When does a brokerage “join” a broker network?
An Ontario judge has found that start-up brokerage My Insurance Broker Corp. (MIB) joined the Prolink Broker Network Inc., even though contract agreements were never signed.
MIB owner Rick Jaitley did not sign the final contract agreement with Prolink because he was still negotiating some of the terms of the contract, he told the court.
But the court found that, even though Jaitley had not signed the agreement, the brokerage’s actions suggested a “meeting of the minds” had occurred and that the brokerage acted with an intention to be bound by the unsigned agreement with Prolink.
Jaitley was an experienced insurance agent at Allstate Insurance. He attended a September 2007 meeting put on by Prolink to attract disgruntled Allstate agents. At the meeting, he had a discussion with Prolink president Gerald Roberts and CEO Joe McCabe, who tried to convince Jaitley to start his own brokerage and join the Prolink Broker Network.
Under Prolink’s business model, the network provides its brokerage members with back office systems. These include accounting payroll, a website, marketing advice, and access to broker management systems such as The Agency Manager (TAM) and Compu-Quote, which allow the brokerage to do business with insurance companies. Prolink also helps to establish contracts with insurers.
Prolink makes its money by taking a 25% ownership in the brokerage and 7.5% of commissions. The brokerage has an opportunity to buy back its 25% share after three years.
Jaitley incorporated MIB and MIB Canada on Mar. 26, 2008. MIB issued 25 of its 100 shares to Prolink and made McCabe a director of MIB as a designate for compliance purposes. MIB applied to receive errors and omissions insurance from Prolink.
Initially, the brokerage had contracts with
AXA Canada and The Dominion of Canada General Insurance Company. The presence of a market was required to obtain a registration with the broker regulator Registered Insurance Brokers of Ontario (RIBO).
Two days before MIB’s formal registration with RIBO, Roberts emailed updated copies of the partnership agreement and shareholder’s agreement to Jaitley. “I am enclosing the revised agreements as per our discussions,” he wrote. “You and Rita [Lee, who worked with Jaitley] can review at your leisure and we’ll complete everything once you are RIBO sanctioned. Congratulations on your decision.”
After registration, MIB started using the TAM system offered by Prolink. But the brokerage never signed the agreement documents, a fact that Roberts pointed out to Jaitley in a February 2009 email.
Jaitley wanted out sooner, he told Roberts, and a series of emails discussed an alternate arrangement for a potential buyout. Jaitley wanted the buy-back option to kick in after meeting a $2.5-million volume threshold, or after 30 months, whichever came first.
Prolink maintained the 30-month minimum was a requirement, having reduced the number from the initial contract offer of 36 months.
Jaitley also wanted the contract agreement changed so that Prolink’s commitment to finding markets for the brokerage was more than simply a “best effort,” as described in the contract.
Emailed correspondence on these points led to a breakdown in the business relationship, resulting in the litigation.
In court, the judge found that MIB intended to be bound by the agreements, even if it did not sign the final paperwork, by virtue of the following facts, all of which were features of the repudiated contract:
• MIB issued 25% of its shares to Prolink.
• The brokerage made McCabe a director for compliance purposes.
• MIB used the broker management services offered by Prolink (TAM and CompuQuote).
• MIB singed onto Prolink’s E&O insurance master policy.
Prolink continued offering the services on the presumption that MIB would eventually sign the agreement that had been met, the court found.
“The fact that a formal written document has been prepared but not signed does not alter the binding character of the agreement, if an agreement has been reached,” the court said in its decision.
“Were I to accept the position of [Jaitley and MIB], it would mean that a party to a business arrangement could begin operating as if a contractual document were valid, but keep its options open in case it did not like the arrangement further down the road in the event that the other party, through inadvertence or otherwise, did not obtain the formality of a signature,” the judge wrote.
