Thе plaintiff, Markel Service Insurance Agency, Inc. (Markel), 1 filed suit against Tifco, Inc. (Tifco), and John D. Ryan, doing business as John D. Ryan Insurance Agency (Ryan), to recover for losses caused by Ryan’s fraudulent conduct. Markel serves as the general agent for a number of insurance underwriters, while Tifco finances insuranсe premiums. Ryan, now bankrupt and not a party to this appeal, was an insurance broker who engaged in a fraudulent course of conduct that resulted in substantial economic losses to both Markel and Tifco.
Markel sought to recover, as a third-party beneficiary, the amount of the premiums finаnced by Tifco and paid to Ryan on the account of Markel’s insureds. Markel also seeks to hold Tifco liable for Ryan’s fraud on theories of agency, negligent supervision, and violations of G. L. c. 93A (1986 ed.).
Tifco defended on the theories that Markel put Ryan in a position to commit fraud by failing to supervisе him, by the intentional and negligent misrepresentation of Ryan’s credit worthiness, and by aiding and abetting fraud. Tifco also counterclaims based on similar theories and violation of G. L. c. 93A. In addition Tifco claims that payment was made to Ryan as the insurer’s agent.
After a jury-waived trial, a judge in the Superior Court found in favor of Markel on its third-party beneficiary claim and entered damages in the amount of $181,463.39, which represents the amount of premiums financed by Tifco on premium financing agreements (PFAs) generated by Ryan, which Tifco remitted to Ryan, and which Markel never received. 2 The judge also found in favor of Markel on Tifco’s counterclaims. Tifco appealed and we granted Tifco’s application for direct appellate review. We reverse the judgment in favor of Markel and remand the case to the Superior Court for the entry of judgment for Tifco.
Under the brokerage agreement, Ryan was “primarily liable to Markel for the full amount of the premium” and Markel billed Ryan on a monthly basis for the premium due from the preceding month’s business.
Those insureds who wished to finance their premium obligations with Tifco executed a PFA provided to Ryan by Tifco. The PFAs provided that Tifco would pay the premium to the designated insurance company and the insured agreed to repay Tifco the amount financed in amortized monthly instalments which included a finаnce charge. The PFAs also assigned to Tifco as security all unearned and returned premiums and the PFAs gave Tifco a power of attorney to cancel the coverage in the event of an insured’s default.
Tifco paid Ryan, not Markel, the full amount of the financed premium knowing that Ryan did not immediаtely remit the premiums to Markel. After paying Ryan, Tifco sent an advice of financed premium to the appropriate underwriters, Markel, and Ryan. These advices notified them that the new policy was being financed and that Tifco was the assignee of unearned and returned premiums. Tifco’s advices also requested an acknowledgment of receipt. However, the judge found “Tifco procedures for monitoring receipt of acknowledged advices . . . were imperfect: of the accounts in question, Tifco could produce few Markel acknowledged Advices.”
On numerous occasions between 1980 and 1982, Markel directed Tifco to pay financed premiums directly to it rather than Ryan.
3
Tifco refused to pay Markel directly and notified
The financial losses at issue in this case resulted from Ryan’s misconduct.* ** 4 From 1980, to August, 1982, Anthony Ciulla managed Markel’s office in Belmont аnd was responsible for Ryan’s accounts. Throughout the Markel-Ryan relationship, Ryan was delinquent in paying his outstanding premium obligations, and his monthly delinquency ran anywhere from $20,000 to $70,000.
During 1981, the Markel home office notified Ciulla of its concern regarding Ryan’s continued delinquency. In December, 1981, Markel’s credit manager instruсted Ciulla not to “accept promises” from Ryan since two checks from Ryan were returned for insufficient funds. Because Ryan failed to reduce his delinquent balance, the credit manager wired Ciulla on January 22, 1982, and directed him to no longer bind Ryan business on a credit basis.
In January, 1982, Tifco also encountered a problem with Ryan,
5
and temporarily suspended Ryan’s premium finance activities on its behalf and investigated his credit worthiness. During the investigation, Tifco’s vice president in charge of credit talked to Ciulla. The judge found that, during the conversation Ciulla told him that Ryan “is a good class of business,” “at times runs a little slow,” “is presently OK,” and “is a very honest and sincere person.” The judge also found that Ciulla made those statements to Tifco’s vice president “only
In March, 1982, Tifco sought a professional credit report on Ryan after a check to Tifco was returned for insufficient funds. 7 After receiving the report, Tifco allowed Ryan to continue transacting PFAs on its behalf until June, 1982, when Tifco discovered that Ryan had submitted an unauthorized PFA.
Markel asserts that it is a third-party beneficiary of the PFAs between Tifco and the insureds, and is therefore entitled to рremiums Tifco paid to Ryan instead of Markel. 8 Markel argued, and the judge found, that Tifco and the insureds “contemplated payment to Markel of sums advanced under the note in order to satisfy the insured’s premium obligation,” and thus Markel was an intended creditor beneficiary of the PFAs. The judge also found that Tifcо’s payment to Ryan instead of Markel constituted a breach Markel could enforce.
We have recognized the right of a third party to enforce a contractual provision in its favor where that party is an intended beneficiary of the contract.
Rae
v.
