In this week's Alabama Law Weekly Update, we bring you a case from the Alabama Supreme Court addressing fraudulent inducement and reasonable reliance by an employee on representations made during the recruitment process.        

Farmers Insurance Exchange et al. v. Robert Kyle Morris, No. 1121091 (Ala. Feb. 12, 2016) (Insurance agent did not unreasonably rely on representations made by potential employer regarding permissibility of employment, notwithstanding at-will arrangement, integration clause barring oral representations, and extra-contractual materials to the contrary).

In 2006, Robert Morris (“Morris”), a licensed insurance agent, was working for his father's independent insurance agency, the Morris Insurance Agency ("Morris Insurance"). Morris contacted Farmers Insurance Company (“Farmers”) about becoming a Farmers insurance agent.  After being recruited by Farmers, Morris became a Farmers agent in 2007 and continued to be an agent for Morris Insurance.  In September 2009, Farmers notified Morris that he would be terminated due to a conflict of interest.             

Morris sued Farmers, arguing that Farmers had fraudulently induced him to become a Farmers agent.  Several employees of Farmers who recruited Morris testified at trial that they told him that continuing to work with Morris Insurance was permissible, and that they were unaware such an arrangement violated written rules applicable to Farmers' agents.  After a 5-day trial, the jury returned a verdict in favor of Morris.  Farmers filed a motion for a judgment as a matter of law (“JML”) at the close of Morris's evidence and again at the close of all the evidence.  The jury awarded $600,000 in compensatory damages and $1,800,000 in punitive damages and the trial court entered judgment on the jury's verdict. 

Farmers' arguments on appeal addressed reliance and damages.    

First, reliance.  Farmers argued that the judgment must be reversed, as a matter of law, because Morris could not have reasonably relied on the representation that his association with his father's insurance agency would not constitute a conflict of interest.  In other words, Farmers claims that the trial court was wrong to have submitted the issue of reliance to the jury.  The Court disagreed, finding that Morris reasonably relied on representations made to him by Farmers that he could be an agent for both Farmers and Morris Insurance.  

The Court disagreed with Farmers' arguments on appeal, noting first that Morris's status as an at-will employee for Farmers does not change the fact that he was fraudulently induced to change his relationship with Morris Insurance and begin writing insurance policies through Farmers.  Second, the Court disagreed that a “merger” or “integration” clause in the written agreements renders reliance on oral representations prior to execution of that contract unjustifiable.  Importantly, Morris's claim was not that the contract was fraudulent, but that he was fraudulently induced to enter the contract.  Third, the Court disagreed with Farmers' assertion that it was unreasonable for Morris to rely on oral representations made by Farmers representatives because Farmers gave Morris training materials (which were not part of the contract) indicating that a conflict of interest would exist in this situation.  The court noted that “[t]he only information contrary to what Morris had been told was buried in a 200-page manual among dozens of other documents…and even longtime Farmers employees were not aware of the existence of the statement.”    

Second, damages.  Farmers contended that the compensatory damages of $600,000 were not supported by the evidence.  The Court disagreed and held that Morris presented sufficient evidence of damages, which were the sales and commissions Morris would have made if he had stayed at Morris Insurance, estimated by Morris's performance at Farmers during the same time period.

The Court remanded for a hearing on the 1,800,000 award of punitive-damages.