Appeal
from the Iowa District Court for Polk County, Robert J. Blink, Judge.
Farm
Bureau Mutual Insurance Company and Farm Bureau Life Insurance Company appeal
from adverse rulings of the district court.
AFFIRMED.
Jason
T. Madden of Bradshaw, Fowler, Proctor & Fairgrove, P.C., Des Moines,
and James A. Pugh of Morain & Pugh,
P.L.C., Des Moines, for appellant.
Andrew
B. Howie of Hudson, Mallaney & Shindler, P.C., West Des Moines, for
appellee.
Considered
by Sackett, C.J., and Hecht and Vaitheswaran, JJ.
HECHT, J.
Farm
Bureau Mutual Insurance Company and Farm Bureau Life Insurance Company (jointly
“Farm Bureau”) appeal from adverse rulings of the district court. We affirm.
I. Background Facts and
Proceedings.
Greg
Osby began selling insurance for Farm Bureau as an independent contractor in
1987. In January of 2002, Osby entered
into two Farm Bureau Career Agent contracts each containing a non-solicitation
clause which stated:
[U]pon the termination of this [Contract], [Osby] will not
solicit insurance or initiate
replacements or exchanges of any type from any person who is a policyholder of [Farm Bureau] within
any County in which [Osby] sold or serviced
any products pursuant to this Contract.
If Career Agent violates this
provision, commission already paid on earned premium on all policies will be due and payable to [Farm
Bureau] . . . This provision will be enforceable
for a period of one year following the termination of this Contract.
(Emphasis supplied).
In
June of 2003, Farm Bureau notified Osby that new contracts would be issued to
all career agents. The new contracts
contained a modified non-solicitation clause that would require a terminating
agent to “neither sell nor solicit insurance” to a Farm Bureau customer for one
year following the termination. Osby
refused to sign the modified contract and on June 30, 2003, Osby informed Farm
Bureau that he was terminating his contracts with them. On July 1, 2003, Osby began selling
insurance for American National Property & Casualty Company (American).
Soon
after forming his new agency relationship with American, Osby began an
advertising campaign which included (1) newspaper advertisements, (2) notices
in movie theatres and in coupon books, (3) a website, and (4) mass postal mailings. Each advertisement informed potential
customers of Osby’s name, address, and affiliation with American. The advertisements also made reference to
various incentive programs designed to induce potential insureds to purchase
American’s insurance policies.
During
the one year period following Osby’s termination, Farm Bureau discovered that
several policyholders had, with Osby’s help, canceled their Farm Bureau
policies and purchased new policies through American. Farm Bureau sued Osby alleging he breached the contract by
soliciting business from Farm Bureau policyholders. Farm Bureau’s petition sought to enforce the non-solicitation
clause by (1) enjoining Osby from sales of insurance to Farm Bureau customers
for the remainder of the non-solicitation period, and (2) recouping commissions
in the amount of $10,253.64 allegedly earned by Osby on the sales of insurance
policies to Farm Bureau insureds during the one-year non-solicitation
period.
Osby filed a counterclaim
against Farm Bureau alleging Farm Bureau breached the contract by withholding
commissions in the amount of $10,143.42 earned by Osby during the last ten days
of his agency with Farm Bureau.
On
January 21, 2004, the district court held a hearing on Farm Bureau’s motion for
a temporary injunction. While noting
that additional discovery might support Farm Bureau’s claim for lost profit
damages under the non-solicitation clause, the court reasoned that Farm
Bureau’s attempt to equate the word “solicit” with activities constituting a
simple sale of insurance was “tenuous at best.” In denying the motion for a temporary injunction, the court
concluded Farm Bureau had not met its burden to demonstrate a likelihood of
success on the merits of their breach of contract claim.
On
October 25, 2004, trial was held on the contract claims of both parties. Osby admitted he had engaged in certain
advertising conduct alleged by Farm Bureau, but he claimed the advertisements
were directed at the general public. He
specifically denied that his advertisements were targeted at Farm Bureau
policyholders with whom he had a prior relationship. Osby testified that his understanding of the non-solicitation
clause would not prohibit him from simply selling a policy to replace an
existing Farm Bureau policy so long as the Farm Bureau policyholder initiated
contact with him.
