Ont. brokerage in a dispute over the contract terms of a producer buying out his book of business after he served notice he was leaving the brokerage.

In Lindsay v. Verge Insurance Brokers Ltd., Ryan Lindsay worked as an insurance producer for nine years at Verge Insurance Brokers Limited. The court noted he was a successful producer, with an annual commission income of $181,000 by 2013. On Apr. 15, 2013, Lindsay provided a 60-day written notice of his intention to resign from the brokerage on June 14, 2013.

Lindsay’s employment contract gave him the option to buy his book of business if he left Verge. The contract terms stated:

“…the company shall notify the producer in writing as to the accounts to be sold to the producer together with the purchase price for any such account…. The producer is obligated to purchase all of the accounts identified by the company. The purchase price shall be paid in full by the producer to the company within fourteen (14) days thereafter, failing which the producer is deemed to have waived or relinquished any right to purchase as provided for herein….”

“The negotiations did not go well,” the Appeal Court observed of the talks between counsel representing the broker and the brokerage.

One key sticking point was when the 14-day clock started to run. The Appeal Court found the brokerage had revised its purchase price twice over three weeks following its initial offer of $481,167, made on May 14. Verge insisted Lindsay accept or reject the brokerage’s offer on May 29.

The Appeal Court’s decision described the negotiations between Lindsay and Verge between May 14 and June 5 as follows:

“Verge was slow in providing a client list, finally doing so on May 14, but without names or policy numbers, thus making it difficult for Lindsay to determine if the list was accurate,” the Court of Appeal decision states. “On the same day, Verge stated a purchase price of $481,167 and demanded closing on May 29.

“On May 17, Lindsay advised Verge through his lawyer that he could not vet the list and stated that the 14-day period could not run until he had accurate account information.

“In a series of letters and emails between May 22 and June 5 dealing with the information Verge was providing to Lindsay, Verge made corrections to the list and lowered the purchase price of Lindsay’s book of business accordingly from the initial $481,167 to $389,136 to $362,977. In its final letter on June 5, Verge insisted on closing at 5 pm that day.”

Lindsay declined to purchase the book of business on Verge’s terms. “His counsel informed Verge’s counsel that Lindsay was not prepared to close with yet another new price in play coupled with no time to review the relevant documentation,” the Appeal Court decision states.

Lindsay sued the brokerage for breach of contract. Verge counter-sued, arguing Lindsay didn’t follow the proper procedure for buying his book of business. After a 43-day trial, the lower court essentially found the 14-day clock should have started running as of June 5, when the most recent purchase price had been made.

Verge appealed the decision to the Appeal Court, which upheld the trial judge’s decision.

“We agree with [the trial judge] that it was a reasonable interpretation of the contract to find that the list of accounts and purchase price had to be accurate and that Lindsay was entitled to a 14-day period once the accurate list and price were fixed to make his decision,” the Appeal Court ruled. “Verge’s conduct over a three-week period in May and June 2013 was inconsistent with both of these essential components of the contract.

“Verge changed the list and the initial price two times in those three weeks and gave Lindsay no time to consider the transaction after setting the final price. As found by the trial judge, Verge’s conduct was unfair and not in keeping with the terms of the employment contract. Thus, Lindsay’s refusal to close the purchase was not a breach of the employment contract.”

Feature image courtesy of iStock.com/David Gyung