Insurance Company Suing Its Agent

Fort Worth insurance lawyers and those in North Richland Hills, Roanoke, Keller, Saginaw, and other places in the Tarrant County area need to keep up with opinions issued by the courts in Texas.
The United States District Court, Southern District, Houston Division, issued an opinion December 12, 2012, that is worth reading. This is an appeal from a summary judgment.
American General is in the business of issuing policies of life insurance. David Mickelson entered into an Agent Contract with American General to solicit applications for insurance plans. Mickelson’s Agent Contract requires agents to “repay to American General, on demand, any unearned commissions or service fees received by agents for, or with respect to, premiums or payments returned to policy or contract owners by American General for any reason.”
Mickelson marketed American General life insurance to a customer named Adele Ciccati, who ultimately applied for and was issued a policy American General paid Mickelson $83,329.20 in commissions when the policy was issued to Ciccati in January 2007.
On or about February 4, 2011, American General received a letter from the California Department of Insurance regarding a complaint Ciccati filed with the agency. The Department of Insurance found that Mickelson “did not exercise a duty of honesty, good faith, and fair dealing” in the sale of the policy to Ciccati. The agency determined that “the appropriate resolution to this complaint is a full refund of the premiums, with interest” and directed American General to “please immediately effectuate this resolution and provide the agency with written confirmation.” In accordance with this letter, American General rescinded the Ciccati policy and returned all premiums to Ciccati.
After returning the premiums American General charged back the commissions it paid Mickelson for selling the Ciccati policy. American General contended that Mickelson is required to repay the commission under the Agent Contract because, once American General returned the premiums to Ciccati, Mickelson’s commission became unearned. Mickelson did not return the commission he received for the Ciccati policy, although American General had withheld other commissions payable to Mickelson to offset his alleged debt. Despite these offsets, American General maintained that Mickelson still owed it $72,109.36. Mickelson argued that the commission he received for selling life insurance to Ciccati is not “unearned” and therefore outside the scope of provision 4.7 of the Agent Contract.
American General contended that the Agent Contract is unambiguous in requiring Mickelson to return any commissions paid in connection with premiums that were returned to a policy holder for any reason. Mickelson argued that the term “unearned commissions” in provision 4.7 of the Agent Contract is ambiguous because it is nowhere defined in the contract and because it can reasonably be understood to refer only to those commissions paid in connection with policies that were terminated by the customer during the “free look” period when a purchaser may return a policy shortly after purchase.
The Court agreed with American General that the term “unearned commissions” is not ambiguous. Mickelson cited no language in the Agent Contract showing that the term “unearned commissions” refers only to commissions received in connection with premiums returned during the “free look” period.
Furthermore, it is clear from the term itself and from the contract as a whole that there is only one reasonable interpretation of the term “unearned commissions”: commissions that were paid to an agent in connection with premiums that were subsequently returned to the policyholder for any reason. Texas courts have repeatedly understood the term “unearned commission” in this manner, and this Court saw no reason to deviate from this interpretation.
Furthermore, as American General points out, Mickelson’s proposed interpretation of the term would conflict with the rest of provision 4.7, which specifically provides that it applies to unearned commissions received with respect to premiums returned to policy owners “for any reason.” Interpreting “unearned commissions” to refer only to commissions received in relation to premiums returned to policy owners during the “free look” period would require the Court to read out of the contract the phrase “for any reason;” such an interpretation would effectively mean that only one reason for returning premiums to policy holders, a statutory mandate, could render a commission unearned. In view of the entirety of provision 4.7, Court could not agree that Mickelson’s proposed interpretation was reasonable.
Finally, Mickelson contended at length that American General was under no obligation to return Ciccati’s premiums. Mickelson argues that American General should have contested the Department of Insurance’s determinations. He even characterized the letter from the Department of Insurance, as not “expressly requiring” American General to return the premiums and inviting the insurance company to reply to its determination. The Court did not agree with this characterization, and, in any event, it did not find this line of argument relevant. The agency plainly determined that “the appropriate resolution to the complaint is a full refund of the premiums, with interest” and directed American General to “please immediately effectuate this resolution and provide Michkelson with written confirmation.” Even if Mickelson is correct that American General was not obliged to return the premiums to Ciccati, once it did so, his commissions related to those returned premiums became unearned.
This case is relevant in two respects. One, that insurance companies will sue their own agents, and two, that the agents can get in trouble when they mistreat their customers.