Source: http://masscases.com/cases/sjc/425/425mass63.html
Timestamp: 2019-04-18 14:39:52+00:00

Document:
SUNRISE PROPERTIES, INC. vs. BACON, WILSON, RATNER, COHEN, SALVAGE, FIALKY & FITZGERALD, P.C., & another [Note 1] (and a companion case [Note 2]).
CIVIL ACTIONS commenced in the Superior Court Department on August 14, 1991, and March 3, 1993, respectively.
Following entry of judgment in the first action, a motion for an order directing payment of the judgment and a second action seeking declaratory relief were consolidated and heard by Bertha D. Josephson, J., on motions for summary judgment.
Erik Lund (Laurence Field with him) for New England Insurance Company.
Paul S. Weinberg (Paul H. Rothschild with him) for Sunrise Properties, Inc., & others.
Following the entry of judgment, Sunrise moved pursuant to Mass. R. Civ. P. 69, 365 Mass. 836 (1974), for an order directing New England to satisfy the judgment. New England commenced a declaratory judgment action seeking a determination that under the policy Bacon Wilson was not covered for this loss. The cases were consolidated and on the parties' cross motions for summary judgment the judge allowed Sunrise's motion for summary judgment. We granted New England's application for direct appellate review. We vacate the order of the Superior Court granting summary judgment to Sunrise and conclude that an order allowing New England's summary judgment motion should be entered.
Discussion. Sunrise argues that, while ordinarily under the terms of the insuring agreement a claim must be reported to the insurer by the insured during the policy period in order to be covered, Condition III of the Agreement, the so-called "innocent insured" provision, waives the consequences of failing promptly to report a claim to the insurer where neither the other shareholders nor the corporation knew of the claim. Moreover, according to Sunrise, under the terms of the policy, Bacon Wilson cannot be deemed to have known of any claim against it because the terms of the insurance contract allows recovery for innocent insureds and recognizes that the individual shareholders and the professional corporation were all separate and potentially innocent insureds under the contract. Thus, according to Sunrise, any arguments based on agency principles are irrelevant. Sunrise further argues that, even if agency principles were relevant, Ratner's knowledge should not be imputed to the professional corporation because he was acting adversely to the corporation. We disagree.
A corporation is a separate and distinct legal entity. See Spaneas v. Travelers Indem. Co., 423 Mass. 352 , 354 (1996); Gurry v. Cumberland Farms, Inc., 406 Mass. 615 , 625-626 (1990). A corporation, however, can only act through its agents. See Commonwealth v. L.A.L. Corp., 400 Mass. 737 , 743 (1987); Commonwealth v. Beneficial Fin. Co., 360 Mass. 188 (1971), cert. denied sub nom. Farrell v. Massachusetts, 407 U.S. 910, and sub nom. Beneficial Fin. Co. v. Massachusetts, 407 U.S. 914 (1972).
Mass. 473, 477-478 (1951), and Union Old Lowell Nat'l Bank, 318 Mass. 313 , 323-324 (1945). Juergens v. Venture Capital Corp., 1 Mass. App. Ct. 274 , 278 (1973) (corporate officer's knowledge of transaction was constructive notice to corporation). However, an agent's knowledge of his own unauthorized acts is not imputed to the principal when the agent has acted fraudulently toward the principal and is engaged in an independent fraudulent act from which the principal does not benefit. Tremont Trust Co. v. Noyes, 246 Mass. 197 , 207 (1923). See Restatement (Second) of Agency s. 282 (1958) ("[a] principal is not affected by the knowledge of an agent in a transaction in which the agent secretly is acting adversely to the principal and entirely for his own or another's purposes").
ance with the terms of the insurance contract, and such delay, by its very nature, adversely affects an insurer issuing a claims-made policy. [Note 9] Tenovsky v. Alliance Syndicate, Inc., 424 Mass. 678 , 681 (1997).
Because, as a matter of law, Bacon Wilson knew of circumstances that could reasonably be expected to result in a claim by January of 1989, it was obligated to report the claim as soon as was practicable within the 1988-1989 policy year. [Note 10] Failure to do so relieved New England of any obligation to Sunrise arising under the policy. Because Bacon Wilson is deemed to have knowledge of the claim, it is afforded no relief under the innocent insured provision of the policy. Indeed, while Sunrise argues that a corporation cannot "personally" commit or participate in any wrongdoing contemplated by the innocent insured provision, a corporation cannot absolve itself of its agent's wrongdoing by hiding behind the corporate shield. See Commonwealth v. L.A.L. Corp., supra at 743 (corporation may be criminally liable for wrongdoings of its agents); United States v. Bank of New England, 821 F.2d 844, 856, cert. denied, 484 U.S. 943 (1987) (knowledge obtained by corporate employees acting within scope of their employment is imputed to corporation, in context of corporate criminal liability).
