Justices to decide if insurer violated antitrust law with firing

By Steve Korris | Sep 18, 2009

CHARLESTON – Mercer County jurors who found that Erie Insurance violated state antitrust law by terminating a Princeton agent must wait to see if the Supreme Court of Appeals will let their verdict stand.

Erie Insurance has appealed orders of Circuit Court Judge William Sadler, who allowed Kevin Webb's antitrust claim, denied Erie a new trial, and set damages at $4,233,627.

At oral argument Sept. 8, Henry Jernigan of Charleston said Sadler shouldn't have allowed an antitrust claim because Webb's termination did not affect consumers.

He argued that although Webb alleged conspiracy among Erie and its subsidiaries, Erie couldn't have conspired with itself.

For Webb, Anthony Veneri of Princeton said Erie made him push its policies when he could have covered his clients for less through other insurers.

"They got my client in the back of a room and strong armed him," he said.

Webb's father, Frazier Webb, owned Princeton Insurance Agency and sold policies by agreements with Erie Family Life and Erie Property and Casualty, among others.

In 1999, Frazier Webb installed Kevin Webb as president of the agency.

In 2001, Kevin Webb executed agreements in his own name to sell Erie auto, life, home and commercial insurance in Virginia.

In 2002, Princeton Insurance Agency began cooperating with a separate entity, Princeton Insurance Associates.

The businesses operated out of the same office, and employees of each often worked for the other.

After that, according to Erie, the profit in Princeton Insurance Agency's West Virginia business dropped sharply.

"Erie Insurance Group was concerned that PI Associates was, in fact, being used as a vehicle to steer business away from it," Jernigan wrote in Erie's appeal.

In 2003, Erie asked Webb for a list of policies he had written for State Auto Insurance.

Webb didn't comply, but at a meeting with Erie managers he jotted some information down on a napkin.

He bowed to Erie's pressure, according to Veneri, and wrote policies with them at higher premiums than other insurers would have charged.

Erie terminated Webb. He sued in 2004, alleging restraint of trade in violation of state antitrust law.

He also alleged that Erie's request for facts on State Auto policyholders constituted an unfair trade practice.

At trial in 2007, jurors found an antitrust violation but no unfair trade practice.

They awarded compensatory damages of $1,411,209 for future commissions his agency lost in West Virginia and those he lost in Virginia.

Jurors awarded punitive damages in an equal amount.

Under antitrust law, Sadler tripled compensatory damages to $4,233,627, after he vacated punitive damages by agreement of both sides.

In Erie's appeal, Jernigan wrote that jurors heard no evidence of a detrimental effect on competition or of conspiracy between separate competing entities.

He wrote that Sadler improperly extended the scope of antitrust law in a way that would deter legitimate business practices.

"Parties will remain in inefficient business relationships for fear that their conduct will result in trebled damages," he wrote.

In reply, Veneri wrote that evidence proved Webb shifted sales from State Auto to Erie under pressure to save his Erie contracts.

"Kevin Webb was instructed to place the sales with the Erie companies regardless of their higher premiums, and thus, insurance consumers paid higher premiums because of this restraint, while the Erie companies made greater profits," he wrote.

The Independent Insurance Agents of West Virginia filed a brief for Webb as friend of the court, and the West Virginia Insurance Federation filed one for Erie.

At oral argument, Justice Thomas McHugh asked Jernigan what evidence jurors heard about unfair and unreasonable restraint of trade.

Jernigan, "Our position would be, none."

He said the damages Webb claimed for lost future commissions couldn't possibly flow from an antitrust effect.

If antitrust effects occurred in Virginia, he said, Sadler should have applied Virginia antitrust law.

When Veneri stood, McHugh asked him why he grafted coercion and intimidation to an antitrust claim. McHugh said those were elements of unfair trade practices.

Veneri said Sadler instructed the jury on both antitrust and unfair trade, and there was no inconsistency between them.

McHugh said, "Isn't this breach of contract? Why is it antitrust?"

Veneri said, "Because these people couldn't sell their own product."

Justice Menis Ketchum asked why there were no punitive damages.

Veneri said they were available under the law on unfair trade practices.

Ketchum said, "The jury found against you on trade practices but awarded punitive damages?" Veneri said they did.

On rebuttal Jernigan said, "The plaintiffs never showed any effect on competition for insurance policies in the relevant market."

He said, "There was no anti-competitive effect."

He said antitrust law protects consumers, not competitors.

The Justices took it under advisement.

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