In support of his counterclaim for unpaid
commissions accruing during the last 10 days of his agency with Farm Bureau,
Osby testified that his damages could be calculated by multiplying the total
premiums received by Farm Bureau during that period on policies previously sold
by Osby by his average commission rate.
When this formula is employed using the total relevant premiums revealed
by Farm Bureau’s discovery responses, the value of Osby’s counterclaim would be
limited to $4,169.60. However, Osby
testified that the documents provided by Farm Bureau failed to disclose
additional premiums the company would have received during the relevant ten-day
period on other policies Osby had sold for Farm Bureau. Based on his commission statements generated
in previous months, Osby claimed he was entitled to an additional $5,973.72 in
unpaid commission on premiums received but not disclosed by Farm Bureau.
The
district court noted the Career Agent contracts Osby signed did not define the
term “solicit.” Using the common definition of that term to evaluate Osby’s
conduct during the non-solicitation period, the district court concluded proof
of “solicitation” required evidence of “active conduct by [Osby] – affirmative
conduct directed at a specific individual.”
Because Osby’s advertising conduct was directed at the public in general
rather than Farm Bureau customers in particular, the district court found Osby
did not breach the non-solicitation clause, and dismissed Farm Bureau’s
petition. The district court further
found that Farm Bureau had breached the contract by withholding commissions
earned by Osby. While noting ‘[t]he record is not completely clear as to the
exact manner by which any commission percentage of sales was calculated,” the
court found Osby was entitled to judgment against Farm Bureau on the
counterclaim in the amount of $10,143.43.
Farm
Bureau appeals, contending the district court erred in (1) failing to find
Osby’s conduct after its customers made initial contact with Osby
constituted solicitations of Farm Bureau insureds, and (2) finding Osby met his
burden to prove his counterclaim for unpaid commissions.
II. Scope and Standard
of Review.
We
review the breach of contract claims raised in this appeal for correction of
errors at law. Iowa R. App. P. 6.4; Land
O'Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000). We will uphold the ruling of the district
court if it is supported by substantial evidence. Hanig, 610 N.W.2d at 522. Evidence is substantial when a reasonable
mind would accept it as adequate to reach a conclusion. Falczynski
v. Amoco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995).
III. Discussion.
A. Farm Bureau’s Contract
Claim.
Osby
breached the contract with Farm Bureau if his conduct constituted solicitation
of insurance. As the district court
aptly noted, the parties failed to specify within the contract the types of
conduct the non-solicitation clause was intended to prohibit. When a term is left undefined in a contract,
we give the undefined term the ordinary meaning a reasonable person
would attach to it. American Family Mut. Ins. Co. v. Petersen, 679 N.W.2d 571,
577 (Iowa 2004). Where a term used
in a written contract is susceptible to two reasonable interpretations, we
resolve the ambiguity against the drafter.
Village
Supply Co., Inc. v. Iowa Fund, Inc., 312 N.W.2d 551, 555 (Iowa
1981); see
also Fashion Fabrics of
Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 27 (Iowa 1978) (indicating that doubtful
language in a written instrument will be construed against the party which
selected it).
We
acknowledge that contract provisions restricting a party’s right to engage in
future competition following the breakdown of the contractual relationship may
be enforceable if the restrictions are confined within appropriate
parameters. Dental Prosthetic Serv. v. Hurst, 463 N.W.2d 36, 38 (Iowa 1990). While we do not believe the non-solicitation clause employed in
these contracts is so restrictive as to render it unenforceable, because the
clause restrains trade we must strictly and narrowly confine its application to
the conduct explicitly restricted. See, e.g.,
Uptown
Food Store, Inc. v. Ginsberg, 255 Iowa 462, 467, 123 N.W.2d 59,
62 (Iowa 1963) (stating that contracts in restraint of trade must be
narrowly interpreted). We therefore
must determine whether the term “solicit” was intended by the parties to
prohibit Osby from (1) advertising his services to the general public, and (2)
engaging in the sale of insurance to Farm Bureau insureds.
After
applying these principles in this case, we conclude the district court
correctly found Osby did not “solicit” Farm Bureau insureds by advertising his
services and American’s insurance products in the newspaper, movie theatres,
coupon books, and business cards. We
first note that Webster’s New Collegiate Dictionary 1106 (7th ed. 1976) defines
“solicit” as follows: “to make petition,
entreat; to approach with a request or plea; to try to obtain by urgent
requests or pleas.” Thus, the common
usage of the term “solicit” implies active conduct on the part of the solicitor
directed at a specific target audience.
