Insurance firms battle in two states over Fresno employee defections

The Fresno BeeMay 2, 2014 

Two insurance brokerage heavyweights that do business in Fresno and Central California are waging a legal battle over the mass defection of more than 70 employees, including senior managers, this year.

In court documents, Aon Corp. says that its Fig Garden Financial Center office was gutted. On Feb. 25, seven key Aon employees -- including resident managing director John Day and Larry Edde, executive vice president of Aon Risk Services West -- resigned and went to work for rival Alliant Insurance Services, which has two offices in northeast Fresno. That was a Tuesday; by the end of the week, Aon says, 55 of its 60 Fresno employees had taken jobs with Alliant.

Three senior Aon broker-managers in Salinas and Walnut Creek also quit on Feb. 25 to join Alliant, which is headquartered in Newport Beach.

On the same day, the 10 brokers and Alliant sued Aon in Fresno County Superior Court, alleging that non-compete clauses in bonus agreements the employees signed with Aon cannot be enforced by California law. They added that Aon managers misrepresented the agreements to "pressure, manipulate and dupe" the employees.

London-based Aon -- the world's second-largest insurance brokerage firm and a sponsor of Manchester United F.C., one of England's popular Premier League soccer teams -- has yet to respond to the Fresno County lawsuit. But on March 4, Aon went to court in New York, accusing Alliant, the world's 16th largest insurance brokerage, of deliberately raiding Aon staff "to take Aon's trade secrets and confidential information" and causing the workers to violate agreements "that restricted those employees from competing with Aon and taking Aon's clients."

A key issue is which state's law should govern the case -- California, an "at will" employment state where non-compete clauses are typically frowned upon; or Illinois, specified in the bonus agreements and where non-compete clauses are binding. Aon sued in New York because it alleges that the Alliant executives who organized the employee raid did so in that state.

The Bee sought unsuccessfully to reach the seven Fresno employees among the 10 brokers who are suing Aon.

In affidavits filed in the New York case, however, all 10 use identical language to say they believed any disputes between them and Aon should be resolved in California courts under California law, and to describe their conversations with former Aon executive Peter Arkley as he recruited them.

In the New York lawsuit, attorneys for Aon say that by Feb. 28, more than 75 Aon employees had resigned to work for Alliant -- 55 from the Fresno office.

Aon asserts that "the loss of clients from the raid has been immediate and substantial."

"By the close of business on Friday, February 28, Aon had received more than 80 Broker of Record letters from clients who were switching their business to Alliant," the lawsuit states. "The ... letters have arrived so quickly that the process must have been started when the former employees were still at Aon."

Legal disputes over brokers who generate business for their firms "are actually quite common" in the world of high-dollar insurance brokerages, said Tim Zawacki, a senior editor with SNL Financial, a Virginia-based finance industry information company. Each year, he said, "there are a double-digit number of legal cases in which insurance brokerages allege an employee raid by a rival."

Zawacki said there is fierce competition among brokerage companies for "high-quality producers."

"We see a lot of this," he said. "If there's a team with a particular speciality or expertise in a geographic market, that can obviously be one way that competitors looking to expand can gain a foothold."

Such raids are typically not limited just to the producers or brokers and often include the support staff that works with the brokers. But the scope of the raid that Aon alleges in Fresno "is a fairly large number of people," Zawacki said. "For that to happen in one office, that's a pretty impactful event."

Because the economy remains sluggish in many parts of the country, it's still challenging for brokerages to grow their businesses by either selling more insurance or raising prices on their products. "So the other ways are by acquiring businesses, acquiring companies or acquiring talent," Zawacki said.

Aon's suit against Alliant does not name any of the former employees as defendants. But the complaint accuses them of "conspiring with" Alliant to orchestrate the defection of other employees and clients while still employed at Aon.

In their New York affidavits, all 10 brokers suing Aon in Fresno deny -- in identical language -- conspiring to coordinate the exodus of employees or clients.

"When I spoke to or met with anyone from Alliant about a potential position, it was outside the presence of other Aon employees," each of the seven Fresno brokers swears. "Peter (Arkley) told me not to solicit any other Aon employees and I did not solicit any other Aon employees to join Alliant either before my resignation or after." They also deny telling their clients ahead of time that they were leaving Aon.

In their Fresno County lawsuit, the former Aon employees want a judge to declare the non-compete clauses void, to rescind the cash and stock bonus agreements in exchange for returning the bonuses, and to award restitution and punitive damages for what they say are unfair and deceptive business practices.

In New York, Aon wants a judge to order Alliant to pay damages of at least $20 million plus punitive damages; to issue an injunction barring Alliant from soliciting business from clients with whom the 10 key defectors had worked in the previous two years; to keep Alliant from recruiting Aon employees; and to not use any client information from the former Aon employees.

"What these cases tend to boil down to is a pretty standard set of allegations," SNL's Zawacki said. "There's some sort of employee agreement, sometimes a compensation agreement, that requires a defecting employee to have some sort of cooling-off period before going to work for a competitor. ... It's usually a matter of whether those agreements hold up in the context of each case."

The legal tussle between Alliant and Aon follows a similar conflict that began in 2011, when about 60 Aon employees -- including senior executives from the company's Construction Services Group -- resigned within days of one another to take jobs at Alliant. According to court records in New York, more than 100 clients transferred more than $20 million in business from Aon to Alliant.

In that case, a New York judge issued an injunction barring Alliant and former Aon employees working for Alliant from soliciting business from their former Aon clients, and from recruiting more Aon employees to join Alliant. That was upheld by a New York appeals court in January 2013 but later vacated by an agreement between the two sides in June 2013.

The reporter can be reached at (559) 441-6319, or @TimSheehanNews on Twitter.

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