Allstate Insurance has emerged victorious in litigation against two of its former exclusive agents who retained and used Allstate spreadsheets with policyholder information after the insurer terminated their agency contracts.
Allstate pursued and won claims against the agents for breach of contract and trade secret misappropriation.
The former Massachusetts Allstate agents denied any wrongdoing and tried to avoid liability by arguing that state laws protecting independent agents applied to them, that the policyholder information did not qualify as trade secrets, and that Allstate did not own the information anyway.
But on the strength of the language in its agency contracts, Allstate won summary judgment across the board in the federal district court in Boston in 2022.
After they lost in the district court, the agents, James Fougere and Sarah Brody- Isbill, and Fougere’s agency, A Better Insurance Agency, Inc. (ABIA), appealed to the First Circuit Court of Appeals. The agents have now lost again, with the appeals court affirming the lower court’s decision.
Exclusive Agency Contracts
In February 2013, Fougere signed an exclusive agency agreement (EA) with Allstate to sell the company’s products in Massachusetts and thereafter began operating the ABIA agency in Framingham. Once his Allstate agency was up and running, Fougere hired Brody-Isbill to work for him. The following year, in April 2014, Brody-Isbill entered into a separate EA agreement with Allstate, and opened up her own Allstate agency in Auburn.
The EA agreements mandated that Fougere and Brody-Isbill exclusively represent Allstate, which meant they were prohibited from soliciting, selling or servicing insurance from other insurance companies without Allstate’s approval. The agents also committed to maintaining information identified by Allstate as confidential and promised that they would not misuse or improperly disclose the information, they would return the information to Allstate when their agency relationships terminated, and they would not use the information for any improper purpose.
The EA agreements clearly identified that confidential information included, among other things, the names, addresses, and ages of policyholders of Allstate; types of policies; amounts of insurance; premium amounts; the description and location of insured property; the expiration or renewal dates; policyholder listings and any policyholder information subject to any privacy law; claim information; and material considered a trade secret.
The agreements also specified that Allstate was the exclusive owner of all confidential information, even if it was developed or enhanced by the agent using other sources.
Agency Terminations
Allstate said It started having concerns about the agencies’ compliance with Allstate regulations and Massachusetts state law involving the use of policyholder information. The insurer said it learned that the agents had been using spreadsheets with confidential information to solicit Allstate customers on behalf of ABIA and sharing the policyholder information with each other and other entities.
In November 2014, Allstate terminated its EA agreement with Fougere. Then, in October 2015, the company did the same with Brody-Isbill’s agreement. With the terminations, Allstate cut off each former agent’s access to the company’s online electronic records portal and collected any physical files located in their Allstate agency offices.
The insurer insisted the spreadsheets were its property and the agents had to return them after their terminations. The spreadsheets contained thousands of Allstate customers’ names, addresses, policy numbers, types of insurance coverage, premiums, and renewal dates. According to the insurer, the agents continued to use them.
Allstate Sues
In August 2016, Allstate filed suit against the agents, pleading breach of contract and trade secret claims. The company alleged trade secret misappropriation under both common law and the Defend Trade Secrets Act (DTSA), as well as tortious interference with advantageous business relationship and unfair competition in violation of the Massachusetts Chapter 93A unfair business law.
The agents denied wrongdoing and counterclaimed. Among their allegations they claimed that Allstate had breached their contracts, violated a Massachusetts law requiring adequate notice before agency terminations, misappropriated information that belonged to them, and violated Massachusetts Chapter 93A by engaging in bad faith business practices.
In November 2016, the court enjoined the agents from using or accessing any Allstate confidential information including documents contained on Fougere’s or ABIA’s databases.
The insurer dropped its claims of tortious interference with advantageous business relationships and unfair competition after receiving early favorable court rulings.
In March 2022, the district court granted summary judgment for Allstate, finding that the spreadsheets retained by the agents contained confidential and trade secret information belonging to Allstate, and that they were liable for breach of contract and misappropriation of trade secrets claims. The district court dismissed the agents’ counterclaims against Allstate.
