Fid. & Dep. Co. v. PRESIDENT & DIRECTORS, ETC.
| Decision Date | 07 January 1980 |
| Docket Number | Civ. A. No. 78-1580. |
| Citation | 483 F. Supp. 1142 |
| Parties | FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff, v. The PRESIDENT AND DIRECTORS OF GEORGETOWN COLLEGE, Defendant. |
| Court | U.S. District Court — District of Columbia |
John A. Whitney, Alexander M. Heron, Pope, Ballard & Loos, Washington, D. C., for plaintiff.
Bruce R. Genderson, Williams & Connolly, Washington, D. C., for defendant.
Before the Court are Plaintiff's Motion for Summary Judgment and Defendant's Motion for Partial Summary Judgment in an insurance contract action brought by the Fidelity and Deposit Company of Maryland (Fidelity) against the President and Directors of Georgetown College (Georgetown). Jurisdiction is based upon 28 U.S.C. § 1332.
The Blanket Crime Policy was prepared by Fidelity, and Fidelity is responsible for the language used in Section 8.
In 1971 and 1972 Defendant was awarded a contract and a grant (grants) by the National Institutes of Health (NIH) to study hypertension. Dr. Frank Finnerty, Jr., a Georgetown faculty member, was the principal investigator of the grants until his resignation on August 1, 1976. Research pursuant to those grants was conducted in the Georgetown Clinic at D. C. General Hospital. Defendant used certain facilities at the hospital pursuant to an affiliation agreement. Other hypertension studies conducted at the Clinic were funded by the federal government and private pharmaceutical companies.
Georgetown University, was visited by a representative of the Federal Bureau of Investigation and an investigator employed by the NIH. During the course of that meeting, the representatives of the FBI and NIH informed Mr. Constantine that they were investigating certain allegations of improprieties committed by Dr. Finnerty, related to the contract between Georgetown University and the NIH.
The substance of the allegations was that the salaries of certain employees being paid by Georgetown were being charged to NIH on that contract when those employees were not doing any work on the NIH contract or were working only part time on that contract. It was alleged that those employees were actually working on research being conducted for private pharmaceutical companies by Dr. Finnerty under contracts between the drug companies and Hypertension Research Associates, Inc. (HRAI), a District of Columbia corporation controlled by Dr. Finnerty's wife, Frances Caputo Finnerty.
In March of 1976 in the course of his investigation, Mr. Constantine wrote to various pharmaceutical companies with which Dr. Finnerty had contracts and requested information with respect to payments made by those pharmaceutical companies to Dr. Finnerty. The information about which drug companies Dr. Finnerty was working for was initially supplied to the defendant by Dr. Finnerty's attorney in March, 1976.
In April 1976 Mr. Constantine interviewed approximately 20 employees of the defendant who were working for Dr. Finnerty on these various contracts. These employees were under the direct supervision of Dr. Finnerty. The salaries of the employees who were paid by Georgetown were charged in whole or in part to the NIH contract.
Included among those interviewed was Dr. William Mroczek, Dr. Finnerty's principal assistant at the clinic. Dr. Mroczek told Mr. Constantine that while his time was being charged to the contract between Georgetown University and the National Institutes of Health, he was not in fact working on the NIH contract. One other employee told Mr. Constantine that either Dr. Finnerty or Frances Caputo Finnerty told her to take the day off when NIH auditors or investigators were scheduled to visit the clinic. Also, Dr. Mroczek told Mr. Constantine that Dr. Finnerty told him to familiarize himself with the NIH contract requirements before the NIH auditors or investigators were to come around.
On May 12, 1976, Mr. Constantine wrote to Mr. Samuel Browne, the Director of the Office of Insurance of Georgetown University, and indicated that he had reason to believe Dr. Finnerty had diverted revenues from Georgetown University to Hypertension Research Associates, Inc. HRAI had hired Dr. Finnerty as a consultant. Frances Caputo Finnerty, owner of HRAI was also an employee of the Defendant who worked at the clinic.
On May 18, 1976, Mr. Browne wrote to Mr. Rock, Georgetown's insurance agent, and notified him of "a possible Fidelity loss." Mr. Browne enclosed a copy of Mr. Constantine's May 12 letter. Mr. Rock forwarded this correspondence to Mr. Robert Mansfield of Fidelity in a letter dated May 21, 1976. Fidelity acknowledged receiving "notice of a potential Fidelity loss" in a letter dated June 1, 1976, from William D. Anderson of Fidelity to Mr. Rock. Mr. Anderson enclosed "Proof of Loss" forms which he requested Georgetown to complete and return.
In a letter dated June 15, 1976, Mr. Browne informed Mr. Rock that because the investigation was not complete, Georgetown was unable to submit a final Proof of Loss to Fidelity. Mr. Browne suggested that Fidelity arrange a meeting with representatives from Georgetown to discuss the matter. Mr. Rock forwarded this letter to Fidelity in a letter dated June 21, 1976.
On July 23, 1976, Dennis Pisarcek of Fidelity went to Georgetown to discuss the Finnerty Investigations. Mr. Constantine disclosed to Mr. Pisarcek what his investigation had revealed and told him that this was a complicated matter with many questions remaining unanswered. While his investigation had revealed that funds were diverted, Constantine stated that because several studies of hypertension were being conducted simultaneously at the Clinic, it was extremely difficult to precisely reconstruct what resources were being used in a particular study. Mr. Constantine made available all of his files regarding the Finnerty matter. Mr. Pisarcek requested copies of some of the documents which were forwarded to him by Mr. Browne. At no time was the filing of a "Proof of Loss" discussed. Defendant assumed that it could not file such proof until it ascertained what the loss was; this assumption was not told to Fidelity, and they did not request a "Proof of Loss" subsequent to the June 1 letter.
On September 28, 1976, Messrs. Browne, Rock, and Constantine of Georgetown attended a meeting in Baltimore with Messrs. Fitzgerald, Heckathorn, Killam, and Mansfield of Fidelity. The purpose of the meeting was to discuss Fidelity's intention to cancel Georgetown's Fidelity Policy and to consider the possibility of reissuing a new fidelity bond which would be satisfactory to Fidelity. During the course of this meeting, it was suggested that a new policy in which premiums were based on the loss record of Georgetown would be acceptable to Fidelity. Mr. Rock was concerned that the filing of a claim by Georgetown in the Finnerty matter might trigger a higher premium under such a policy, and it was agreed by Fidelity's representatives that any claim regarding the potential Finnerty loss would be filed under the Blanket Crime Policy and would not affect the new policy.
In February, 1977, Mr. Rock received a letter from Mr. Heckathorn of Fidelity regarding the new fidelity bond which ultimately replaced the Blanket Crime Policy. In this letter, Mr. Heckathorn referred to the Finnerty matter as "the pending claim."
In March, 1977, Mr. Rock received a letter from Mr. Heckathorn of Fidelity dated March 21, 1977, which requested that Mr. Rock keep Fidelity "advised on the activity of the Finnerty Loss." The facts reflect that Mr. Rock had numerous conversations with representatives from Fidelity regarding the status of the Finnerty matter.
On March 3, 1977, Georgetown University received from NIH an analysis of the details of the loss which stated that as a result of the activities of Dr. Finnerty and the improper charges for employees and service, NIH had determined that there were improper charges to the NIH contract in the amount of $542,929.70.
On December 20, 1977,...
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