Hamilton Insurance Services, Inc. v. Nationwide Insurance

[This opinion has been published in Ohio Official Reports at 

86 Ohio St.3d 270

.]




  HAMILTON INSURANCE SERVICES, INC. ET AL., APPELLEES, v. NATIONWIDE
                        INSURANCE COMPANIES, APPELLANT.
  [Cite as Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 

1999-Ohio-162

.]
Contracts—Employment agreement between independent insurance agent and
        insurance company—Termination of Corporate Agency Agreement by
        insurance company with or without cause not wrongful or in bad faith,
        when—Noncompetition clause reasonable, when.
          (No. 98-405—Submitted April 21, 1999 at the Hardin County and Ohio
     Northern University Law School Session—Decided September 1, 1999.)
          APPEAL from the Court of Appeals for Richland County, Nos. 97CA27
                                       and 97CA42.
                                  __________________


        {¶ 1} This case arises from the termination of an agency agreement between
appellant, Nationwide Insurance Companies (“Nationwide”), and appellee,
Hamilton Insurance Companies, Inc. Neil Hamilton was employed as an insurance
agent for Western & Southern Insurance Company from 1975 to 1984. While still
employed with Western & Southern, Hamilton began to explore the possibility of
obtaining his own insurance agency.
        {¶ 2} In 1984, Hamilton was contacted by Tom Dove, agency manager for
Nationwide, about the possibility of taking over a Nationwide agency in Lucas,
Ohio. Dove explained to Hamilton the process of becoming an Independent
Nationwide Agent. As Hamilton understood the process, his first three years with
Nationwide would serve as a validation period in which he would be an employee
of Nationwide, pursuant to an employment contract with Nationwide. Following
this three-year validation period, Hamilton understood that he would become an
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independent agent, meaning that he “would run the business [his] own way.” Thus,
Hamilton hoped that he would achieve his goal of becoming an independent
insurance agent at the completion of the three-year validation period.
       {¶ 3} In October 1984, Hamilton and Nationwide executed an Agent
Employment Agreement. This agreement provided that it “may be terminated at
will by the Companies or by the Agent.” Hamilton worked as an employee of
Nationwide pursuant to this agreement until 1987, the end of the three-year
validation period.
       {¶ 4} Following the three-year validation period, Hamilton became an
independent contractor and independent agent. This transition required him in May
1987 to execute another contract with Nationwide, designated the Agent’s
Agreement. The agreement provided that it could be cancelled by either party “at
any time after written notice.”
       {¶ 5} Hamilton operated his insurance agency pursuant to the 1987
agreement until 1992 when he decided to incorporate the agency. As a result of
this decision, Nationwide and Hamilton executed a Corporate Agency Agreement.
As with the previous two agreements, the Corporate Agency Agreement contained
a cancellation clause, but the Corporate Agency Agreement allowed either party to
terminate the agreement “with or without cause.” Additionally, this agreement
contained a noncompetition clause and an integration clause. The agreement
further provided that the agent was entitled to certain benefits, referred to as Agency
Security Compensation (“ASC”), upon termination of the agreement, regardless of
the reason for the termination. However, the noncompetition clause provided for
the forfeiture of ASC benefits if the agent decided to compete with Nationwide
within a radius of twenty-five miles and one year of termination.
       {¶ 6} When Hamilton first began to work for Nationwide in 1984, he was
furnished with a copy of Nationwide’s Agency Administration Handbook. This
handbook contains provisions entitled “Contractual Stability” and “Agent’s




