Breach of confidentiality: keeping insurance information secret

Australian Insurance Holdings Pty Ltd v Chan [2010] FCA781 22 July 2010

This recent decision illustrates that the courts will protect sensitive pricing information and models associated with insurance product pricing.

Australian Insurance Holdings Pty Ltd (AIH) successfully sought an interlocutory injunction preventing an ex-employee from working for a competitor in certain defined roles.

AIH is part of a group of companies which market “Budget Direct” motor and home insurance policies. AIH claims it has a competitive advantage over its major competitors, Suncorp and the AIG group, because of its “accurate methodologies to assess risk”. AIH also asserts that as a result of these methodologies AIH has an industry leading loss ratio of 53% versus an industry average of 70%.

AIH sought various orders in the Federal Court against Mr Chan, an ex-employee who went to work for Suncorp-Metway.

Mr Chan, was employed by AIH in January 2008. In September 2009 he became “risk pricing manager” for AIH, a position which attracted a total salary package of approximately $100,000.

AIH alleged that this role provided Mr Chan with access to “vital trade secrets” and maintained that, as part of his role, Mr Chan was exposed to all aspect of AIH’s risk pricing methodologies and attended underwriting committee meetings. In addition, Mr Chan was tasked with co-ordinating and completing a major development of a component rating model for premium pricing.

Mr Chan’s employment contract with AIH contained extensive clauses dealing with his obligations to keep certain information confidential. This information specifically included “methods used to determine premiums for insurance products offered” and “plans or proposals relating to (AIH) including marketing and operating plans”.

In addition, his employment contract specifically provided that Mr Chan would not perform any work involving “analysis of, reporting on or review of information about insurance policies premiums or insurance product pricing for any person or entity which work was … for the benefit of any person or entity whose business is of a similar nature to (AIH) or is likely to be a competitor of (AIH)”.

Suncorp-Metway Limited was specifically listed as a “competitor” of AIH. Mr Chan’s employment contract provided for a maximum restraint period of twelve months and a minimum of three months.

Mr Chan resigned his employment with AIH on 3 June 2010 having signed a contract of employment with Suncorp-Metway dated 27 May 2010 that provided for a start date of 5 July 2010 with Mr Chan to occupy the role of “Queensland Motor Portfolio Manager”.

The position involved portfolio management and aiding in the strategic direction of the motor portfolio within Suncorp.

AIH brought proceedings in the Federal Court seeking an interlocutory injunction restraining Mr Chan from performing any work for Suncorp-Metway that involved analysis of, reporting on or review of information about insurance policies in the motor vehicle insurance or home insurance market.

The Federal Court granted an interlocutory injunction until the trial of the action. A factor favouring the granting the injunction was that Suncorp Metway could offer alternative employment to Mr Chan for the period of the injunction.

The court rejected arguments by Mr Chan that the restraints in the employment contract were likely to be found to be unreasonable, having regard to the interests of the parties. The court also rejected Mr Chan’s argument that the clauses were an improper attempt to protect AIH from competition.

The court found that there was a sufficiently strong prima facie case that AIH had a legitimate interest in preventing Mr Chan from taking a job with a competitor’s business, where that job was in precisely the same field of commercial activity within which Mr Chan had worked with AIH.

The court also observed that “so far as restraints are concerned, provided the contract can be given a meaning and the restraint is reasonable in terms of protecting the legitimate interest of a person to whom the promise has been made, the restraint ought not to be not simply ignored but given voice”.

The interlocutory injunction covers the period until the matter goes to trial, or the court makes a further or different order. As such, it is still open to Mr Chan to argue at the trial of the action that the restraints imposed on him by his employment contract with AIH are unreasonable.

Lessons for the industry and employers

• The case provides a timely reminder that a well drafted employment contract, containing appropriate restraints, may be effective as a tool for preventing an insurer’s sensitive premium pricing methodologies and other confidential information from being used by ex-employees who take up employment with competitors.
• The more targeted and precise the restraint to the legitimate business interests an employer is hoping to protect the more likely it is the restraint will be held to be reasonable.
• In granting injunctions the courts will balance the interests of the employer seeking to enforce the restraint and the interests of the ex-employee in seeking to maintain employment and protect their standing within an industry.
• Restraints are more reasonable when they are attempting to protect the confidential information of the employer.