The introduction of the 2013 Agent Appointment Agreement raises many questions: from an agent's perspective, the initial question may very well be, "Just how one-sided is this new agreement?" Indeed, consistent with the transition from the 1984 AAA to the 2009 AAA, it appears that the agreement is evolving to become increasingly favorable to the Farmers Group of Insurance Companies, imposing additional duties upon agents, while further limiting the benefits available to them. While the new Agreement is not immediately applicable to existing agents who choose not to sign it, it does highlight Farmers' apparent goals and objectives. Agents who ignore these trends do so at their own peril.

The following bullet points set forth just some of the most troubling changes contained within the 2013 AAA, as analyzed by UFAA's attorneys. For simplicity, the 2009 AAA is used for comparison purposes since it is the most recent contract and is more restrictive than the 1984 AAA. Note, however, that many of these same differences also exist between the 1984 AAA and the 2013 AAA.

* The new agreement requires agents to obtain and maintain, at their "sole expense," Errors and Omissions insurance. The new agreement also provides that the E&O policy "must name the Companies as an additional insured." The prior agreement did not contain any E&O insurance requirements.

* Under the new agreement, "The location of Agent's office must be approved by the Companies." Under the 2009 AAA, the only location restriction was the requirement that an agent's office not "unduly interfere with the business established by another Agent."

* The new agreement requires agents to conduct business in accordance with the "published policies" and "rules and manuals of the Companies." It is anticipated that this provision may be relied upon by the Companies as a basis for subjecting agents to the onerous requirements set forth in the Agent's Guide. It creates the potential that Agents will, in essence, be held to honor a constantly changing set of rules.

* The new agreement creates the potential for increased liability for agents, stating, for the first time, that "[a]t all times, Agent is responsible for the acts or omissions of Agency personnel." The contractual language has also been broadened in other areas to increase the Agent's potential liability. For instance, instead of being responsible for acts committed "by Agency," Agents now must answer for any liability arising "in connection with the Agency."

* The new agreement removes "Years of Service" as a factor in determining Contract Value, which works to the detriment of all agents who have served for more than five years.

Significantly, while new agents must sign the 2013 AAA, agents who are already parties to an existing AAA need not accept the new version.[1] In light of the foregoing provisions, why would any existing Farmers Agent agree to enter into the 2013 AAA? There are two possible reasons.

First, unlike the 2009 AAA, the new agreement removes the provision limiting the sale of agencies to "immediate family." Thus, Agents may be attracted by the prospect of selling the Agency to a third party at a price greater than contract value. If, in fact, Farmers (and the market) permit agents to do so, this could indeed be a positive benefit for those selling agents. However, do not lose sight of the fact that the new agreement gives the Companies "sole and absolute discretion into the approval of any proposed purchaser, and said approval may be withheld for any reason or no reason." Thus, although the removal of the prior provision limiting sales only to "immediate family" is a positive development, the fact that the Companies would have unfettered discretion to block a sale creates obvious risks down the road. Talk to your local Allstate Agents to make sure you fully appreciate how unpredictable a provision like this can be.

The second "carrot" for entering into the 2013 AAA is the opportunity to participate in the Agency Platform program, through which certain bonuses are awarded. Of course, signing the 2013 AAA is only the first step toward induction into this program; agents must also execute a separate Agency Platform contract - which sets forth a number of rigorous standards and rules - and they must receive final approval by their District Manager and State Executive. Based on some preliminary reports from UFAA agents, it appears that the Agency Platform program may involve a great deal of work for relatively small rewards.

Agents would be well advised to exercise caution and to assess their own personal circumstances before entering into the 2013 AAA. As noted, although the new agreement permits agencies to be sold to individuals who are not "immediate family," the Companies retain unlimited discretion to deny any of these agency sales. Thus, signing the 2013 AAA is a gamble, to say the least. This is particularly true given challenging market conditions that may lead to further unpredictability about the value of agencies.

Finally, before making a decision to sign this or any other legal document, remember to carefully read the agreement and to consult with an attorney. Don't be swayed by what your DM says. Focus only on what the document says.


Allen Yerxa
Director of Legal Activities
UFAA

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[1] Depending on the prior AAA governing an existing agent, an agent entering into a 2013 AAA would be able to have certain provisions of the pre-2013 AAA restored by one of the new 2013 addendums. For instance, an agent who had previously entered into a 2009 AAA, but who now chose to enter into the 2013 AAA, could retain some of the terms of that prior AAA, including those set forth in the "Contract Value" and "Agent Bonuses" of the 2009 AAA. Likewise, an agent who had previously entered into a 1984 AAA, but who now chose to enter into the 2013 AAA, could retain some of the terms of the 1984 AAA.