Tuesday, July 20, 2010
Wholesale Insurance Broker Dispute Highlights Potential for Reputational Injury (Allison v. CRC)
Crain's had an excellent article yesterday about the dispute concerning Patrick Ryan's re-emergence in the wholesale insurance brokerage industry. Ryan, the founder of AON Corporation, is one of the most high-profile business and philanthropic figures in the area. He invested a substantial amount of money - $275 million - to create and fund Ryan Specialty Group, a wholesale insurance brokerage.
The controversial aspect of Ryan's maneuver was his plan to outfit RSG: he engaged in a mass recruitment effort that resulted in the defection of more than 100 employees from rival CRC Insurance Services, an Alabama-based broker. Wholesale brokers like CRC and RSG compete to provide insurance proposals to retail brokers. Those retail brokers deal directly with prospective insureds. It can be a fragmented, specialized market, but the gist is that a wholesale broker's key relationships often are with retail brokers - not end-user insureds.
Not all retail brokers were happy with Ryan's plan to ramp up RSG's business through the hiring of CRC's employees. In the insurance industry, non-compete arrangements and client relationships are critical corporate assets. Certain retail brokers saw Ryan's move as less than respectful of those assets. It is not a stretch to think CRC has been decimated in its ability to service clients. The Crain's article contains some illuminating quotes.
Last month, Judge Zagel in Chicago denied CRC's motion to preliminarily enjoin its ex-employees from violating the non-competition/non-solicitation obligations in their employment contracts. What was interesting about Judge Zagel's opinion is the degree to which he analyzed the balance of harms arising out of CRC's injunction request. He assumed the agreements were valid - a ruling that is not a final judgment on those contracts - but spent the bulk of his opinion assessing the harm to the employees if he were to enjoin them from working for RSG, and the harm to CRC if he were to deny the motion.
Ultimately, after struggling with the issue, Judge Zagel found that the harm to the ex-CRC employees - potentially losing their jobs for two years - outweighed corresponding harm to CRC itself. The court found that an injunction would not stem the tide of lost business, holding essentially that there was no guarantee that CRC's clients would come rushing back if the employees were barred from working with RSG.
Court: United States District Court for the Northern District of Illinois
Opinion Date: 6/21/10
Cite: Allison v. CRC Insurance Services, Inc., 2010 U.S. Dist. LEXIS 61015 (N.D. Ill. June 21, 2010)