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Delaware County Chamber of Commerce v. USI Insurance Services, LLC

United States District Court, Third Circuit

December 20, 2013

USI INSURANCE SERVICES, LLC, et al., Defendants.



Resolution of this lawsuit centers around the alleged misuse of a business membership list and interpretation of a "Royalty Agreement" entered into by the respective parties.

Plaintiffs are the Delaware County Chamber of Commerce and its subsidiary Delco Chamber Member Services, Inc., (collectively "Delco" or the "Delco Chamber"), a membership organization that provides businesses with certain programs and benefits. Delco hired Defendants, USI Insurance Services, LLC, USI Holdings Company, Dexter-Bertholon-Rowland, Inc. and Bertholon-Rowland, Inc. (collectively "USI"), an insurance broker, to provide health insurance services to members of the Delco Chamber. Delco alleges that USI misappropriated its membership list after its contract with USI terminated. Specifically, Delco asserts that USI improperly used the list to automatically enroll Delco Chamber members in a competing organization, the Pennsylvania League of Independent Businesses (PLIB). Delco alleges that USI did this in order to continue to be able to provide special health insurance rates applicable to members of such associations, and thereby keep those businesses as USI's clients. According to Delco, USI's conduct caused many members to leave the Delco Chamber or not enroll with Delco's new insurance administrator, resulting in a loss of revenue.

Delco has brought claims for breach of contract, unjust enrichment, conversion and intentional interference with contractual relations against USI and PLIB. USI has moved for summary judgment, arguing that Delco has insufficient evidence to support its claims that USI breached any provision of the agreement, or misappropriated Delco Chamber's membership list.[1] For the reasons that follow, we agree with USI and will grant the motion.[2]

I. Factual and Procedural History

The Delco Chamber is a membership organization made up of local businesses. The Chamber provides certain programs and benefits to its members in exchange for membership dues and program fees. Among those benefits is access to health insurance programs and related services that members may use to provide insurance to their employees. During the times relevant to this case, "association" coverage through the Delco Chamber could provide significant benefits to small employers, especially sole proprietors, who could secure group rates otherwise unavailable to them. Another benefit, which was more broadly shared among Delco members, was billing administration provided through an insurance broker, rather than directly by the insurance carrier. (Tyer Dep., at 57-58.)

A. The Royalty Agreement

In February 1998, Delco selected USI as the exclusive insurance broker for its members, and the parties entered into a "Royalty Agreement."[3] (Resp., Ex. A.) As part of the Royalty Agreement, and in order to facilitate USI's solicitation and servicing of the Delco Chamber members, Delco agreed to provide USI with its Membership List, subject to certain limitations:

DELCO agrees to provide CIS with a complete list of its members ("Membership List") including each member's name, address, and telephone number, as required by CIS to solicit and place insurance coverage. The Membership List shall remain at all times the property of DELCO. DELCO will not provide the Membership List to any entity other than CIS for the purpose of selling or servicing insurance products to DELCO members.... All copies of the DELCO membership lists shall be returned to DELCO, and deleted from CIS's computer system upon the termination of this Agreement.

(Royalty Agreement, ¶ 6.) The Royalty Agreement also imposed certain requirements on USI during the term of the agreement. Specifically, it required USI to promote membership in the Delco Chamber to non-members "where appropriate, " and to "maintain the confidentiality of all information supplied by the [Delco Chamber] including, but not limited to, the Membership List." (Royalty Agreement, ¶¶ 7(f), 10.)

The Royalty Agreement also contained a provision which provided that USI would maintain ownership of its "Insurance Records":

It is specifically understood and agreed that all insurance records regarding DELCO Members acquired or developed during the Initial Term of this Agreement, or any Renewal Term, are and shall be the sole and exclusive property of CIS, and DELCO shall not directly or indirectly do anything or take any action which will in any way or manner dilute the exclusivity and proprietary nature of such insurance records.

(Royalty Agreement, ¶ 9.) In return for its status as exclusive broker for Delco's insurance program, USI paid Delco a monthly royalty fee. (Royalty Agreement ¶ 8.)

B. Performance Under the Royalty Agreement

Following execution of the Royalty Agreement, Delco provided USI with a Membership List, in the form of a Microsoft Excel spreadsheet containing the names of all members, their addresses, and telephone numbers. (Vermeulen Dep., at 32.) Delco also provided USI with a number of copies of its "Membership Directory" in paper form, for use by USI's sales staff. (Vermeulen Dep., at 154-55.) This same Membership Directory was distributed in paper form to all members of the Delco Chamber, of which USI was one.[4] (Vermeulen Dep., at 155.) The Directory contained nearly identical information to the Membership List provided under the Royalty Agreement, although the contact information in the Directory was not as expansive. (Vermeulen Dep., at 148-49.) Information about the Delco Chamber's members was also available online, but could not be viewed as a single list containing all members.