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Administrative Review Board.”       The “Contractual Stability” section provides
various reasons for the termination of the Agent’s Agreement. These reasons
include such things as breach of contract, criminal acts, dishonesty, or fraud, and
“[a]ctions clearly contrary to the best interests of customers and the Company.”
The Agent’s Administrative Review Board section of the handbook applies only to
career agents and enunciates the purpose and procedures of the review board.
       {¶ 7} In April 1991, Nationwide implemented the Auto Portfolio
Management Plan (“APMP”). The APMP evaluates an agent’s performance based
on the “paid loss ratio” of the policyholders in the agency. Basically, this plan
evaluates an agent’s performance by comparing the amount of payments for losses
made on the policy with the premium amounts paid by the insureds. Under the
plan, an agent whose loss-to-paid-loss ratio is ninety percent or more is considered
to be “historically unprofitable,” and, absent improvement within the next two
years, the agency may be terminated.
       {¶ 8} In March 1992, Hamilton was advised by Nationwide that he was not
meeting the necessary performance levels as measured by the APMP. He was,
therefore, advised that he was subject to termination under the plan at the end of
two years. On April 1, 1994, Nationwide terminated the agency agreement.
       {¶ 9} Hamilton filed a complaint against Nationwide in the Richland
County Court of Common Pleas, alleging that the April 1, 1994 termination by
Nationwide was wrongful and in bad faith, and also that the termination clause of
the Corporate Agency Agreement was unconscionable. The trial court found that
the termination clause in the contract was a question for the jury. The court,
therefore, allowed Hamilton to present evidence that the agreement was terminable
only for just cause. The case proceeded to jury trial, and Hamilton was awarded
$100,000. The court also determined that the forfeiture of benefits pursuant to the
noncompetition clause was unconscionable and awarded Hamilton accumulated
benefits. The court, therefore, entered judgment for Hamilton in the amount of




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$208,164.       The trial court overruled Nationwide’s motion for judgment
notwithstanding the verdict.
       {¶ 10} Nationwide filed a timely notice of appeal in the Fifth District Court
of Appeals. Hamilton filed a cross-appeal alleging that the trial court erred in
failing to issue discovery sanctions against Nationwide. The court of appeals
affirmed the trial court’s judgment against Nationwide and overruled Hamilton’s
cross-appeal.
       {¶ 11} The cause is now before this court upon the allowance of a
discretionary appeal by Nationwide.
                                __________________
       Inscore, Rinehardt, Whitney & Enderle and Larry L. Inscore, for appellees.
       Arter & Hadden, L.L.P., and Irene C. Keyse-Walker; Lutz & Oxley and Fred
M. Oxley, for appellant.
       Kerger & Kerger, Richard M. Kerger and Jessica C. Kerger, urging
affirmance for amicus curiae, Nationwide Insurance Independent Contractors
Association.
       Spater, Gittes, Schulte & Kolman, Frederick M. Gittes and Kathaleen B.
Schulte, urging affirmance for amici curiae, Ohio Employment Lawyers
Association, Ohio Academy of Trial Lawyers, Ohio Chapter of the National
Association of State Farm Agents, and Cincinnati Employment Lawyers
Association.
       Crabbe, Brown, Jones, Potts & Schmidt, Larry H. James and Amy Fulmer
Stevenson, urging reversal for amici curiae, Ohio Chamber of Commerce and the
Ohio Association of Civil Trial Attorneys.
                                __________________
       MOYER, C.J.
       {¶ 12} The principal issue in this case is whether the Corporate Agency
Agreement, which governed the relationship between Nationwide and Hamilton at




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                                January Term, 1999




the time of Nationwide’s termination of the relationship, was clear and
unambiguous, thus allowing Nationwide to terminate the agreement with or without
cause. The trial court and the court of appeals determined that the contract was
ambiguous and, therefore, allowed Hamilton to present additional evidence to
support his contention that the Corporate Agency Agreement was terminable only
for just cause. For the reasons that follow, the judgment of the court of appeals is
reversed.
       {¶ 13} In construing the terms of any contract, the principal objective is to
determine the intention of the parties. Aultman Hosp. Assn. v. Community Mut. Ins.
Co. (1989), 

46 Ohio St.3d 51, 53

, 

544 N.E.2d 920, 923

. Generally, contracts should
be construed in a manner to give effect to the intentions of the parties. 

Id.,

 citing
Employers’ Liab. Assur. Corp. v. Roehm (1919), 

99 Ohio St. 343

, 

124 N.E. 223

,
syllabus; Skivolocki v. E. Ohio Gas Co. (1974), 

38 Ohio St.2d 244

, 67 O.O 2d 321,

313 N.E.2d 374

, paragraph one of the syllabus. We apply these basic principles to
determine the intent of the parties in order to establish the terms of the Corporate
Agency Agreement.
       {¶ 14} When the terms included in an existing contract are clear and
unambiguous, we cannot create a new contract by finding an intent not expressed
in the clear and unambiguous language of the written contract. Alexander v.
Buckeye Pipe Line Co. (1978), 

