Life Plans, Inc. v. Sec. Life of Denver Ins. Co., No. 14-1437 (7th Cir. Aug. 31, 2015).
Life Plans, an insurance broker, and Security Life, a life insurance company, agreed that the broker would sell the policies of the insurance company. In return, the broker would receive brokerage fees.
Two provisions in the agreement loom large in this case. The first stated that the agreement “will continue indefinitely, until termination by either party upon” written notice. In the second provision, the insurer promised to accept $100 million per year worth of policies sold by the broker, “from July 1, 2011 until June 30, 2014.”
Shortly after signing this agreement, the insurance company sent a notice of termination to the broker. The broker then sued the insurance company for breach of contract, arguing, among other things, that the insurance company had no right to terminate the contract before the three-year term was up. The district court granted summary judgment to the insurance company.
On appeal, the majority on this Seventh Circuit panel concludes that the contract is ambiguous. On the one hand, it says, you can read the two relevant provisions to commit the insurer to accept life insurance policies for three years, after which it can terminate at will after giving written notice. On the other hand, you can read these provisions so that the termination provision applies immediately upon execution of the contract, i.e., the insurance company can cancel at any time, even during the first three years.
Because the contract is ambiguous, the court must look outside the contract to determine its meaning. And here there is extrinsic evidence to support the broker’s reading of the contract. A jury must determine the contract’s true meaning.
Judge Rovner, however, believes that the contract’s termination provision is unambiguous, and that it supports the insurer. The promise to accept $100 million in premiums specified the terms that would govern during the first three years if the contract lasted for three years; it didn’t bind the parties to continue a contractual relationship for three years.
The insurer seemingly could have avoided this litigation by adding a short sentence to its promise to accept $100 million per year in premiums: “This section does not limit the right of either party to terminate the agreement at any time.” But would the insurance broker have signed the contract if that sentence had been included? In a sense, that’s what the jury will be trying to figure out on remand.