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The insurance business, where a customer base is susceptible to moving if a salesperson transfers from one brokerage to another, is the source of much litigation. 

Brokerages frequently insist on non-solicit or non-compete clauses in their employment agreements. When salespersons leave to join a new brokerage, their former employers often commence litigation immediately to try to obtain immediate enforcement of the clauses. The Court’s order enforcing the non-compete or non-solicit known as an “interlocutory injunction”, stands in place for a defined period of time or until a full trial is held.

The decisions of the courts on these and related matters are a rich source of guidance on whether non-competes or non-solicits will be enforced, whether brokers are prohibited from soliciting clients for a period of time on the basis of being “fiduciaries” and what information constitutes confidential information of the brokerage.

Elsley v. J.G. Collins Ins. Agencies, 1978 CanLII 7 (SCC)

This 1978 decision from the Supreme Court of Canada is one of the most important and frequently-cited decisions regarding enforceability of non-compete and non-solicit agreements. The Supreme Court set out several questions to be examined in assessing whether a non-compete or non-solicit clause is reasonable, including:

  • Does the insurance agency have a proprietary interest entitled to protection?
  • Is the length or geographic scope of the prohibition too broad?
  • Is the clause focused on preventing competition outright, as opposed to only limiting solicitation of clients?

The court held that this was one of the “exceptional cases” where a non-compete clause, as opposed to the less drastic measure of a non-solicit clause, was justified. The broker had a close personal acquaintance with the clients or customers and the means of influence over them.

Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 

In another leading decision regarding enforceability of non-competes and non-solicits, the Supreme Court of Canada declined to enforce a non-compete clause prohibiting employment by Shafron in the business of insurance brokerage within the “Metropolitan City of Vancouver.” As there was no such geographic entity in existence at the time, the court found the restriction on competition to be ambiguous and hence unenforceable.

The court further declined to rewrite the clause to include only specific municipalities with the Lower Mainland. It noted that if courts were to rewrite clauses in this way, they would be inviting employers to drafty overly broad restrictive covenants with the prospect that the courts would rewrite them to what they consider to be reasonable.

OIBC v. KO, 2018 ONSC 4612

In this Ontario decision, the court grappled with whether a broker unlawfully used confidential information when she went to a new brokerage and contacted her former clients using contact information saved in her personal cell phone.

The court found it reasonable that she kept the contact list in her phone to stay in touch with the clients while working for the former brokerage, inputting the information in the course of her work. Importantly, she did not copy a customer list as she was departing. Taking everything into account, the court held she did not take confidential information of the brokerage.

MHK Insurance Inc. v. Wass, 2021 ABQB 721

Occasionally, brokerages will attempt to not absolutely prohibit competition by their employees when they leave, but put a price on it, as demonstrated by this Alberta decision.

In this case, the brokers’ employment agreements stipulated that if they solicited or did business with the brokerage’s clients in the 24 months after leaving, they would have to pay set amounts to their former employer. The amounts were based on the commissions the brokerage had earned from those clients – 250% of one year’s commissions in the case of one of the brokers and 180% in the case of the other. The court upheld the provisions, requiring the two former brokers to pay a total of nearly $1.2 million.

Renfrew Insurance v. Cortese, 2014 ABQB 157 and 2014 ABCA 203

The Alberta Court of Queen’s Bench issued an injunction prohibiting two departed insurance brokers from competing for six months within 60 km of the plaintiff’s place of business in Calgary and from soliciting their former employer’s customers and employees for 18 months. The Alberta Court of Appeal upheld the decision.

MacDonald Ohm Insurance Brokers Ltd. v. Gillmore, [2000] O.J. 2745

In this decision, the court refused to enforce an injunction before trial which would have prohibited an insurance salesperson, for a period of either one, two, or three years, from carrying on, being engaged in or concerned with the insurance industry in an area that comprised most of the municipalities of the Niagara Region.

In declining to enforce the injunction before a full trial, the court:

  • Cast doubt that a clause prohibiting competition for alternative periods of time (here, one, two, or three years) was enforceable;
  • Was concerned that the brokerage may have constructively dismissed the defendant, which would render the non-compete unenforceable;
  • Held that the any damages suffered by the broker could be assessed through records of the defendant’s sales, and hence an injunction was not necessary; and
  • Noted that issuing an injunction would preclude the defendant from earning a living anywhere in the Niagara Peninsula, whereas the loss of business to the brokerage was small in comparison to its overall business.

Jardine Lloyd Thompson Canada Inc v Harke-Hunt, 2013 ABQB 313

In this decision, the court did not have enough evidence before it to determine whether the non-compete or non-solicitation clauses were enforceable and declined to enforce them before a full trial. 

Importantly, however, the court found that the defendant, who had been Jardine’s branch manager in Edmonton, was a fiduciary, as she was a key employee and belonged to “top management.” Applying  prior case law, the court ordered a time-limited injunction on the defendant from soliciting Jardine’s employees and clients.

Jardine Lloyd Thompson v. Fogal et al., 2007 BCSC 271

In this decision, the court noted “It is standard industry practice in the insurance business to require insurance producers to agree to restrictive covenants to protect the goodwill that attaches to customer relationships. Significant resources are directed toward cultivating goodwill and the brokerage is particularly vulnerable when a producer leaves, since the producer it the face of the business the client knows.” (at para. 28)

The court issued an injunction to enforce Fogal’s non-compete clause after he left Jardine. The restrictive covenants in his employment agreement were intended to protect Jardine’s client connections in the book of business for which Fogal was responsible. 

AllWest Insurance Services Ltd. v. Mark, 2004 BCSC 1834

In this decision, AllWest had in place policies with respect to client ownership, which in turn were referenced in its employment agreements with its salespersons. Under the policy, a salesperson could not claim ownership of a client if they met a client for the first time at an automobile dealership or if the agent’s connection to the client was through AllWest.

With this in mind, the court held that the clauses at issue were reasonable. The restriction was against the solicitation and acceptance of clients of AllWest for two years and did not outright prohibit competition. The court stated:

“In a business such as in this case, the customer list and business information is where the value in the enterprise exists.  It is perfectly reasonable for an employer to place protective provisions around these assets, and in this case those protective elements are reasonable in terms of their scope, in terms of the term.” 

Knight Archer Insurance Ltd. v. Dressler, 2019 SKCA 24

This decision from the Saskatchewan Court of Appeal highlights the importance of the use of careful and precise words in a non-competition or non-solicitation clause. 

Knight Archer sought an injunction before a full trial to enforce a non-solicitation clause in two former employees’ contracts that prevented them, for one year, from soliciting, contacting or approaching any client of Knight Archer or any of “Knight Archer’s partner companies.”

The Court of Appeal upheld the lower court’s finding that the term “partner companies” was ambiguous, as it was not clear which of its many different business relationships with other entities would be covered. The court applied a prior decision of the Supreme Court of Canada to the effect that restrictive covenants that are ambiguous and unreasonable are unenforceable.