Windsor Securities, Inc. v. Hartford Life Insurance
986 F.2d 655 (1993)
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Rule of Law:
Conduct motivated by a legitimate business purpose and not independently wrongful (i.e., not tortious or illegal) does not constitute improper interference with a contract, even if it makes another party's performance of their own contract more burdensome or expensive.
Facts:
- Hartford Life Insurance Company offered a variable annuity contract that allowed owners to reallocate funds among different sub-accounts 'at any time'.
- Paul Prusky, president of Windsor Securities, Inc., used these contracts for a 'market timing' investment strategy, which involved frequent trading on behalf of his clients.
- Between 1987 and 1990, Windsor managed contracts for dozens of clients, including Walter Arader, and regularly made transfers via telephone, which Hartford honored.
- Clients provided Hartford with letters granting Windsor power of attorney to make transfers 'as often as Windsor Securities, Inc. deems necessary', and Hartford did not object.
- Beginning in 1988, Hartford determined that the high volume of transfers from market timing was increasing costs and disrupting investment strategies for all contract owners.
- On April 24, 1990, the funds' board of directors directed Hartford to take action to mitigate the negative impact of market timing.
- In May 1990, Hartford announced new restrictions requiring third-party agents like Windsor to sign a 'Third Party Transfer Services Agreement' (TPTSA) that capped daily transfers at $5 million.
- Windsor and its client, Arader, refused to execute the TPTSA or the required new power of attorney, effectively preventing Windsor from managing their accounts.
Procedural Posture:
- Windsor Securities, Inc. and Walter Arader sued Hartford Life Insurance Company in the U.S. District Court for the Eastern District of Pennsylvania.
- Windsor alleged tortious interference with its management contracts, and Arader alleged breach of contract.
- The district court denied the plaintiffs' motion for a preliminary injunction.
- On cross-motions for summary judgment, the district court ruled in favor of Windsor on its tortious interference claim and in favor of Arader on his breach of contract claim.
- Following a determination on damages, the district court found that both plaintiffs failed to mitigate their damages, reducing Windsor's award and eliminating Arader's entirely.
- A final judgment was entered for Windsor against Hartford in the amount of $265,490 and for Hartford against Arader.
- Hartford appealed the judgment of liability in favor of Windsor to the U.S. Court of Appeals for the Third Circuit. Windsor and Arader cross-appealed the court's findings on mitigation of damages.
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Issue:
Does a company's imposition of restrictions on third-party agents, motivated by a legitimate business purpose to protect its financial interests and the interests of its other customers, constitute improper interference with the agents' contracts with their clients?
Opinions:
Majority - Scirica, Circuit Judge.
No. A company's imposition of restrictions, when motivated by a legitimate business purpose and not independently wrongful, does not constitute improper interference with contract. The court reasoned that even if Pennsylvania were to adopt the tort of interfering with another's performance of their own contract (Restatement § 766A), Hartford's actions were not 'improper' under the controlling seven-factor test from § 767. The court rejected Windsor's argument that Hartford's breach of contract with investors was 'independently wrongful' conduct, clarifying that such conduct must be tortious or illegal, not merely a contractual breach. The court gave substantial weight to Hartford's legitimate business motives: protecting its financial interests and fulfilling its fiduciary duty to all contract owners by mitigating the negative effects of market timing. Since Hartford was not motivated by malice and its conduct was not independently wrongful, its interference was not improper. The court affirmed, however, that Hartford did breach its contract with Arader, as the contract did not prohibit the use of an agent, but also affirmed that Arader was not entitled to damages because he failed to mitigate his losses.
Analysis:
This decision significantly clarifies the 'impropriety' element of a tortious interference claim under Pennsylvania law, setting a high bar for plaintiffs. By explicitly excluding mere breach of contract from the definition of 'independently wrongful' conduct, the court strongly protects a company's right to act in its own legitimate economic self-interest. The ruling establishes that actions motivated by genuine business concerns, rather than malice, will receive substantial deference from courts, even if those actions disrupt the contractual relationships of third parties. This precedent makes it more difficult for plaintiffs to succeed on tortious interference claims without showing the defendant's actions were illegal, tortious, or completely devoid of a valid business justification.
