Patricia Adkins Insurance Agency, Inc., et al., v. State Farm Mutual Automobile Insurance Company et al.
____ Cal.App.4th ____ (January 4, 2007)

Insurance Company Could Not Bind Its Agents' Employees To Trade Secret And Noncompetition Restrictions

State Farm solicits and services its products through agents. Pursuant to State Farm's contract with its agents ("Agent's Agreement"), State Farm's agents are independent contractors that "have full control of [their] daily activities, with the right to exercise independent judgment as to time, place, and manner of soliciting insurance, servicing policyholders, and otherwise carrying out the provisions of the" Agent's Agreement. State Farm, however, retains the right to prescribe all policy forms and provisions and rules governing the binding, accepting and renewing of is policies. The Agent's Agreement further provides that information pertaining to State Farm policyholders is State Farm's trade secret and any agent leaving State Farm may not solicit State Farm's policyholders.

State Farm's agents began hiring employees to meet the demands of the industry. In response, State Farm authorized such employees through a "Clerical Employee" ("CE") Agreement, to bind State Farm under certain circumstances. In 2000, State Farm replaced the CE Agreement with a Licensed Staff Agreement ("LSA"). The LSA, among other things, imposed on the agent's employees trade secret and nonsolicitation provisions similar to those in the Agent's Agreement.

The agents sued State Farm for breach of contract and unfair competition pursuant to Business and Professions Code section 17200 for attempting to apply the LSA to their employees. State Farm successfully demurred. In a prior unpublished opinion the court of appeal reversed the demurrer finding the agents stated causes of action against State Farm because the LSA derogated the agent's rights set forth in the Agent's Agreement. Following a bench trial, the trial court ultimately denied the agents' request for relief. On appeal, the agents limited the issue to whether State Farm's imposition of the trade secret and nonsolicitation provisions on the agents' employees violate State Farm's Agent's Agreement.

The court of appeal reversed holding State Farm breached its Agent's Agreement. State Farm had the authority to limit the agents' employees' abilities to bind State Farm. However, State Farm's attempt to add conditions on agents' employees violated the Agent's Agreement because that agreement gives agents broad discretion to control their daily activities.

This opinion is not final. It may be withdrawn from publication, modified on rehearing or the California Supreme Court may grant review. Should any of these events take place, the opinion would be unavailable for use as authority in other cases.

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