THE DECLARATORY RELIEF
ACTION (DRA) IS REBORN
WHAT IS THE DRA? WHY DID UFAA FILE IT?
WHY IS IT IMPORTANT TO EVERY AGENT?
When the parties to an agreement can no
longer agree on the meaning of a
provision in their agreement the legal
system provides a method for having a
court determine the respective rights of
the parties. That method is called a
Declaratory Relief Action (DRA).
Why Did UFAA file the DRA? Because the
issues were and are still that
important. Because they touched each and
every one of us as agents. What
individual agent or group of agents
wanted to risk their agencies or the
financial commitment to challenge
Farmers in Court? Remember, we are not
asking for damages, only for what is
rightfully ours as defined in the AAA.
As every agent knows, or should know,
our AAA says an agent may be terminated
on three months notice. It is far better
for the association to file the DRA than
an individual agent.
Why is it important to every agent?
Because if the Judge's ruling is not
overturned, UFAA may not be able to take
Farmers back to Court in California
without having individual agents
participate in the action or suit.
Because there are questions about what
the AAA says that, if we don't prevail
in the DRA, all agents will have to
follow Farmers blindly, in spite of what
your AAA says or what you were promised,
or risk termination. UFAA is Agents
Helping Agents, but we can't do it
without your support. If not UFAA, then
who?
UFAA realized the importance of being
able to represent its members both then
and in the future for two extremely
important reasons:
That the management
company could always terminate any agent
or agents taking legal action against
them by invoking the three-month
termination provision in the AAA AND
That a suit filed by an individual agent
or a small group of agents, could have
no affect on agents in other parts of
the country or even in the same state,
assuming it was successful, unless an
Appellate Court confirmed the trial
court’s decision and that confirming
decision was published, thereby becoming
case law.
Five specific issues were
included in the original DRA filing
although twice that many could have been
included. The five issues were:
1.
Was the management company obligated to
pay for access to policyholder records?
2.
Are agents obligated to rewrite policies
placed with non-Exchange Companies,
during moratoriums or when that business
was ineligible, once the moratorium
ended or the business becomes eligible?
3.
Are agents obligated to sell “Farmers
Brand Products” that are not
underwritten by the Exchanges,
Mid-Century or FNWL?
4.
Is the management company required to
provide educational and sales training
at its expense, such as, the Series 6 &
63 licensing?
5.
Can agents place business with other
than the Exchanges, Mid-Century or FNWL
if those companies do not offer policy
features or benefits required or desired
by a prospect or policyholder?
So, thanks to the
management company's use of an archaic
and seldom used provision in the
California Civil Code of Procedure, the
DRA has been reshaped, refined and
re-filed. The DRA has been reborn. The
DRA is better than ever.
The new and improved DRA, just filed in
San Francisco, has taken on more
significance than the original for five
specific reasons:
1.
It has been filed on behalf of ALL UFAA
members, nationwide.
2.
It seeks an absolute determination that
UFAA can represent it members.
3.
A DARG Program cause of action has been
added as the First Cause of Action after
the UFAA standing issue.
4.
Two of the original issues have been
replaced or been redefined.
5.
Farmers Group Inc. (FGI), the
attorney-in-fact/management company for
the Exchanges Mid-Century and the owners
of FNWL has been added as the first
named defendant.
Here is a brief summary
of the DRA.
First Cause of Action:
That the management company (FGI) has
developed the DARG Program as a
management tool to pressure agents
toward increased production, with
particular emphasis on life insurance
sales. We are asking the court to find
the imposition of detailed performance
levels coupled with the threat of
termination a breach of the AAA.
Second Cause of Action:
That FGI has taken the position that
insurance business that was placed with
other insurers because it was ineligible
for Farmers when first written must be
rewritten back to Farmers if it later
becomes eligible. We are asking the
court to declare that agents have no
obligation to rewrite or rollover
business.
Third Cause of Action:
That FGI is demanding that agents must
market and sell insurance products that
are not underwritten by the Exchanges,
Mid-Century or FNWL, which is in direct
conflict with Section B (1) of the AAA
and, therefore, constitutes a breach of
contract.
Fourth Cause of Action:
That FGI is pressuring agents to market
and sell financial products and those
that don’t are discriminated against,
which is a breach of the implied
covenant of good faith and fair dealing.
