Court draws distinction between a brokerage and a consultant

Non-compete agreement

Citing the lack of a non-compete agreement, as well as the difference between insurance consulting services and those of a traditional insurance brokerage, the Ontario Superior Court declined to order an injunction that would stop two First Nations land claims businesses from competing against one another.

Nativelands Specific Claims Group and Aboriginal Insurance Services sought a court injunction that would have effectively shut down Justice Risk Solutions, a specialized insurance brokerage operating in the First Nations land claims space, the court described the injunction.

Individual defendants named in the claim work for or consult with Justice Risk Solutions. The defendants were former employees or consultants of the plaintiff, Nativelands, the court observed.

Nativelands’ injunction sought to stop Justice Risk Solutions from competing against Nativelands’ business, soliciting its clients or hiring away employees. It also wanted the court to bar the insurance brokerage from using, reproducing, disseminating, or disclosing confidential documents belonging to Nativelands.

Ontario’s court granted the latter part of the injunction – returning Nativelands’ property — although it noted the insurance brokerage did not use any of the materials it retained. But it declined to stop the brokerage from competing with the consulting firm.

“In the first place, none of the defendants have a non-competition or non-solicitation agreement with the plaintiffs,” Ontario Superior Court Justice Edward Morgan wrote in a decision for the court, which went on to note the brokerage did not try to lure clients away from Nativelands. “It is well-established that without any agreements covering these issues, the law does not prohibit former employees, to say nothing of independent contractors, from competing with their former employer.”

Related: Why brokers should check their older non-compete agreements

A second reason for denying the injunction, the court said, is that the two businesses — although both specialized in the same narrow field of First Nations land claims — did not offer services in direct competition with one another.

“There is considerable difference in the way each of the sides describes the services provided by their respective insurance brokerage business,” the court found. “Defendants’ counsel uses the phrase ‘two ships passing in the night’ to characterize the competing descriptions.”

Nativelands told the court it provides services extending beyond those of simply placing insurance coverage. For example, they not only place insurance for First Nations groups, but they are deeply involved in helping their clients work up the claims.

“The specific claims covered by this insurance funding include treaty-based land claims, flooding damage, and agriculture-related claims,” the court observed. “[Nativelands] submit[s] that their business is founded on, and comprised of, a long history of knowledge of the specific claims process and the collection of the kind of evidence required for such claims.

“They state that they have invested substantial time and financial resources in building alliances with band councils and First Nations. They also indicate that they have invested great energy in nurturing relationships with service providers such as lawyers, researchers, banks, insurance companies, appraisers and valuators, and underwriters, all of whom play an integral role in the specific claims process.”

Justice Risk Solutions, on the other hand, behaves more like a traditional insurance brokerage, the court found.

“In short, [Nativelands’] business seems to have very little in common with what one thinks of as the typical insurance brokerage,” the court concluded. “It likewise has very little in common with the description of the business provided by the defendants [Justice Risk Solutions] and their counsel.

“The defendants portray themselves as carrying on a brokerage business rather than a consulting business. In making her submissions at the hearing, defendants’ counsel presented the business in narrow terms. Her description of the defendants’ business was such that it differs little from the type of brokerage one might engage when looking for automobile, household, or commercial insurance, albeit in a specialized insurance context. She also pointed out that the regulatory and licensing environment in which the defendants work is the same as that which applies to all insurance brokers and their firms.”

Since Nativelands’ business operated more like a consultancy and Justice Risk Solutions operated more like a traditional insurance brokerage, the court found the two businesses were not direct competitors in the First Nations land claims space.

 

Feature image courtesy of iStock.com/William_Potter