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The California Court of Appeal, Third Appellate District, affirmed a trial court's decision that an agency agreement between State Farm and its agent could be terminated at will, precluding a contract-based cause of action for breach of the covenant of good faith and fair dealing. The Court rejected the agent's contention that the agreement's termination review provision required State Farm to show good cause before terminating the agency.
Plaintiff William Bernard ('Bernard") entered into an agency agreement with State Farm insurance companies ("State Farm"). Bernard claimed two of his State Farm supervisors misrepresented the job requirements for a sales program to which he was assigned. Bernard could not physically carry out these job requirements because of injuries he had sustained in a car accident. Bernard claimed he was forced to resign as a result of these misrepresentations.
Bernard sued State Farm and the supervisors for intentional misrepresentation, negligent misrepresentation, and breach of the contractual covenant of good faith and fair dealing. The trial court granted summary judgment for State Farm. In the unpublished portion of the decision, the Court concluded Bernard could not establish a tort-based cause of action for intentional or negligent misrepresentation.
In the published portion of its opinion, the Court concluded the agency agreement between State Farm and Bernard could be terminated at will and therefore Bernard could not maintain a contract-based cause of action for breach of the covenant of good faith and fair dealing.
The Court considered two relevant provisions in the State Farm agency agreement concerning termination, as follows:
(1) You or State Farm have the right to terminate this Agreement by written noticed delivered or mailed to the other's last known address; …[the "Termination-Notice Provision"]
(2) In the event we terminate this Agreement, you are entitled upon request to a review in accordance with the termination review procedures approved by the Board of Directors of the Companies… [the "Termination-Review Provision"].
Bernard contended the Termination-Notice Provision was silent on whether State Farm could terminate the agency agreement "at will" or, instead, for good cause. He therefore sought to introduce extrinsic evidence to resolve this ambiguity and prove the agency could only be terminated for good cause. The Court of Appeal concluded this extrinsic evidence was inadmissible, however. Applying the California Supreme Court's decision in Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384 (Dore), the Court concluded the Termination-Notice Provision, on its own, was not reasonably susceptible to an interpretation requiring State Farm to have good cause for termination.
The Court then examined whether the Termination-Review Provision altered this analysis to require something other than termination upon specified notice. The Court held it did not, for three reasons: (1)the Dore court analyzed an agreement that included a similar termination-review clause and did not mention that this clause might alter the at-will termination-notice provision; (2) the Court agreed with earlier decisions that had characterized the Termination-Review Provision as merely providing an internal forum for reconsideration of a termination; and (3) every published decision the Court found concluded that Termination-Notice and Termination-Review provisions create an at-will contract between State Farm and its agents.
Accordingly, the Court held State Farm could terminate at will its agency agreement with Bernard. Thus Bernard could not maintain a cause of action for breach of the covenant of good faith and fair dealing based on his supervisors' alleged misrepresentations.
This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.
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