The Competitive Advantage: Agency-Carrier Contract Negotiations

One of the worst sentences a contract attorney’s clients can hear when that attorney is opining on some onerous clause is absolutely the phrase: “I can win this in court.” For example, when a carrier gives an agency a new contract with severely lopsided clauses and your attorney says, “It’s ok. If something goes wrong, we can win in court.” Run or fire the attorney.

Here’s three reasons why such a prognostication is suicide:

When you sign a contract, you have a responsibility to read it and negotiate it before signing. Beyond responsibility, unless the reader is Mr. Moneybags, it is almost always far less expensive to negotiate before a contract is signed than after. Additionally, before a contract is signed, you have more leverage. This part is not rocket science and it does not take a law degree.

Even if a party later determines an honest difference of opinion exists regarding the onerous clause, can you really afford the fight? Understand, court battles are not about justice. They are about winning. Winning, especially if you are right and the other party is unequivocally wrong and knows they are wrong but has deep pockets, does not mean they are going to admit they are wrong nor does it mean a court will recognize they are wrong. In cases like this, they often fight even harder because they can’t afford to set precedence.

Understand, too, that a contract attorney is rarely a litigating attorney. If they are both, they probably are not that good at one or the other or they would be practicing what they were really good at full time.

My experience as an expert witness working with both kinds of attorneys (contract and litigators) is that if you want to know whether something can be won in court, hire a litigator to review the situation. Do not depend on the contract attorney.

Another good use of a litigating attorney I’ve learned is that a litigating attorney is a good auditor of whether the contract attorney has written a strong contract.

If anyone advises, “We can win in court,” when they are working by the hour and they do not advise that even with the best case, you are still likely to lose 20 percent of the time, find a different attorney.

The 20 percent rule is a good rule of thumb. The best litigating attorneys are consistent and even with the best cases, they still have a 20 percent chance of losing.

Why would an attorney, or anyone, so confident of winning in court not be confident of winning in negotiating the contract before it is signed? In my experience, it is because they do not know how to negotiate and/or they do not like confrontation.

If they do not know how to negotiate and they do not handle confrontation well, how will they win in court?

The following are a few better solutions to consider:

You always have more leverage before signing a contract because you haven’t already agreed to the contract by signing it.

Even if the other party will not budge and is transparent regarding their unwillingness to budge, you always have more leverage before signing a contract because you can always walk away from the deal before you sign it.

If you must sign the egregious contract, or any contract, you absolutely must have the carrier/vendor negotiate anyway or sign it under stated duress. With a good attitude, benefits exist and one can have some fun with the other party even in these situations.

Contracts signed in these scenarios may be termed as signed under duress, too. If you then have to go to court, at least you can, if documented, make the case the contract was signed under duress instead of having to explain you were an idiot for signing such a one-sided agreement.

What can you do to avoid being put into a “I have no choice but to sign” situation?

• Don’t use company service centers. If you do, eventually you will find yourself in this situation unless you are exceptionally good and take the time to build a quality contingency plan.
• Don’t put all your eggs in one basket – period.
• If you are conflict adverse, which many agency owners and executives are, hire someone who is not conflict adverse to manage your carrier relationships. Most of the conflict is only in the heads of the agency owner/executive. It is a figment of their imagination although after trying to explain this point to dozens and dozens of agency owners, the conflict is as real to them as if a tank was knocking on their door. The anxiety is real. It reminds me of movies where a drugged-out character hallucinates. Their hallucinations are real to them. The conflict anxiety is real, but only to one person.

Even when one feels they absolutely have no choice but to sign an unfair contract the attorney “can win in court,” is the decision being made without thinking the world will change? I hear agents say: “But they’re the only company that will write….” This is such a soft market and a fast-changing market that with the right strategy and quality execution of that strategy, other options almost always exist.

Even if choices do not exist today, a high probability exists that new options will appear in the near future so why close the door to those options by signing a horribly unfair contract today? At least procrastinate signing.