GEICO Faces Legal Battle as Captive Agent’s Lawsuit Advances
A federal judge has ruled that a captive agent’s suit against GEICO can proceed on claims of breach of contract, renewal commissions owed, unjust enrichment, and employee misclassification. The case centers on allegations that GEICO wrongly withheld earned commissions, renewal commission, and misclassifying the captive agent as an independent contractor and not as an employee.
From zero sales to seventh in the nation in two years
In 2020, Richard Hurwitz formed SRH Holdings, LLC for the purpose of selling insurance on behalf of Government Employees Insurance Company and GEICO Insurance Agency, Inc.. (collectively, “GEICO”). On May 13, 2020, SRH Holdings and GEICO entered into a GEICO Field Representative Agreement (“Representative Agreement”).
Under this agreement, GEICO appointed SRH Holdings as an independent contractor captive agent to solicit and procure insurance applications on its behalf. The Representative Agreement allowed either party to terminate upon thirty days’ notice.
SRH allegedly incurred $1.9 million in startup costs to become successful
SRH began business operations in September 2020 from an office in Shrewsbury. Allegedly, the startup incurred expenses and debts totaling $1.9 million.
SRH’s stellar sales efforts over the two years following its appointment by GEICO as an agent resulted in it quickly becoming GEICO’s number one captive agent in Massachusetts and number seven in the country.
Thirty-day notice canceling the agency agreement
Around December 2022, GEICO allegedly discovered that SRH’s employees were sharing unauthorized log-on information and passwords to their computer systems. As a result, on December 29, 2022, GEICO suspended SRH’s computer access pending an investigation. On January 12, 2023, GEICO gave SRH Holdings a thirty-day notice of termination, with termination effective on February 12, 2023.
SRH sues GEICO for commissions and treble damages
Two months after the termination of its Representative Agreement, SRH sued GEICO asserting claims for breach of contract (Count I), renewal commissions (Count II), unjust enrichment (III), breach of the implied covenant of good faith and fair dealing (Count IV), misrepresentation (Count V), misclassification in violation of Mass. Gen. L. c. 149, § 148B (Count VI), and declaratory judgment on the Representative Agreement having an invalid non-competition provision(Count VII).
GEICO’s motion to dismiss is allowed in part and denied in part
In response to SRH’s lawsuit, GEICO moved to dismiss all seven counts based on the exclusive terms of the Representative Agreement applying.
The Court noted that the Representative Agreement had a choice of law clause making the law of Maryland the law it had to apply. Since Maryland does not recognize an independent claim for the breach of the implied covenant of good faith and fair dealing in a contract action, the Court dismissed that count.
The Court also dismissed the misrepresentation count based on SRH’s failure to adequately allege, as required, the specific misrepresentations GEICO made that were legally actionable and the declaratory judgment count because the supposed illegal non-competition clause in the Representative Agreement actually stated a permissible ant-piracy (nonsolicitation) provision.
Court allows the lawsuit to proceed on four counts
In its ruling on GEICO’s motion to dismiss, the Court allowed the breach of contract count to proceed on the issue of GEICO having wrongfully terminated SRH’s access to its computer files during the thirty-day cancellation period.
The Court also allowed the second count seeking renewal commissions under the Representative Agreement. The Court found the Representative Agreement’s provisions on the ownership of renewal commissions ambiguous, requiring further court proceedings.
Likewise, the Court found that the third count alleging GEICO’s alleged retention of $250,000 in SRH’s earned commissions stated a valid cause of action.
Claim Geico misclassified SRH as an independent contractor
The fourth count the Court allowed to proceed was that GEICO improperly classified SRH as an independent contractor in the Representative Agreement in violation of Mass. Gen L. c. 149, § 148B.
Under this statute, a person is only an independent contractor unless the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact.”
The Representative Agreement states, “[SRH] acts solely as an independent contractor and exercises his or her own judgment as to the manner in which she or he may provide services under the terms of this Agreement.” In its opposition to GEICO’s motion to dismiss, SRH alleged, contrary to the Representative Agreement’s terms, GEICO completely controlled SRH’s sales operation because it:
Owned and controlled SRH’s list of potential customers.
Owned and controlled the telephones, telephone numbers, computer systems, hardware, and infrastructure SRH and its staff used without offering SRH any ability to negotiate purchase prices.
Owned and controlled all of the marketing materials, including logos and signs, SRH used.
Required SRH to follow specific marketing scripts when selling GEICO’s insurance products to potential customers.
Owned and controlled that all of the telephone scripts SRH and its staff used.
Maintained the right to assign additional projects to SRH, and its office staff
Maintained control over SRH’s business hours.
Maintained control over SRH’s staffing decisions, including prohibiting SRH staff from working remotely.
Controlled SRH’s employee discipline.
compelled SRH to purchase or lease from GEICO all of the tools needed for SRH to apply its trade and solicit and procure insurance policies at rates and above normal retail prices
If the Court finds that the facts establish GEICO misclassified SRH as an independent contractor, SRH would have the right to seek treble damages for the alleged $250,000 in unpaid commissions and attorney fees.
The lawsuit will now proceed to discovery
Given that the Court allowed four counts of SRH’s complaint to proceed, GEICO must answer the four remaining counts in SRH’s complaint. The parties will then conduct discovery, followed by summary judgment motions. If the Court does not fully decide the suit on summary judgment, the open claims will proceed to a jury trial.
Agency Checklists will keep its readers posted.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly by calling me at 617-598-3801.
