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International Klafter Co. v. Continental Casualty Co.

decided: February 21, 1989.


International Klafter Corporation, International Assurance, Inc. and International Group Underwriters, Inc., whose insurance agency agreements were terminated by Continental Casualty Corporation (CCC), appeal from an order of the District Court for the Southern District of New York, Stanton, J., granting summary judgment in favor of CCC, Affirmed.

Lumbard, Winter, and Mahoney, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge.

International Klafter Co., Inc., International Assurance, Inc. and International Group Underwriters, Inc. appeal from an order of the District Court for the Southern District of New York, Stanton, Judge, granting summary judgment in favor of defendant Continental Casualty Corporation (CCC) in a breach of contract action they brought under diversity jurisdiction. The three plaintiff corporations ("agents") served as general insurance agents for CCC until January 1984, when CCC terminated its agreements with them without giving any reason. The sole question before us is whether the district court properly interpreted the termination provisions in the agents' contracts to permit termination of these contracts at will, without any showing of cause. We agree with the district court that the plain language of the agreement permitted termination at will, and it was not error for the district court to exclude evidence extrinsic to the plainly-worded instrument between the parties.

The stipulated facts are as follows: CCC is an insurance company which writes policies and sells them through selected agents in various geographical territories. These "general agents" sell and service insurance policies in their respective territories under contracts, called "general agency agreements", between CCC and each agent. The agents were general agents for CCC under such contracts. International Underwriters, Inc., a division of International Klafter Co., Inc. (hereinafter "New York", following the geographic appellation employed by the parties), had a contract with CCC dated May 5, 1967 (the New York Agreement) under which International Underwriters acted as CCC's general agent in New York. International Group Underwriters, Inc. (Florida) had a similar general agency agreement with CCC, dated June 20, 1974, under which it acted as CCC's general agent in Florida. Florida had also purchased the right to conduct the business of CCC's former Florida Centralized Sales Office, under an agreement dated July 1, 1977 (the Florida Purchase Agreement), which agreement expressly incorporates the termination provisions of the Florida Agreement.

The New York and Florida Agreements have common termination provisions in Paragraph 8, which provides that the respective agreement "shall continue in force until either party . . . shall give the other party thirty (30) days prior written notice of intention to terminate it for any cause other than as specified in Paragraph 18 [excerpted below] (in which case the provisions of paragraph 18 shall apply)." Paragraph 8 goes on to specify certain payments and commissions which CCC must pay the terminated general agent in the months following termination under Paragraph 8.

Paragraph 18 of the New York and Florida Agreements provides: "It is agreed that this contract, in the event of fraud or breach of any of its conditions or provisions on the part of the agent or his inability to secure or retain the necessary license from governmental authorities, may be cancelled by [CCC] upon immediate notice and in such event, the agent shall not be nor thereafter become entitled to any further commissions or credits of any kind hereunder . . . ."

On December 20, 1983, CCC notified New York and Florida that it would terminate the New York, Florida and Florida Purchase Agreements as of January 31, 1984. CCC, pursuant to Paragraph 8 of the New York and Florida Agreements, paid Florida and New York together a total of over $400,000 in the forty months subsequent to the termination date. The parties do not dispute that these payments were fully and timely made. At no time has CCC given any reason for the terminations.

Leonard Klafter, who is the principal of the agents, places great weight on his course of dealing with CCC. He was a salaried employee of CCC from 1955 until mid-1967, when he left CCC and became a general agent for CCC and its sister company Continental Assurance Co., Inc. While on CCC's payroll, Klafter rose to the position of regional manager, with responsibility for selecting and coordinating the general agents in twelve states.

Upon Klafter's departure from CCC in 1967, CCC selected Klafter to be a general agent and expanded the territory and volume of his agency during the period between 1967 and December 20, 1983, when the notice of termination was delivered.

Klafter testified that CCC had an unwritten policy whereunder general agents were not terminated as long as they performed satisfactorily and lawfully. Klafter asserted, and CCC does not deny, that he advised prospective general agents of this policy while he was in CCC's employ. When he became a general agent for CCC, Klafter avers, he assumed that this policy remained in effect. In each case, however, the same or a substantially similar written instrument was used to document the general agency agreements, none of which contains any mention of this policy of termination only for good cause.

Plaintiffs New York and Florida (and several other general agents) filed suit against CCC, its sister company and an affiliate in April 1986. The second amended complaint, filed on December 18, 1986, alleged breach of contract, tortious interference with contractual relations and violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ยง 1961 et seq. In November 1986, the district court granted CCC's motion to dismiss the tortious interference claim, with leave to replead. On December 18, 1986, the agents served a second amended complaint; extensive discovery followed, chiefly on the tortious interference and RICO claims. Then, in December 1987, the parties entered into a stipulation to facilitate the resolution of the contract construction issue now before us. The agents dismissed their charges against all defendants other than CCC and dropped the tortious interference and RICO causes of action, leaving only the breach of contract claim. In addition, several affiliates of the present plaintiffs in the initial complaint withdrew, leaving only New York, Florida and one other general agent.*fn1 The three remaining plaintiffs then filed a Third Amended Complaint alleging only that CCC breached the New York Agreement and one other agreement*fn2 by terminating them "without cause" and that CCC terminated the Florida Agreement and the Florida Purchase Agreement by terminating them "without good cause." Since the facts are stipulated, the parties promptly cross-moved for summary judgment.

By memorandum opinion dated June 14, 1988, Judge Stanton granted CCC's summary judgment motion. He wrote that Paragraph 8 of the agreements must be read with Paragraph 18 in mind, and, when that is done, the only reasonable construction of Paragraph 8 that emerges from these contracts is that either party may terminate "at will". Since the meaning of the contracts is plain, the court held, there is no reason to look outside the documents for extrinsic evidence of the parties' intent. We agree.

The agents argue that the district court erroneously "read[] into" the contract a provision permitting at will termination. They believe that the words "any cause" in Paragraph 8 cannot be interpreted to permit termination for "no cause", and contend that the district court's interpretation represents a judicial modification of the contract. This view does not, however, give effect to the plain meaning of the words. Moreover, because paragraph 18 enumerates the several agreed-upon good causes for termination, the reading ...

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