Contrary to Sunrise's assertions, our interpretation of the policy does not render the innocent insured provision meaningless and deprive Bacon Wilson of the benefits of its bargain. By concluding that Bacon Wilson is not covered because the claim was not reported as required, we offer no opinion on the policy's applicability as to other insureds who may be personally liable.
The judge's order is vacated and the case is remanded to Superior Court for further proceedings consistent with this opinion.
[Note 1] Michael S. Ratner.
[Note 2] New England Insurance Company vs. Sunrise Properties, Inc., & others.
[Note 3] The amount was subsequently reduced by agreement of the parties to $376,000, plus interest and costs.
[Note 4] The insuring agreement portion of the policy provided that New England would "pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any claim or claims . . . first made against the Insured and reported to [New England] during the policy period, or extended reporting period if elected by the Insured ... except as excluded or limited by the terms, conditions and exclusions of this policy."
[Note 5] Condition III of the policy provided: "Whenever coverage under any provision of this policy would be excluded, suspended or lost ... (b) because of noncompliance with any condition relating to the giving of notice to [New England] with respect to which any other Insured shall be in default solely because of the default, or concealment of such default, by one or more Insureds responsible for the loss or damage otherwise insured hereunder; [New England] agrees that such insurance as would otherwise be afforded under this policy shall continue in effect, cover and be paid with respect to each and every Insured who did not personally commit or personally participate in committing or personally acquiesce in or remain passive after having personal knowledge of one or more of the acts, errors or omissions described in any such exclusion or condition. . . ."
[Note 6] Between April 1, 1987, and March 31, 1990, New England had issued three other lawyer's malpractice policies to Bacon Wilson (i.e., three policy years prior to the 1990-1991 year at issue here). The policy forms were identical in all material respects.
[Note 7] While ordinarily whether an individual is acting within the scope of employment is a question for the jury, DeVaux v. American Home Assur. Co., 387 Mass. 814 , 818 (1983), Sunrise does not contend that Ratner was ever acting beyond the scope of his employment in his dealings with Sunrise. Indeed, if Ratner was not the correct person to be notified by Sunrise regarding the circumstances of the malpractice allegations, then it is difficult to conceive who should have been notified. Moreover, when ultimately it became necessary to notify New England that a claim had been asserted against Bacon Wilson, it was Ratner who performed that task. Thus, Sunrise's argument is that Ratner's knowledge cannot be imputed to Bacon Wilson because, as a matter of law, the contract prohibited such an imputation. See infra at 68-69.
[Note 8] The action against Ratner is not before us; it is agreed that the policy does not cover him.
[Note 9] To the extent Sunrise argues that Ratner was acting not only adversely to Bacon Wilson, but fraudulently as well, we note that Restatement (Second) of Agency s. 282 (2) (1958), also encompasses such a situation. Indeed, where, as here, New England was affected by Ratner's allegedly fraudulent behavior, the comment to s. 282 (1), supra at 612, provides that, 11 a principal may be liable for the fraud of an agent who is acting entirely for his own purposes but who, to the defrauded party, is apparently acting for the principal." Moreover, the comment to s. 282 (1) provides that, "[i]f, however, the agent fails to reveal [a relevant] fact in order to accomplish some fraud of his own antagonistic to the interests of the principal, the principal is not bound . . . subject to exceptions similar to those stated in Subsection (2)." See National Credit Union Admin. v. Ticor Title Ins. Co., 873 F. Supp. 718, 762 (D. Mass. 1995).
[Note 10] Sunrise does not appear to dispute that, if Ratner's knowledge is imputable to Bacon Wilson, a claim against Bacon Wilson within the meaning of the policy was made by 1989.
[Note 11] Sunrise relies heavily on Jensen v. Snellings, 841 F.2d 600, 617-618 (5th Cir. 1988), where the court concluded that the knowledge of a lawyer who was a partner in a firm was not imputable to the law firm. We do not find this case persuasive, however, because the court reached this conclusion without any discussion as to why the partner's knowledge is not imputable to the firm or how a firm would acquire knowledge if knowledge of a partner is not sufficient. Id.

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