The agents appealed to the First Circuit. Late last month, it affirmed the district court’s grant of summary judgment in favor of Allstate on the trade secret and contract liability claims against the agents.
Exclusive Not Independent
As part of their defense, the agents asserted that Allstate’s terminations of their contracts were invalid because the insurer did not give them 180 days notice. The court disagreed, noting that the state law mandating 180-day notice of agency terminations by insurers applies to independent agents, not exclusive agents or employees. The agents unsuccessfully argued that they were independent agents because they were not employees of Allstate.
Given the exclusive nature of Fougere’s and Brody- Isbill’s relationships with Allstate and the fact that neither owned the expirations from their former Allstate agencies, they do not qualify as “independent agents” under the terms of the state law, the court concluded in affirming the district court’s dismissal of the counterclaim.
The agents tried to invoke a state law against unfair competition by contending that their relationship with Allstate was akin to their being franchisees of a franchisor. But the court rejected that contention, pointing out that “nothing in the EA agreements, or otherwise, favored understanding the agency relationships to be between a franchisor and its franchisees.”
Trade Secrets
Next the court addressed the agents’ opposition to Allstate’s charges of trade secret misappropriation and breach of their EA agreements. The agents raised multiple challenges to the district court’s trade secret findings. Among other things, they maintained that there could be no misappropriation because the information in the spreadsheets did not constitute trade secrets and even if it did, Allstate was not the owner of the documents.
The agents asserted that there were no trade secrets because some of the spreadsheet information was publicly available, had no independent economic value, and Allstate did not take reasonable steps to protect it.
But the appeals court did not buy any of that. Whether some of the information is public did not defeat Allstate’s trade secret claims, the court said. Even assuming Fougere retrieved some information from public sources as he claimed, it would be difficult, if not impossible, to develop the spreadsheets — which listed thousands of Allstate customers, along with their personal and policy information — solely through those means. As the district court pointed out, “there is no question that the compilation of customers, addresses, premium rates, renewal dates and the like are not readily available to the public.”
Ownership and Value
The court also outright rejected the agents’ claim that Allstate did not own the spreadsheets because the agents had developed some of the information in them. The court noted that the EA agreements expressly describe confidential information and make it clear that Allstate is the exclusive owner of all confidential information. The court said there is nothing in the EA agreements “which indicates in any way” that confidential information is limited to information compiled by Allstate instead of the agency. The EA agreements also stipulate that any confidential information or trade secrets recorded on an electronic data file, whether provided by Allstate or by Fougere’s or Brody-Isbill’s agency, is the exclusive property of Allstate “as is any such medium and any copy of such medium.”
The agents also maintained that the spreadsheets’ content did not qualify as trade secrets because Allstate failed to demonstrate that the information had independent economic value. However, Allstate pointed out that the value of the customer information to the company was enumerated in the EA agreements and was of value to any insurer looking to compete with the company.
The court pointed out that the EA agreements expressly state that misuse of the company’s confidential information would cause “irreparable damage” which, by definition, cannot be adequately compensated or remedied by any monetary award or damages that may subsequently be awarded. The EA agreements provided a way for terminated agents to sell their “economic interest” in their Allstate books of business to Allstate-approved buyers, which the court said expressly signaled the value to Allstate of maintaining the information.
The court added that the data in the spreadsheets, much like independent agents’ expirations, is so valuable in the industry that there is an entire system of rules to protect agents with exclusive rights to them. “Clearly, Allstate believed that misuse of the information would not only exceed, but also entail, economic harm,” the court stated.
Furthermore, the court noted, In the hands of a competitor, the spreadsheet information could be used to compete with Allstate by offering, for example, insurance at premiums the competitor knows to be less than what the customer currently pays.
Finally the court found that Allstate satisfied another requirement for trade secrets by taking steps to protect the data from disclosure. The court noted that the insurer did so through the EA agreements in which it specified which information was confidential and how it was to be handled. Allstate also took other precautions to protect the information by only granting access to agents, restricting its availability through the use of passwords and, upon termination, revoking access by former agents.
Topics Agencies Massachusetts
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