Fifth Cause of Action:
That FGI is demanding that agents reject
policyholders who are not eligible for
Farmers products, which is a direct
contradiction of the 1968 Agent
Appointment Agreement Explainer and
Farmers Annual Report to the SEC for the
year ending December 31, 2001.
Because the stakes couldn’t be higher,
we need the continued financial support
of not only our members but also the
entire agency force. For a number of
reasons, the entire agency force will
benefit when UFAA is victorious in
court, but obviously not initially to
the same extent as our members. UFAA
realizes that its ranks will swell with
a court victory, as its members will no
longer have to worry about being DARGed,
discriminated against for not getting or
maintaining their securities license or
selling security products, being
terminated for not rolling back outside
business or placing a policyholder or
prospect with another company because
Farmers didn’t offer a needed or
requested benefit or feature.
DRA Update 5-20-10
In the last issue of
The Voice, I discussed the events
leading up to the dismissal of the last
of the five causes of action in the DRA
by the San Francisco Trial Court and our
subsequent appeal, The California Court
of Appeal. Our appeal was filed on
February 16, 2010, and Farmers Group
Inc. (FGI), the management company,
filed its reply brief on April 22,
2010. As the party filing the appeal we
had the last opportunity to file a
written response to FGI’s reply brief,
which we did on May 13, 2010.
As you will recall, the
DRA was dismissed by the Trial Court
because it bought FGI’s claim that the
DARG cause of action, like the four
other causes of action that were
previously dismissed, were time barred
by the four year statute of limitation
that applies to a breach of contract
action. It is important to understand
that a declaratory relief action is not
that uncommon and it is used quite
routinely by insurance companies when
their policyholders or a third party
claims coverage under a policy and the
insurance company doesn’t believe
coverage is provided. While a
declaratory relief action can also
involve a request for injunctive relief
and damages for a breach of contract,
UFAA’s DRA was merely a request to have
the court determine if FGI’s
interpretation of five provisions of the
Agent Appointment Agreement (AAA) or
UFAA’s was correct.
To recap the five causes
of action, the DARG asked the court to
decide if agents were obligated to meet
any production requirements or sell a
certain number or type of policies that
FGI decided was needed to avoid
termination. The remaining four causes
involved whether agents had to rewrite
previously ineligible or rejected
business once it became eligible; had to
place business with companies that were
not party to the AAA or that were not
underwritten by those companies named in
the AAA; whether agents were being
discriminated against by not being
securities licensed; and did agents have
the right to place ineligible applicants
or policyholders with other insurance
companies.
FGI convinced the Trial
Court that because UFAA claimed in its
1992 Computer Lawsuit filed in federal
court that the introduction of the DARG
program was another attempt to force the
agency force to buy the IBM computer
system, because it would be needed to
process the additional business imposed
by the DARG program, that it constituted
a breach of contract. UFAA’s DARG
allegation was later dismissed by the
federal court without prejudice because
it recognized it was a state specific
issue rather than a federal one. When a
lawsuit, or portion thereof, is
dismissed without prejudice it means it
can be re-filed at some later date as a
brand new issue.
Throughout most of the
trial court proceedings FGI claimed that
UFAA, as an entity, was not entitled to
file a declaratory relief action on
behalf of its members. It claimed that
UFAA was barred by the four-year statute
of limitation applicable to a breach of
contract, but its individual members
weren’t and they could file their own
individual suits seeking relieve from
FGI’s interpretation of portions of the
AAA and damages if harmed by those
interpretations. There are four
necessary elements needed in a breach of
contract suit. The four elements are
(1) the contract. (2) One party’s
performance or excuse for
nonperformance. (3) A breach by one of
the party’s to the contract. (4)
Damages incurred by the nonbreaching
party. In that light it takes an
extreme imagination to see how UFAA
could ever have breached the AAA.
At the conclusion of the
Trial Court proceedings, the realization
that UFAA, as an entity, could not have
violated a contract that they were not
party to, finally dawned on FGI. As a
result, in one of its last Trial Court
filings and in its reply brief, FGI is
now claiming that UFAA’s members are the
ones that are time barred by the four
year statute of limitation. However,
nowhere has FGI alleged any member, much
less all of them, has accrued the four
elements constituting a breach of
contract in the last four years prior to
filing the DRA.
While UFAA is even more
convinced now, after FGI’s reversal of
positions, that none of the five causes
of action in the DRA should have been
dismissed because they were time barred,
three trial court judges couldn’t see
the trees through the forest. We can
only hope the Appellate Court has better
eye sight.
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