When the non-solicitation clause in the contract is read in light of the
common usage of the term “solicit,” we do not believe the parties intended
their contract to effectively prohibit Osby from broadly disseminated
advertisements designed to reach the public in general for one year after his
separation from Farm Bureau. A contrary
interpretation of the contract would effectively prohibit Osby from all
meaningful attempts to advertise his insurance sales business, and would, in
our view, untenably broaden the restraint on trade expressly agreed to by the
parties. Hurst, 463
N.W.2d at 38.
However, Farm Bureau contends Osby
breached the solicitation clause of the contract not merely by broadly
advertising American’s insurance products, but also by selling insurance to
existing Farm Bureau insureds. In particular,
Farm Bureau points out that Osby prepared appropriate forms for replacement of
Farm Bureau policies and provided advice, explanations, and information while
“working in concert with each [Farm Bureau] policyholder throughout the
replacement process.” While it is
undisputed that Osby engaged in conduct that would clearly constitute the sale
of insurance, we conclude the contract drafted by Farm Bureau did not preclude
Osby from selling to Farm Bureau insureds who contacted Osby and offered to
purchase insurance coverage. Instead of
choosing contract terms proscribing a wider range of conduct by Osby, Farm Bureau bargained only to preclude Osby
from soliciting which, as we concluded above, forbade only insurance activities
initiated by Osby with Farm Bureau insureds.
Our conclusion that the parties distinguished between the terms “sell”
and “solicit” is evidenced by the fact that Farm Bureau requested Osby to
execute a new agreement that would have expressly precluded Osby from selling insurance to existing Farm Bureau
insureds for one year after his separation.
As noted above, Osby refused to sign the proposed agreement.
We
therefore conclude the contract clause prohibiting Osby’s solicitation of Farm
Bureau insureds should not be interpreted broadly to preclude his sale of
insurance to Farm Bureau customers who initiated insurance replacements through
Osby. The district court correctly
concluded Osby did not violate the non-solicitation clause, and we therefore
affirm the dismissal of Farm Bureau’s petition.
B. Osby’s Contract Claim.
A
claim for contract damages must fail if the proof of such damages is speculative and uncertain. Patterson v.
Patterson, 189 N.W.2d 601, 605 (Iowa 1971). Here, the Farm Bureau Career Agent contracts
amply evidenced Farm Bureau’s agreement to pay Osby a commission upon receipt
of premiums paid by insureds on policies sold by Osby. Osby offered substantial evidence tending to
prove that Farm Bureau received some amount of premium payments from such
insureds during the relevant 10-day period and that Farm Bureau failed to pay
commissions on some of those premiums.
We therefore conclude Osby’s proof that he sustained some amount of
damages was neither speculative nor uncertain.
Where it is asserted that “uncertainty lies only in the amount of damages, recovery may be had if there is a
reasonable basis in the evidence from which the amount can be inferred or approximated.”
Montgomery Prop. Corp. v.
Economy Forms Corp., 305
N.W.2d 470, 478 (Iowa 1981). We
conclude such a reasonable basis in the evidence exists to sustain the district
court’s approximation of the amount of damages sustained by Osby. Osby relied upon his prior Farm Bureau
commission statements to estimate the amount of commission owing on certain
Farm Bureau policies he sold which were not disclosed by Farm Bureau in the
discovery phase of this case. Those
commission statements showed Osby as the selling agent on those policies. In the absence of evidence that the policies
in question lapsed or were amended, Osby testified that Farm Bureau continued
during the relevant ten-day period to receive premiums upon which it owed
commissions calculated at the rate previously paid by Farm Bureau on the same
policies. We believe the district
court’s reliance upon Osby’s prior commission statements to determine the
amount of commissions Farm Bureau owed for the relevant ten-day period was
reasonable under the circumstances of this case.
We
likewise find no error in the district court’s use of Osby’s average commission
rate to calculate damages in this case.
Osby testified that while his commission rate fluctuated depending on
the type of insurance policy sold, the average commission rate he used to
calculate these damages was on the low end of the range of rates he regularly
received, and thus was a reasonable factor from which to calculate the damages
sustained in this case. Accordingly, we
affirm the district court’s ruling on the counterclaim.
AFFIRMED.
