In Allstate Insurance Company v. Warns, No. CCB 11-1846 (D. Md. Feb. 29, 2012), Allstate brought suit against one of its former adjusters who left the company and a short time later was hired by a plaintiffs' law firm with litigation pending against Allstate insureds. This opinion, which denied most of the defendant's dispositive motions, marks the conclusion of an initial skirmish in what promises to be a quite a battle.
The defendant adjuster had worked for Allstate for 33 years, and for at least the last five years of that allegedly had handled only lead paint poisoning cases. About a month after her resignation, she started working for a plaintiffs' law firm which specializes in lead paint cases. Allstate alleged in its lawsuit that the adjuster removed confidential information from the company before she left, and that 68 new lead paint cases had been filed against Allstate's insureds in the year following the adjuster's departure.
Represented by the law firm of SNR Denton, Allstate in its complaint alleged breach of fiduciary duty, and breach of contract based on the language in Allstate's Code of Ethics. Allstate sought compensatory and punitive damages, as well as injunctive relief, including an injunction ordering the adjuster to cease working for the plaintiffs' law firm or any other attorney representing plaintiffs in lead paint litigation.
The adjuster filed a motion to dismiss or for summary judgment, denying all the allegations, and averring that at the plaintiffs' law firm, she only works on cases in which Allstate does not provide insurance coverage for the defendant.
The Court granted the motion for summary judgment on the punitive damages claims, and denied the motion as to all other claims.
Concerning the breach of fiduciary duty claim, the Court stated that although there is no authority which expressly creates an independent cause of action for a breach of the duty not to misappropriate or disclose confidential information after the termination of the employment relationship, the weight of authority in both Maryland and other states suggests that such a cause of action may lie. However, the Court observed that under the leading Maryland precedent, Kann v. Kann, 690 A.2d 509, 521 (Md. 1997), and its progeny, courts have limited independent causes of action for breach of fiduciary duty to those seeking equitable relief. Thus, as a result of a successful common law breach of fiduciary duty, Allstate may be given injunctive relief, but punitive damages are not available, and any claim for compensatory damages will have to be supported by a successful breach of contract action.
The Court recognized, but did not reach, the issue whether the Maryland Uniform Trade Secrets Act (MUTSA) preempts at least some common law claims for breach of fiduciary duty, as it is the exclusive remedy for civil claims based on misappropriation of trade secrets.
The Court found that there were enough factual allegations concerning the Allstate Code of Ethics for the breach of contract claim to survive the defendant's dispositive motion at this stage of the proceedings. However, the Court pointedly observed that there was no allegation that the defendant adjuster had ever signed the Code of Ethics or that the Code of Ethics had been incorporated by reference into a contract of employment.
Finally, the Court denied Allstate's motion for a preliminary injunction, and denied Allstate's motion to place record materials under seal since redaction provides sufficient protection.
Impact: As a result of this lawsuit, Plaintiffs' law firms will likely be a little more cautious about hiring former insurance adjusters. Insurers, for their part, may take a look at their employment contracts to tighten up the restrictive convenants.
A plaintiffs' lawyer, Ron Miller, Esq., has an interesting take on this case on the Maryland Injury Lawyer Blog.