425 Mass. 63 | Mass. | 1997
This appeal arises from an action brought by
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.
Facts. The parties stipulated to the following facts. Between April 1, 1986, and March 30, 1991, Bacon Wilson was a professional corporation with Ratner as its president and a shareholder. New England issued to Bacon Wilson a lawyer’s malpractice policy with a policy period from April 1, 1990, to March 31, 1991. The policy was a claims-made policy, providing coverage for claims “first made against the Insured and reported to the Company during the policy period.”
Sunrise first made a claim against Ratner between November 30, 1987, and January 23, 1989. Within that same period, Sunrise “through its oral communications and dealings with Ratner . . . first made a demand for money or services to be provided by Bacon & Wilson.” The parties also agree that Ratner was aware, by November 30, 1987, of circumstances that might give rise to a claim by Sunrise against Bacon Wilson. During this time, however, Ratner did not communicate the existence of any claim to the other officers or shareholders of Bacon Wilson. Moreover, although Ratner was aware of the possibility of a claim against Bacon Wilson by November 30, 1987, the claim was not reported to New England until December 6, 1990, when Ratner, on Bacon Wilson letterhead, finally sent a report to New England. The report to New England enclosed a claim letter, dated November 30, 1990, from Sunrise to Ratner regarding the
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 allow recovery for innocent insureds and recognize 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).
Under agency principles, notice to a corporation’s agent is notice to the corporation. “When an agent acquires knowledge in the scope of [his] employment, the principal... is held to have constructive knowledge of that information.” DeVaux v. American Home Assur. Co., 387 Mass. 814, 818 (1983), citing Bockser v. Dorchester Mut. Fire Ins. Co., 327
Ratner, as president and comanager of Bacon Wilson, was an agent of Bacon Wilson who was acting within the scope of his employment when he learned of circumstances that might give rise to a claim against both him and Bacon Wilson.
This conclusion cannot be avoided by Sunrise’s argument that Ratner’s knowledge is not imputable to Bacon Wilson because he was acting adversely toward Bacon Wilson. The Restatement (Second) of Agency, supra at § 282 (2) (a), provides that the principal is affected by the knowledge of an agent who acts adversely to the principal if “the failure of the agent to act upon or to reveal the information results in a violation of a contractual or relational duty of the principal to a person harmed thereby.” Clearly, Ratner’s failure to share his knowledge resulted in Bacon Wilson’s noncompli
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.
That the insurance contract recognized that both the professional corporation and individuals were separate insureds under the contract does not, as Sunrise argues, compel the conclusion that Ratner’s knowledge cannot be imputed to the corporation as a matter of contract law. Insuring both the
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.
So ordered.
The amount was subsequently reduced by agreement of the parties to $376,000, plus interest and costs.
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
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. ...”
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.
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.
The action against Ratner is not before us; it is agreed that the policy does not cover him.
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 § 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 § 282 (1), supra at 612, provides that, “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 § 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).
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.
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.