Justices reverse insurance antitrust verdict

By Steve Korris | Dec 3, 2009


CHARLESTON -– West Virginia's Supreme Court of Appeals reversed a $4,233,627 antitrust verdict against Erie Insurance, finding that Mercer County Circuit Judge William Sadler incorrectly identified Erie subsidiaries as separate corporations.

On Nov. 17, all five Justices agreed in an unsigned opinion that "employees of the same company cannot conspire with each other within the meaning of antitrust law."

They ruled that Sadler should not have held trial for Princeton insurance agent Kevin Webb on a claim that Erie improperly terminated his agency agreement.

Sadler didn't examine Erie's corporate structure to determine whether subsidiaries were independent of each other, the Justices wrote.

"All the trial court did was to summarily conclude with no accompanying analysis that 'there was substantial evidence that those defendants were separate economic actors, and not merely a single firm,'" they wrote.

Erie simply determined that a continued relationship with Webb and his agency was no longer commercially reasonable, they wrote.

For years, Webb sold policies of Erie Family Life and Erie Property and Casualty through Princeton Insurance Agency.

In 2002, he started cooperating with a separate entity, Princeton Insurance Associates, in sales of State Auto Insurance policies.

Erie's profit on Webb's business dropped sharply, and Erie managers asked him for a list of policies he had written for State Auto.

At a meeting with Erie managers, Webb jotted some information down on a napkin.

Erie terminated his agreement and he sued, alleging restraint of trade.

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

Jurors rejected the unfair trade practice claim but found restraint of trade.

They awarded $1,411,209 to compensate Webb for future commissions he lost.

Under antitrust law, Sadler tripled damages to $4,233,627.

Henry Jernigan of Charleston appealed for Erie, arguing that jurors heard no evidence of a detrimental effect on competition or conspiracy between competing entities.

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

For Webb, Anthony Veneri of Princeton replied that 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.

At oral argument on Sept. 8, Jernigan said Webb's termination did not affect consumers.

He said Erie couldn't conspire with itself.

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

For Webb, Veneri 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.

Justice Thomas McHugh asked, "Isn't this breach of contract? Why is it antitrust?"

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

He didn't convince the Justices, who concluded that Webb failed to demonstrate an antitrust injury.

"To attempt to prove antitrust injury solely by loss of income, as appellees did in this case, is insufficient," they wrote.

"Given that the consumer is the focus of anticompetitive conduct, it is fatal to appellees' claim that they failed to introduce any evidence of how competition within the relevant market was harmed," they wrote.

"The tendering of the napkin with production information related to State Auto sales was not an illegal act, under antitrust law or otherwise," they wrote.

"Erie had the clear right to inquire of Mr. Webb whether policy sales that previously went to it were now going to State Auto," they wrote.

James Lamp and Matthew Perry of Huntington assisted Jernigan in Erie's appeal.

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