Tort/Negligence – Breach of Fiduciary Duty – Insurance Agent – Ghost Policies – Contract – Merger & Shareholder Agreements

Defendants argue that plaintiff, as an officer of the defendant-agency, breached his fiduciary duty to the agency by issuing false certificates of insurance (COIs). However, plaintiff explains that he issued the false COIs in what he believed was the best interest of the agency. Consequently, there is a genuine issue as to whether plaintiff breached his fiduciary duty.

The parties’ cross-motions for summary judgment are granted in part and denied in part.

Plaintiff worked as an employee of the agency for a time before he was made an officer and shareholder. Disputes arose after a second agent was also made a shareholder.

As an example of why he issued false COIs, plaintiff points to Armstrong Lawn, a “one-person firm” whose lawncare client “refused to pay unless Armstrong could produce proof of workers’ compensation coverage.” Plaintiff issued Armstrong Lawn a “ghost policy,” which is a “minimum premium proof of workers’ compensation coverage that does not actually cover anyone.” While Armstrong Lawn did have a commercial insurance policy with the agency, the company would not receive payment for work done unless it produced a ghost policy. Plaintiff contends that he has a similar explanation for every false COI he issued, and, therefore, that he honestly believed his decisions were in the best interest of the agency.

Defendants seek affirmative summary judgment on their counterclaim for breach of fiduciary duty. Since they have failed to show that there are no gaps in their proof given that there remains an issue as to whether plaintiff breached a fiduciary duty owed to the agency as its officer if his actions were taken in good faith, summary judgment would be improper.

Whether defendants’ unfair trade practices counterclaim is based on plaintiff’s employment with the agency or on his status as an officer and shareholder, plaintiff’s actions were not in or affecting commerce. Defendants have not made out a claim for unfair trade practices.

Defendants have not made out a claim for fraud in the merger agreement between the defendant-agency and plaintiff’s own company. The false COIs that plaintiff issued were in the name of the defendant-agency, not his own company. Accordingly, plaintiff’s company did not produce any false COIs.

Plaintiff’s purchase of Nationwide revenue streams from the agency did not create a partnership between plaintiff and defendant Griffin (then sole owner of the agency). Accordingly, prior to plaintiff becoming a minority shareholder in the agency, Griffin did not owe him a fiduciary duty. Defendants are entitled to summary judgment on plaintiff’s claim of breach of fiduciary duty for the period preceding 1 December 2018, when plaintiff became a shareholder of the agency.

After plaintiff became a minority shareholder, then Griffin – as majority shareholder – owed him a fiduciary duty. However, there is a question of whether Griffin remained the majority shareholder after a second agency employee was also made a shareholder. Defendants are not entitled to summary judgment on plaintiff’s breach of fiduciary claim for the period after 1 December 2018.

There is a genuine issue as to whether there was mutual consent of all parties to modify the shareholder agreement between plaintiff and Griffin to add another shareholder. Plaintiff’s claims of conversion and unjust enrichment survive summary judgment.

Motions granted in part, denied in part.

Loyd v. Griffin (Lawyers Weekly No. 020-026-23, 53 pp.) (Michael Robinson, J.) Michael Levine, Cathy Williams, John Austin and Gary Mauney for plaintiff; Mitchell Blankenship and Joshua Bennett for defendants. 2023 NCBC 26