53 Ohio St.2d 241, 246

, 

7 O.O.3d 403, 406

, 

374 N.E.2d 146, 150

. Here, paragraph nine of the Corporate Agency Agreement clearly
provides that “the Agency or Nationwide have the right to cancel this Agreement
at any time with or without cause.” This section further provides that “the Agency
shall have access to the Agents Administrative Review Board, and its procedures,
as may exist from time to time.”
       {¶ 15} Hamilton argues that the Corporate Agency Agreement was not clear
and unambiguous. We do not agree. The contract clearly states that either party
may cancel the agreement “with or without cause.” The agreement does provide




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that the Agent shall have access to the Agent’s Administrative Review Board. In
addition, assuming the admissibility of the employee handbook, the “Contractual
Stability” section in that handbook enumerates several reasons for which the
Agent’s Agreement may be cancelled. These reasons include breach of contract,
criminal acts, dishonesty, and fraud, and “[a]ctions clearly contrary to the best
interests of customers and the Company.”
       {¶ 16} While the handbook outlines several reasons for terminating the
Agent’s Agreement for just cause, and the handbook, as well as the Corporate
Agency Agreement itself, refers to an administrative board that may review the
performance of agents, these provisions are not inconsistent with the provision in
the Corporate Agency Agreement allowing either party to terminate the contract
without cause. Instead, we find that the Contractual Stability section of the
employee handbook and the reference to an Agent’s Administrative Review Board
in both the Corporate Agency Agreement and the employee handbook merely detail
several reasons for which the agreement may be terminated. However, this does
not imply that either party may not terminate the agreement at any time with or
without cause.
       {¶ 17} Hamilton’s assertion that the Corporate Agency Agreement is
terminable only for cause is inconsistent with the clear wording of the agreement.
There can be no implied covenants in a contract in relation to any matter
specifically covered by the written terms of the contract itself. Kachelmacher v.
Laird (1915), 

92 Ohio St. 324

, 

110 N.E. 933

, paragraph one of the syllabus. The
agreement of parties to a written contract is to be ascertained from the language of
the instrument itself, and there can be no implication inconsistent with the express
terms thereof. Latina v. Woodpath Dev. Co. (1991), 

57 Ohio St.3d 212, 214

, 

567 N.E.2d 262, 264

. Here, to infer that termination may be based only upon just cause
would directly contradict the express terms of the Corporate Agency Agreement.
Furthermore, the integration clause in the agreement provides that “this Agreement




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                                January Term, 1999




may be changed, altered, or modified only in writing signed by Agency and an
officer of Nationwide.” Therefore, we find that the Corporate Agency Agreement
was terminable by either party with or without cause. Therefore, Nationwide did
not breach the terms of the agreement when it terminated the contract in April 1994.
       {¶ 18} In addition to finding that the Corporate Agency Agreement was
ambiguous, the trial court found that the noncompetition clause contained in the
agreement was unconscionable. The court of appeals disagreed with the ruling of
the trial court, finding that the clause was reasonable. However, because the court
of appeals found that Nationwide had breached the terms of the Corporate Agency
Agreement, it held that the noncompetition clause was unenforceable. Based upon
our finding that Nationwide did not breach the terms of the Corporate Agency
Agreement, we must look to the terms of the noncompetition clause to determine if
it is valid and enforceable.
       {¶ 19} A noncompetition clause is reasonable if the restraint is no greater
than necessary for the protection of the employer, does not place undue hardship
on the employee, and is not injurious to the public. Raimonde v. Van Vlerah (1975),

42 Ohio St.2d 21

, 

71 O.O.2d 12

, 

325 N.E.2d 544

, paragraph two of the syllabus.
Here, the clause in question contained a restriction disallowing competition within
a twenty-five-mile radius and one year of termination.           We agree with the
determination of the court of appeals that this is a reasonable restriction. Therefore,
we conclude that Nationwide did not breach the Corporate Agency Agreement and
hold that the noncompetition clause is valid and enforceable.
       {¶ 20} For the reasons set forth in this opinion, the judgment of the court of
appeals is reversed.
                                                                  Judgment reversed.
       DOUGLAS, COOK and LUNDBERG STRATTON, JJ., concur.
       RESNICK, F.E. SWEENEY and PFEIFER, JJ., dissent.
                               __________________




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ALICE ROBIE RESNICK, J., dissenting.
{¶ 21} I would affirm the judgment of the court of appeals.
F.E. SWEENEY and PFEIFER, JJ., concur in the foregoing dissenting opinion.
                      __________________




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