May 15

$185,000 in Damages Awarded to Insurance Producer for Book of Business Confirmed by Ontario Court of Appeal


Lindsay v. Verge Insurance Brokers Ltd., 2023 ONCA 263 is an appeal by the defendant against a judgment that granted an employee’s claim for breach of an agreement to purchase a book of business. The Court of Appeal confirms the Superior Court decision to award damages of $185,000 to an insurance producer who was not allowed to purchase his book of business. 

Background and Trial Decision

In 2004, the Plaintiff started working as an insurance producer for Verge Insurance Brokers Limited (“Verge”). The employment contract contained provisions outlining the possibility of the Plaintiff acquiring his book of business in case of his departure from Verge. The Plaintiff was a successful producer for nine years and earned an annual commission income of $181,000 in 2013. 

On April 15, 2013, the Plaintiff informed Verge, in writing, that he would be resigning on June 14, 2013. As per his employment contract, he expressed his desire to purchase his book of business at the agreed-upon price of twice his annual commissions from the preceding policy term. Verge acknowledged his right to buy his book of business, except for the accounts that Verge could retain under the contract if they were considered of “particular importance.”

Negotiations between the Plaintiff, Verge, and their lawyers began on May 6. Unfortunately, the negotiations did not go well, as Verge was unresponsive in providing the client list. It was only on May 14 that Verge provided the client list, but without names or policy numbers, making it difficult for the Plaintiff to confirm its accuracy. Further, Verge suggested a purchase price of $481,167 and insisted on closing the deal on May 29. On May 17, the Plaintiff informed Verge that he couldn’t verify the list and stated that the 14-day period could not start until he had accurate account information. Between May 22 and June 5, the parties exchanged a series of letters and emails regarding the information provided by Verge. During this period, Verge made corrections to the list and reduced the purchase price of the Plaintiff book of business from the initial $481,167 to $389,136 and then to $362,977. Verge’s final letter on June 5 demanded closing the deal by 5 p.m. on that day. The Plaintiff refused to close the transaction on Verge’s terms, stating that he was not willing to finalize the deal with a new price and no time to review the necessary documentation. As a result, the Plaintiff took legal action, claiming that Verge had breached the terms of their agreement. Verge, in turn, defended itself and filed a counterclaim that the Plaintiff had wrongfully refused to purchase his book of business.

After a 43-day trial, the judge ruled in favor of the Plaintiff. The judge stated that Verge had breached section 5 of the producer agreement by insisting that the deal be closed on June 5, 2013. Both parties had agreed on the client list and the purchase price on June 5, 2013, but Verge’s demand for immediate closing was against section 5 and their understanding that the 14-day period for closing would begin only on June 5, 2013. Verge has appealed against the judge’s decision on both liability and damages.

Liability and Damages – Ontario Court of Appeal Reasoning 

The Ontario Court of Appeal, following the Sattva principles, used the substantial deference standard of review and found that this appeal involved a question of mixed fact and law. The fact component relates to the events between April 15 and June 5, 2013. The law component involves the interpretation of the agreement’s principles.

The Court of Appeal examined the trial judge’s reasoning and concluded that the trial judge was correct in his analysis of the contract. The Court found that the trial judge’s interpretation was reasonable in finding that the list of accounts and purchase price had to be accurate, and that the Plaintiff had 14 days to make his decision once these details were finalized. Further, the Court found that the Plaintiff’s refusal to close the purchase on June 5, 2013, was not a breach of the employment contract because Verge’s conduct was inconsistent with the essential components of the contract. 

Verge argued that the trial judge erred by choosing a 10-year term for the Plaintiff’s loss of profits, as the maximum term should have been 6.6 years, the average length of the Plaintiff’s policies with his clients during his employment with Verge. Additionally, Verge argued that the trial judge erred by not reducing the award based on the commissions the Plaintiff could earn in his new position. However, the Court of Appeal rejected these arguments. They found that the trial judge’s award was justified based on the combination of Verge’s 11-year retention rate and the Plaintiff’s 92 percent retention rate for his clients. The Court also found that there was no evidence to support the conclusion that the Plaintiff could not have serviced both sets of clients and therefore the trial judge was correct in not reducing the award based on potential commissions.

The key takeaway from this case is that when it comes to contract interpretation the terms of the contract and the conduct of the parties will be taken into consideration when determining damages owed.

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