USI operated as the Delco Chamber's exclusive insurance broker under the Royalty Agreement through 2007. As part of its operations, USI used two different systems to manage its marketing and insurance services. For sales and marketing purposes, USI used a software program called Sales Logix, where it stored information about prospective clients in a database. (Mullin Dep., at 11.) When USI received the Membership List from the Delco Chamber, it input the membership information into its Sales Logix system. (Tyer Dep., at 30.) Sales representatives also used physical copies of the membership directories for marketing purposes. (Tyer Dep., at 30.) USI used a separate database it called "CIA" to maintain its insurance records and serve existing clients. (Tyer Dep., at 98.) The information in the CIA database was obtained from the insurance applications of USI's clients and included the client's contact information, and details about the insurance policy provided through USI. (Tyer Dep., at 11.) Each client in the CIA database was also assigned an "Association Code, " a numerical code signifying that the client was part of an association. (Tyer Dep., at 12-14.) USI used these association codes to identify which clients were members of a particular organization, and entitled to any services or pricing unique to that organization. The codes were also important to USI's billing process, wherein clients were organized by the association to which they belonged. (Tyer Dep., at 16.)

C. The USI Termination

Sometime during 2007, Delco began to consider terminating the Royalty Agreement with USI in hopes of producing more revenue for itself by conducting insurance services through a for-profit subsidiary licensed to sell insurance. (Vermeulen Dep., at 205.) In preparation for that switch, Delco took bids from brokers, including USI. (Tyer Dep., at 91.) The broker Delco eventually chose, Brown & Brown, suggested that it could help produce more than $2.1 million per year in extra revenue for the Delco Chamber compared to the revenue Delco received from the USI contract. (Vermeulen Dep., at 210-11.) In the process of presenting its bid, Brown & Brown represented to Delco that in order to retain its Delco-member clients, USI would have to get each client to sign a broker of record letter or other additional document that "would have allowed for direct billing from" the insurance company (rather than billing through USI). (Vermeulen Dep., at 203.) Brown & Brown anticipated that it would also have to get each potential Delco-member client to sign a "broker of record" letter in order to switch from USI to Brown & Brown. (Vermeulen Dep., at 202.) In Delco's view, USI and Brown & Brown would compete for USI's Delco-member clients on an "equal playing field, " because each client would have to take some affirmative step in choosing between USI and Brown & Brown. (Vermeulen Dep., at 166.)

Brown & Brown's strategy turned out to be wrong. After Delco notified USI that it was electing to terminate the Royalty Agreement effective January 1, 2008, USI contacted the Pennsylvania League of Independent Businesses ("PLIB"), a competitor of the Delco Chamber, as part of an effort to retain clients that were members of the Delco Chamber. USI then made arrangements to automatically enroll its Delco Chamber clients in the PLIB. (Sekkes Dep., at 35-45.) The President of USI's benefits division, Paul Tyer, contacted the PLIB board of directors and the PLIB agreed to automatically enroll any USI clients that were also members of the Delco Chamber. (Tyer Dep., at 66-68.) Because PLIB, like Delco, was an association approved by Blue Cross, Blue Shield, USI was able to offer its members continued brokerage services without the need to sign an additional document or take any additional steps. (Tyer Dep., at 68; Sekkes Dep., at 43-44.) Indeed, PLIB did not even charge the Delco members dues. The fact that USI's clients did not have to act to remain USI clients, and were automatically enrolled in a competing business association, free of charge, presumably gave USI a large competitive advantage in its fight with Brown & Brown over its Delco clients.

D. USI's Post-Termination Conduct

On January 1, 2008, the Royalty Agreement between USI and the Delco Chamber terminated. Tyer testified that leading up to the Agreement's termination, USI took steps concerning the Delco Chamber's proprietary Membership List. USI deleted all records associated with Delco Chamber members from its Sales Logix system, and never contacted any non-client members of the Delco Chamber after termination of the Royalty Agreement. (Tyer Dep., at 36-42.)[5] Additionally, USI returned several hard copies of the Membership List. (Tyer Dep., at 28; Vermeulen Dep., at 153 ("I do believe we actually did receive a directory or... more returned to the office.").) Having taken these steps, USI put into motion its plan to retain its Delco-member clients.

On January 2, 2008, the day after the termination of the Royalty Agreement, USI sent a letter to its Delco-member clients informing them that USI's relationship with the Delco Chamber had been terminated. (Resp. Ex. F.) This correspondence informed USI's clients that it was "the Benefits-Administrator of another Association, [t]he [PLIB], and has made arrangements to automatically enroll your company in the PLIB at no cost to you." (Resp. Ex. F.) The correspondence advised that if the clients wished to maintain coverage through USI, all that was necessary was to decline to "sign a letter to place your insurance with an administrator other than USI." (Resp. Ex. F.) USI also placed phone calls to its customers as a follow-up to the January 2, 2012 correspondence. As part ...

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