The agency-sale package carries three restrictive covenants. The non-compete restricts the seller from the insurance business as principal, employee, owner, investor, or consultant. The non-piracy (or non-solicitation) restricts the seller from soliciting, accepting, or servicing specific clients. And the non-hire restricts hiring or soliciting specific employees. They look like a unified wall, but they enforce very differently — and a buyer who leans on the non-compete as the primary protection is leaning on the weakest of the three.
§ 01 · The three covenantsMarket terms.
| Covenant | Market terms |
|---|---|
| Non-compete | 3–5 years, 25–50 miles, all lines — above 5 years or 50 miles invites narrowing |
| Non-piracy | 5+ years, unlimited geography, a specific client list — restriction travels with clients |
| Non-hire | Restricts hiring or soliciting specific named employees |
The non-compete's terms run 3–5 years in duration, 25–50 miles in geography, all lines of insurance in scope, and principal/employee/owner/investor/consultant in activities — and pushing past 5 years or 50 miles invites a court to narrow it. The non-piracy runs differently: 5 years minimum (often longer), unlimited geography (because the restriction travels with the clients, not a location), a specific client list delivered at closing, and soliciting/accepting/servicing the listed clients in scope. The geography difference is the tell — a non-compete is tied to a place, a non-piracy is tied to the asset.
§ 02 · Why non-piracy enforcesThe asset, not the right to work.
Don't rely on the non-compete as primary book protection. It's subject to a reasonableness test in most states; some states ban it outright except in limited sale-of-business contexts; and even enforcing states trend toward narrowing. Under the blue-pencil doctrine, a court finding it unreasonable can narrow it — or strike it entirely. Non-piracy enforces almost uniformly, because it restricts only the specific asset the buyer paid for, not the seller's general ability to work.
The reason the distinction matters is enforceability under pressure. A non-compete bars the seller from earning a living in their field, so courts scrutinize it hard and several states refuse to enforce it outside narrow sale-of-business carve-outs. A non-piracy bars the seller only from taking back the specific clients the buyer just bought — courts find that reasonable almost every time, because it protects a paid-for asset rather than restraining trade. The practical conclusion is to treat the non-piracy as the load-bearing covenant and the non-compete as a supplement that may or may not survive a challenge.
§ 03 · Making non-piracy biteThree client-list disciplines.
The non-piracy is only as strong as its client list, and three drafting disciplines make it bite. First, the list is attached at closing as a schedule — not "clients as known by seller," which invites argument about who was a client. Second, a broad client definition covers clients serviced at any time during a 24-month lookback before closing, not just those active at closing, so a recently-lapsed client the seller could win back is still covered. Third, family and entity extensions cover the client plus related entities, family members, and successors — because insurance clients run accounts across multiple LLCs and household members, and a list that names only the signing entity leaves the rest open. The liquidated-damages formula gives the covenant teeth: 150–200% of the violated account's annual commission (a $12K client lost becomes $18K–$24K per breach), with deliberate or repeat breaches sometimes 2.5–3×.
§ 04 · The enforceability scaffoldingLiquidated damages and state law.
Liquidated damages survive a two-part test: actual damages must be difficult to calculate (easy to show, since lifetime client value is speculative) and the stipulated amount must be a reasonable estimate of the loss rather than a penalty (150–200% captures the typical two-to-three-year revenue tail, while above 10× annual commission risks being struck as an unenforceable penalty). Four enforcement mechanics make the formula operable — a seller reporting obligation for client contacts during the covenant period, a buyer audit right, 30-day payment timing after a breach notice, and attorneys' fees to the prevailing party. Three state-law disciplines protect the whole structure: a choice-of-law clause picking a favorable enforcement state, a severability clause so an unenforceable portion doesn't take the rest down, and a blue-pencil grant where state law permits, giving a court explicit authority to narrow rather than strike. And allocating 2–5% of the purchase price to the non-compete in the asset schedule strengthens the consideration argument — especially where ongoing earnout or seller-note payments are made contingent on covenant compliance, which reinforces enforceability in states that require continuing consideration.
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Terminology on this shelf
- Non-compete
- The covenant barring the seller from the insurance business — 3–5 years, 25–50 miles, the most vulnerable to challenge.
- Non-piracy
- The covenant barring solicitation of specific listed clients — the durable, near-uniformly-enforced protection.
- Blue-pencil doctrine
- A court's power to narrow or strike an unreasonable covenant — the reason not to over-reach.
- Client-list disciplines
- Schedule at closing, 24-month-lookback definition, and family/entity extensions — what makes non-piracy bite.
- Liquidated damages
- 150–200% of the violated account's annual commission — the formula that survives the penalty test.
- State-law scaffolding
- Choice of law, severability, and a blue-pencil grant — the clauses protecting enforceability.