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Litigation filed in multiple courts by Lockton Cos. LLC alleging rival brokerage Alliant Insurance Services Inc. poached more than two dozen staff reflects a market where talent is scarce, say observers.
While such suits are usually settled, clients of the brokers often are caught in the middle, they say.
Meanwhile, Lockton itself has previously been charged with poaching from other brokers, and there have been several similar cases involving other brokerages in recent years.
Lockton charges that beginning March 12, Newport Beach, California-based Alliant illegally “poached” from a Denver-based Lockton unit seven producers, 19 other employees and 24 customers “representing millions of dollars of revenue,” according to the lawsuit filed March 22 in Delaware Chancery Court in Mountain West Series of Lockton Cos. LLC and Lockton Parties LLC v. Alliant Insurance Services.
Kansas City, Missouri-based Lockton also filed litigation against individual former employees in the matter in U.S. District Court and in state circuit court in Kansas City, Missouri.
Lockton said in a statement, “We have filed suit in multiple jurisdictions in response to the illegal raid on our client and people. We are seeking expedited relief to halt their illegal activity against Lockton.”
Alliant did not respond to a request for comment.
Competition between Lockton, the ninth-largest broker of U.S. business, and Alliant the 10th-largest, according to Business Insurance’s latest ranking, is particularly intense, observers say.
The litigation, which charges the departed employees violated nonsolicitation agreements, focuses on Lockton’s Mountain West Series, which is headquartered in Denver. As of mid-2018, the unit served more than 2,000 clients in Denver, Phoenix, Las Vegas and Seattle, according to the Delaware litigation.
Movement of employee teams between brokers has increased in recent years, said Timothy J. Cunningham, managing director of Optis Partners LLC in Chicago.
“I see these movements of broker teams kind of becoming a little more prevalent today, with the desire to grow,” he said. The firms recruiting teams “see the resulting litigation, and any settlement as kind of the cost of doing business.”
E. Al Diamond, president of the Agency Consulting Group Inc. in Cherry Hill, New Jersey, said, “It’s going to be an interesting case,” because there have been numerous cases of “lift outs” where groups of employees are hired away by another employer. The recruitings “may be offensive, but they certainly aren’t illegal,” he said.
Noncompete and nonsolicitation disputes in the insurance industry are “legion” because the business is driven by relationships, said Jeffrey D. Mokotoff, a partner with FordHarrison LLP in Atlanta.
But states often treat restrictive covenants differently, including states such as California where it is difficult to enforce noncompete and nonsolicitation agreements, he said. They are usually enforced “because courts don’t’ look at them as true noncompetitive provisions,” he said.
When brokers fight over staff, clients are often “caught in the crossfire,” said Tony Tatum, Longwood, Florida-based corporate counsel and director of agency mergers and acquisitions for Insurance Office of America Inc.
Brokerage clients often want to continue “working relationships with brokers they’ve had relationships with for a long time.”
Steven M. Libowsky, a partner with Dentons in Chicago, said, “If you are running an insurance program for a large company, and you have a longstanding relationship with either one or a group of people, you probably don’t care where they work as much as you want to continue to work with them if you’re happy with them.”
Poaching disputes are “a huge distraction for customers,” he said. “They’re not only caught in the middle, but must spend time and money reinventing the wheel,” and the switch can come during the placement of new business or policy renewals.
But such litigation will likely increase, said Mr. Tatum.
With private equity firms acquiring more agencies, “producers are finding themselves working for companies that they hadn‘t intended to work for when they started,” resulting in “more producers leaving because of acquisitions than in the past.”
Mr. Diamond of Agency Consulting also said he expects more litigation. Brokering skills are in short supply, “so if one employer is not treating their employees as well as they should, those employees are going to get on their horse and look for somebody else.”
If it follows past trends, the litigation between Lockton and Alliant will likely be settled, experts say. Mr. Diamond said about 95% of broker poaching suits are settled before trial.
Mr. Mokotoff said also, “Most cases don’t end up in front of a jury,” but settlement terms may reflect whether an injunction has been obtained.
Lockton has been on the other side of the disputes in the past when it defended similar litigation against various rival brokerages, including Aon PLC, Arthur J. Gallagher & Co., Marsh LLC, Palmer & Cay Inc. and USI Insurance Services LLC.
In 2011, the Texas Supreme Court ruled in Marsh USA Inc. et al. v. Cook, in a case involving an employee who left Marsh to join Lockton, that companies can offer employee stock options in exchange for signing noncompete agreements.
Litigation over personnel also ensued between USI and Lockton after USI closed on its acquisition of Wells Fargo Insurance Services USA Inc.
Lawsuits filed under the USI or Wells Fargo name were filed in Minnesota, New York, Illinois, Washington, Texas and Florida. Most of them have been voluntarily withdrawn, which indicates a settlement.
Other cases charging poaching involving brokers include:
HOUSTON—In a decision that could have wide-ranging implications, a Texas state appellate court has ruled that the “detrimental activity” forbidden by a stock incentive plan is the same thing as noncompete activity and therefore not permitted under applicable Texas law.