Former State Farm Agents Win $12M Settlement

A three-and-a-half year lawsuit pitting two former State Farm agents against State Farm Automobile Insurance Company has come to an end, with the jury’s verdict ruling for the agents.

Richard Pyorre of Fort Bragg, Calif. and John Wier of Crescent City, Calif., were awarded $6.35 million and $6.25 million, respectively for emotional distress damages, loss of commissions and punitive damages as the result of a seven- week trial in which State Farm sued the two agents for alleged disclosure of trade secrets and breach of contract.

Pyorre and Weir counter-sued; claiming State Farm wrongfully terminated them and further interfered with their ability to provide insurance to their clients under different carriers.

The lawsuit brought to light mounting concerns over the rights to client information in the captive agency system.

Pyorre’s contract was terminated on Feb. 28, 1999 after serving as a State Farm captive agent for 27 years. According to Pyorre, the company allegedly claimed that he was terminated because he did not attend a “mandatory” ethics class. That claim was debunked when State Farm argued to the IRS in 1991 that their agents were independent contractors under an SS8 filing (determination of employee work status), thus there would be no punitive damages if an agent did not attend a meeting.

Evidence of this was produced at the trial in the form of a letter from Ed Russ, Jr., dated Dec. 23, 1991, referring to the 1991 SS8 filing, stating that State Farm would not compromise the independent contractor’s status of the agent. “That’s one of the things that I felt very strongly about,” said Pyorre. ” I had seen his letter… and I felt I didn’t have to attend a mandatory meeting, because there had never been any in the history of the company at that time.

“To add insult to injury, this ethics class was an LUTC self-study course,” said Pyorre. “[It] really wasn’t an ethics class, it was an initial review of banking products… which I wasn’t interested in doing.”

In another development, State Farm sent Pyorre a letter on March 19 stating that they were not going to pay him termination benefits because Pyorre allegedly disclosed trade secrets by soliciting policyholders to represent under carriers other than State Farm.

State Farm allegedly terminated Wier over a dispute involving a computer agreement. “I was terminated, or discontinued was the word they used, for signing a computer agreement with the words under my signature ‘with full reservation of my main contract rights,'” said Wier.

The new technology agreement allowed State Farm to move policyholder information out of agents’ offices to a central hub in Arizona, requiring the agent to use a password to access the information.

“Obviously they were going to use it to cross market,” said William Tedards, attorney for Pyorre and Wier. “[Wier] was opposed to that, so he refused to sign this agreement that they demanded unless he could put underneath it a line that said he could reserve rights under his main contract.”

Tedards alleged that Pyorre, Wier and other agents were punished when they shied away from State Farm’s structuring changes in the ’90s, which strongly suggested agents turn to the sale of financial service products in order to make extra income. “They basically said ‘We’re going to ride a different train now, and you better get on if you’re coming with us.'”

State Farm introduced a new contract in the mid-’90s allegedly designed to put the agents under control of the company, although agents were still referred to as independent contractors, according to Tedards. “It’s designed to set them up so that they will slow down [personal lines] and they will barrel forward into financial services. The contract gives the company the power to limit their growth.”

While the contract was not mandatory for agents to enter into agreement to, Tedards said agents were nevertheless influenced to sign it. While many new State Farm agents have reportedly signed the contract with little resistance, older agents were more apprehensive. “What they started doing with those people is essentially bludgeoning them,” said Tedards. “They decided that they had enough control over them that they could start either making them do what they want or getting rid of them.”

State Farm claimed to own all policyholder information from terminated agents, claiming it as trade secrets. “The Pyorre and Wier case is the prototype test case challenging that entire course of action,” said Tedards.

“They [Pyorre and Wier] just challenged that head-on,” added Tedards. “They took a full copy of all the policyholder information. They initiated new independent agent-type contracts with a number of companies including Mercury, and then they basically started contacting the policyholders and taking the business. State Farm attacked them for that. Interestingly, State Farm first tried to turn them into the Federal Bureau of Investigations, [trying] to instigate a criminal proceeding under the Economic Espionage Act, and the U.S. Attorney declined to prosecute.”

The jury found that Pyorre and Wier were not guilty of State Farm’s allegations, including disclosure of trade secrets and breach of contract.

They further ruled that State Farm interfered with Pyorre and Wier’s contracts with Mercury Automobile Insurance. “[The] verdict is based on that activity by State Farm-intimidating Mercury, said Tedards. “They found that State Farm did not own the policyholder information. The significance of this is that none of these companies own this.”

Of the total $12.6 million awarded to the pair, $350,000 was awarded to Pyorre, and $250,000 to Wier as the amount of lost commissions due to the interference. Three million each was awarded as emotional distress damages.

Another $3 million each was awarded to the pair as punitive damages

“It’s about time that one of these big bully corporations got taken to task,” said Pyorre. “It’s a $70 billion dollar company and they terminated us, they took our term pay… then they turned around and sued us and wanted more money.”

“It’s a victory,” said Weir. “I’m just very thankful to the jury and the time they put in. I feel my reputation as well as Rich’s has been vindicated.”

As for State Farm, spokes-person Bill Syrolla said, “We regret that an issue like this ever had to end up in court. We are reviewing the case to see what options we might pursue.”

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