United States District Court Holds That Insurance Agent Is An Independent Contractor

Ms. Kallen writes a blog about insurance coverage issues in Massachusetts

Ms. Kallen writes a well-regarded blog on Insurance Coverage Law in Massachusetts. We love Kallen’s blog and have asked her to let us reprint her posts on things we think might be of interest to the independent agents of the Commonwealth. Here is her latest post on one such issue from January 30, 2015:

United States District Court holds that insurance agent is an independent contractor

Thomas Ruggiero, an insurance agent, sued America United Life Insurance Company (AUL) and its subsidiary OneAmerica Financial Partners, alleging that they had misclassified him as an independent contractor.

Ruggiero signed a General Agent’s contract with AUL in February 2009, with the intent of establishing an agency that would sell AUL products.   AUL lent Ruggiero money to assist him in developing his agency.

Under his contract with AUL, Ruggiero was to recruit, train and supervise agents and brokers for AUL in Massachusetts without exclusive representation, and to solicit applications for AUL’s insurance policies.

AUL would pay Ruggiero commissions and service fees on policies and contracts serviced by Ruggiero or his agents or brokers, as well as allowances, writing commissions, bonuses, and services fees.

The contract classified Ruggiero as an independent contractor, and required him to pay his own expenses for maintaining an office.

Under the terms of the contract Ruggiero was not permitted to act as a general agent, agency manager, or hold a full time contract with another insurer, or to enter into an employment contract or agreement without the approval of AUL.

During his relationship with AUL Ruggiero also maintained relationships with numerous other insurance companies.  He never asked AUL permission to do so, and AUL did not believe that by doing so Ruggiero violated his contract with it.

Ruggiero recruited and trained approximately thirty agents during his contract term with AUL. Those agents entered into contracts with AUL and other insurers, at Ruggiero’s direction.

After winding down his agency, Ruggiero sued AUL and OneAmerica, asserting that he had been misclassified as an independent contractor.

In Ruggiero v. Am. United Life Ins. Co., __ F. Supp. 3d __, 2015 WL 5822622 (D. Mass.), the United States District Court for the District of Massachusetts held that Ruggiero was an independent contractor under all three prongs of the independent contractor test.

The court first held that Ruggiero was “free from control and direction in connection with the performance of the service.”  Other than general principles the contract did not prescribe how the work was to be performed, and left Ruggeiro discretion in running his agency.  Certain requirements that were placed on Ruggiero were mandated by regulations and therefore did not affect his employment status.

The court then held that the service Ruggiero performed was outside the usual course of the business of AUL.  Sales of AUL’s insurance products were outside of AUL’s usual course of business because AUL did not itself sell the insurance and financial products it offers.  Instead, it provides the products through a national network of agents.  While sales of the products are essential to AUL’s business, it is not in the business of selling them directly; it is in the business of determining which products to make available, structuring and drafting the policies, and investing the policy premiums.  Within the insurance industry there is a recognized division between producing the insurance product (the insurance carrier) and selling it (the insurance brokerage or agency).

Similarly, Ruggiero’s services in recruiting and training career agents and brokers were outside of AUL’s usual course of business.

Ruggiero was acting in his own interest in doing so because he would receive a commission for the sales attributable to them.  Those services were in the interest of AUL only to the extent that they generated sales of AUL products, rather than products of other insurers.

Finally, the court concluded that Ruggiero was customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.  Ruggiero was in the business of selling insurance products, and  sold the products of both AUL and other insurance companies.

About Nina Kallen and her blog Insurance Coverage law in Massachusetts