Air-Speed, Inc.,
Tifco maintains, however, that the intended beneficiary rule does not аpply because its payment to Ryan constituted payment to Markel under G. L. c. 175, § 169 (1986 ed.). Markel concedes that, by virtue of G. L. c. 175, § 169, it would be charged with payment by the individual policyholders to either Ryan or Tifco, 9 but argues that the statute does not provide the same protection to Tifco.
The judge concluded that Tifco’s payment to Ryan did not constitute payment to Markel pursuant to G. L. c. 175, § 169, because Ryan was not a “negotiating broker” within the meaning of the statute. In so ruling, the judge relied upon our holdings in
Hudson
v.
Massachusetts Property Ins. Underwriting Ass’n,
As the findings disclose, Markel was the general agent of a number of insurance underwriters with authority to bind these underwriters to contracts of insurance. When Ryan’s customers elected to accept the coverage and rates quoted by Markel, Ryan booked the business with Markel and Markel bound the business without a down payment on the policy. An examination of the PFAs discloses that Markel is described as the insurer. It is apparent, therefore, that Markel as general agent with binding authority was acting in the stead of the underwrit
Our decisions in Hudson v. Massachusetts Property Ins. Underwriting Ass’n, supra, and Morton Furniture Co., supra, do not lead to a different conclusion. In Hudson, we held that the policy took effect when the Massachusetts Property Insurаnce Underwriting Association (MPIUA) received the premium, and we noted the unique statutory requirements that precluded the issuance of any insurance until certain preconditions had been met by the person seeking insurance and certain action taken by the insurer. The MPIUA then was neither the agent of the insurеr nor, because of the unique statutory requirements, acting as the insurer itself. Thus we held that it was the MPIUA, not the broker, “who settles the terms and conditions of the policy with the companies who provide coverage.” 11 Id. at 458. In Morton Furniture Co., supra, payment was made to a broker, who had no contact with the company or its general agent and was unknown to both.
Neither does the language of G. L. c. 175, § 169, specifically or by implication limit the statute’s protection. Settled principles of statutory construction dictate that we must construe § 169 in “light of the legislative objectives which were served by its enactment so as to effectuate the purpose of the framers.”
Interstate Eng’g Corp.
v.
Fitchburg,
So ordered.
Notes
Market Service Insurance Agency, Inc., and Markel Service, Inc., are separate but related entities and are referred to collectively as “Markel.”
The judge found in favor of Tifco on Market’s agency-fraud, negligence, and G. L. c. 93A claims. Markel does not appeal those rulings.
Markel would send Tifco a fоrm letter which acknowledged Tifco’s premium financing. The letters contained the following directions: “If we are to protect your company’s interest and to accept the terms of your finance agreement, we request premiums be paid directly to us.”
The judge found that, “[djuring the period 1978-1982, Ryan executed a scheme by which he would: (a) forge insured’s names on the PFAs, or fraudulently induce insureds to execute PFAs, or otherwise misappropriate funds; (b) collect the deposit premium from the insured; (c) finance the premium balance with Tifco; (d) receive the financed amount from Tifco; (e) fail to pay the premium payments to the insurer, or fail, on cancellation of policies, to return funds to Tifco. Ryan also misrepresented the status of insurance Coverage and premium finance agreements.”
An officer of the Andover Insurance Company notified Tifco that he had not authorized his signature on a verification of coverage form submitted by Tifco to Ryan.
The judge also found that “Ciulla was unaware of Ryan’s improprieties. Ciulla sponsored Ryan as a Markel producer only because Ryan generated a substantial volume of business. Ciulla was motivated solely by the desire to increase the amount of business emanating from the Belmont office and to that end he downplayed the risks presented by Ryan’s continuing delinquency.”
Over-all, the report was favorable and contained the following statement regarding the credit check with Markel: “Source indicated this has been a very very prоfitable book of business and payments are made as agreed and are current to date.”
Markel is designated as the insurer on the PFAs in question.
General Laws c. 175, § 169 (1986 ed.), provides: “An insurance agent or broker acting for a person other than himself in negotiating, continuing or renewing any policy of insurance or any annuity or pure endowment contract shall, for the purpose of receiving any premium therefor, be held to be the agent of the company, whatever conditions or stipulations may be inserted in the policy or contract.” This section protects insureds who reasonably believе that the broker who negotiates, continues, or renews insurance policies on their behalf is authorized to accept payment on behalf of the insurafice company.
Ritson
v.
Atlas Assurance Co.,
It would follow from the judge’s conclusion that premium payments by individual insureds to Ryan would also be outside § 169’s protection. Such an interpretation would frustrate § 169’s protective purpоse and in effect make it a nullity. Also, we can see no reason to distinguish between individuals and premium finance agencies when defining “negotiating broker.”
In
Hudson, supra
at 459, we also noted the significance of the statutory scheme: “Prior to the enactment of the Urban Property and Protection Act, owners of urban рroperty often could not obtain insurance. Thus, they did
The Appeals Court concluded that a finance agency has the same general duty as an insurance company to apply premium ovеrpayments to avoid policy forfeiture. Carter v. Empire Mut. Ins. Co., supra at 121. The Appeals Court’s reasoning is entirely consistent with the highly regulated area of premium financing. See, e.g., G. L. c. 255A (1986 ed.). See also G. L. c. 175, § 162B (1986 ed.) (“For the purposes of financing insurance premiums and the subsequent sale or other negotiation of any such note or instrument to a third party, insurance agents and brokers shall be considered to be sellers of insurance”).