Brokers rake in big revenues, so when they leave, their former employers sometimes take legal action.
Alliant Insurance Services, Inc.’s failed bid to acquire Wells Fargo Insurance Services (WFIS) unit continues to have repercussions for the Newport Beach, California-based company. In late July, Wells Fargo filed a lawsuit in Delaware’s Court of Chancery alleging Alliant is now using confidential information obtained during the time it was bidder for WFIS to lure away the bank’s top insurance brokers.
Although Alliant was reportedly in the lead to buy WFIS back in June, Wells Fargo ultimately agreed to sell the unit to USI Insurance Services in early July. At the time the deal was announced, Bloomberg reported Wells Fargo expected to receive about $2 billion for its insurance business. Wells Fargo unloaded WFSI as part of a restructuring to focus on its core banking business.
Given Confidential Information
As one of the bidders for WFIS, Alliant was provided information about business operations, including lists of top salespeople in each office. According to Wells Fargo, the data was intended only for assessing the viability of the acquisition and, therefore, covered by a confidentiality agreement until November 1, 2018.
However, Wells Fargo now claims Alliant is using that confidential information in an attempt to pry away top WFIS sales executives in 10 cities across the U.S. According the lawsuit, Alliant has already poached a national sales manager. That person, who was not named, has allegedly been recruiting other WFIS sales staff in violation of his contract with Wells Fargo.
In addition, the lawsuit claims Alliant’s Chairman and CEO Tom Corbett has been meeting with WFIS sales executives in an overt recruitment effort. “Alliant commenced an aggressive campaign to solicit WFIS’s sales executives to leave their employment with WFIS and to accept employment with Alliant,” Wells Fargo states in the lawsuit. “As a result of Alliant’s actions, WFIS has already suffered and will continue to suffer irreparable harm to its business, revenues, and employee retention at a uniquely vulnerable period of WFIS’s corporate existence.”
Aon Hits Alliant with Poaching Lawsuit
Wells Fargo’s legal action isn’t the first time Alliant has been hit with a lawsuit alleging it poached executives from a rival firm. Aon Corp., Inc. has filed lawsuits in two states over Alliant’s alleged improper hiring of its employees. A Fresno, California jury in March dismissed one Aon’s lawsuit, according to a report in the Insurance Journal, but a similar case has yet to heard in Illinois. The lawsuits date back to 2011 and several are still ongoing.
Insurance and financial services companies extract much of their revenue from the business relationships forged between sales executives and their clients. Clients depend on their expertise when purchasing insurance coverage and other services. So if a top salesperson leaves and takes their clients (and possibly proprietary information) with them, the revenue hit can be significant. Given that business model, it wasn’t surprising when a USI spokeswoman told Bloomberg it hoped to retain WFIS employees after the merger closes.
Business as Usual?
Damian Cavaleri, Partner at Hoguet Newman Regal & Kenney LLP in New York, has worked on several poaching or “liftouts” lawsuits. He told the Insurance Journal firms pursue these cases despite restrictive executive employment contracts because of the substantial dollars at stake in maintaining client relationships. Companies, he noted, routinely try to steal business from a profitable competitor; in the insurance industry, that means luring away top executives with a substantial revenue-producing roster of clients.
Yet most of the time, these lawsuits end not in a court ruling, but a negotiation between the two parties, Cavaleri said. “A lot of these things, depending on the line the companies want to take, turn into a business discussion,” he explained.
In the insurance brokerage industry, restrictive covenants typically take the form of non-solicit agreements that forbid agents from recruiting their former employees or accounts after they leave the firm for a specified period of time, Phil Trem, SVP at MarshBerry & Co. Inc., told the Insurance Journal. “They need to protect their assets.”