B.Y. LINE®     Litigation Alert!!

Steven Kaldi entered into an agent appointment agreement with Farmers in 1981.  This agreement provided he would be authorized to sell insurance on behalf of Farmers and that he would submit requests or applications for insurance to other carriers only when Farmers did not provide coverage or had rejected the coverage submission.  Kaldi would receive commissions under the agreement and Farmers would provide training forms and advertising assistance to him. 

The contract set forth methods of terminating the agreement.  The agreement could be terminated either by death of the agent, 3 months written notice by either the agent or the carrier, 30 days written notice upon breach of the agreement by either party or termination immediately for specified wrongful actions listed in the contract.  The contract further provided for a review committee in the event the contract was terminated by the carrier. 

In 1996 Mr. Kaldi received a 3 month written notice of termination.  He requested a review which  was thereafter provided and it upheld the termination.  He thereafter filed a complaint asserting claims for breach of contract, tort, contractual breach of implied covenant of good faith and fair dealing and misappropriation of trade secrets.  He argued that the agreement could only be terminated for cause and that when the agreement was wrongfully terminated he became owner of all trade secrets pertaining to his customers.  He alleged that the agreement created an employer/ employee relationship that the review board proceeding were nothing more than a sham.

The lower court dismissed his complaint finding that the agreement was an unambiguous agency contract, that Kaldi was not an employee of Farmers and that the agreement was terminable at the will of either party upon appropriate notice. 

In upholding the lower court dismissal, the Court noted that the plain language of the agreement did not support Mr. Kaldi’s assertion that an employer/employee relationship existed by virtue of the agreement.  The Court noted other provisions of the agreement specifically stating that he was not an employee and that nothing in the agreement was intended to create such an employee relationship. 

The Court then addressed Mr. Kaldi’s assertion that the agreement required Farmers to establish good cause before terminating his agency.  In support of his agreement, Kaldi noted the absence of an at will provision and the presence of provisions establishing termination review boards.  The argument put forth by Kaldi suggested that these two factors created an implied good cause requirement.

Nevada common law provides that an independent contractor principal agency relationship is terminable at any time at the will of the principal or the agent.  Nevada’s insurance statutory scheme also provides an insurer may terminate an agents employment at any time, subject only to an agents contractual rights.  (NRS 683A.290(1). 

The Court noted that the agreement modified the common law only with respect to the type of notice required of the terminating party.  In the instant case, that notice was a 3 month provision.

Similarly, the court concluded that cause is but one of many reasons why an insurer may wish to terminate an agency agreement, and the review board procedure did not create a good cause requirement.

Mr. Kaldi sought to admit into evidence a second document, referred to as the explainer, declare which he contended which clarified the standard of the review process and supported his argument that good cause needed to be established.  He contended that the explainer would be admissible to demonstrate that although the agreement appeared to be unambiguous, it would be susceptible to more than one reasonable interpretation. 

The Court rejected that argument, noting that parol evidence, (such as the explainer) may not be used to contradict of a written contractual agreement.  Citing Daly v. Dale E. Webb Corp, 96 Nev. 359 (1980), the Court stated the parol evidence rule forbids reception of evidence which would contradict or vary the contract, since all prior negotiations and agreements are deemed to have been merged therein. 

In addressing Mr. Kaldi’s contention that a contractual ambiguity existed because the agreement failed to state it was an at will agreement, the Court relied on Nevada’s common law right to terminate an agency at will and Nevada’s statutory scheme allowing for termination at will unless the contract specifically contains language to the contrary.  The Court concluded that silence in an agreement in this issue within a written contract cannot create an ambiguity to allow Mr. Kaldi to subvert the parol evidence rule and have the Court consider outside documents.