Frontier Management Co., Inc. v. Balboa Ins. Co.

• Decision Date: 30 December 1986
• Docket Number: Civ. A. No. 85-4220-S.
• Citation: Frontier Management Co., Inc. v. Balboa Ins. Co., 658 F.Supp. 987 (D. Mass. 1986)
• Parties: FRONTIER MANAGEMENT CO., INC. et al., Plaintiffs, v. BALBOA INSURANCE CO., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

658 F. Supp. 987

FRONTIER MANAGEMENT CO., INC. et al., Plaintiffs, v. BALBOA INSURANCE CO., et al., Defendants.

Civ. A. No. 85-4220-S.

United States District Court, D. Massachusetts.

December 30, 1986.

COPYRIGHT MATERIAL OMITTED

James E. Grumbach, Morrison, Mahoney & Miller, Boston, Mass., for plaintiffs.

Steven L. Schreckinger, William L. Lahey, John T. Harding, Jr., Palmer & Dodge, Boston, Mass., for Balboa Ins. Co.

Robert Murphy, Casner, Edwards & Roseman, Boston, Mass., for Omaha Indem. Co.

MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION TO DISMISS THE COUNTERCLAIM OF THE OMAHA INDEMNITY COMPANY

SKINNER, District Judge.

This is a motion to dismiss the counterclaim filed by The Omaha Indemnity Company ("Omaha"). Background relevant to this litigation is set forth in my opinion at 622 F.Supp. 1016, 1017-1018 (D.Mass.1985). In that opinion, I denied the motion of the plaintiffs, Frontier Management Company, Inc. ("Frontier"), Jacques and Company Insurance Agency, Inc., E. Cooper Jacques, Patricia A. Jacques, Robert E. Osmundsen and Irwin C. Keightly, Jr. (the last five collectively referred to as "individual plaintiffs") for a preliminary injunction against Balboa Insurance Company, Inc. ("Balboa") and other defendants which would have required Balboa to continue acting as an insurance fronting company for a program of taxicab and limousine insurance managed by Frontier. My order permitted Balboa to cancel as of December 31, 1985 the Managing General Agency agreement ("MGA agreement") which authorized Frontier to issue policies on which Balboa was the named insurer.

Despite Balboa's cancellation of the agreement, Frontier continued after December 31, 1985 to write policies naming Balboa as the insurer. On April 24, 1986, I enjoined Frontier, Jacques and their agents, employees, and officers from issuing policies naming Balboa as the insurer. I also ordered Frontier to return all blank forms it had received from Balboa.

The plaintiffs amended their complaint some time thereafter to add Omaha as a defendant. The amended complaint alleges that Omaha acted as the reinsurer of all policies written pursuant to the MGA agreement, and that Balboa's termination of the MGA agreement was the result of Omaha's refusal to continue acting as reinsurer for the program.¹

Omaha has filed a counterclaim against Frontier and against the individual plaintiffs, each of whom was an employee, officer, agent or principal of Frontier. The counterclaim alleges that Frontier wrongfully exposed Omaha to excessive risk and withheld premiums belonging to Omaha. The plaintiffs have moved to dismiss all nine counts of the counterclaim under Fed. R.Civ.P. 12(b)(6).

In assessing the merits of plaintiffs' motion to dismiss, I must assume that the facts alleged by Omaha are true, and I must view those facts in the light most favorable to Omaha. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Harper v. Cserr, 544 F.2d 1121 (1st Cir.1976). I may grant the motion only if "it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-2, 2 L.Ed.2d 80 (1957); Walgren v. Howes, 482 F.2d 95, 99 (1st Cir.1973); Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir.1985). Applying these guidelines, I find the motion to dismiss without merit and deny the motion as to all counts.

Count I

In Count I of the counterclaim, Omaha alleges that the plaintiffs breached their fiduciary duties to Omaha. The plaintiffs argue that the count must be dismissed in its entirety because Frontier owed no fiduciary duty to Omaha. In addition, plaintiffs contend that Count I must be dismissed as to the individual plaintiffs because any fiduciary duty that exists must derive from the MGA agreement, and the individual plaintiffs were not parties to that agreement.

Whether Frontier owed any fiduciary duties to Omaha is a factual question. See, e.g., Broomfield v. Kosow, 349 Mass. 749, 755, 212 N.E.2d 556 (1965). The mere fact that Omaha and Frontier were sophisticated parties involved in a business relationship does not preclude the existence of a fiduciary relationship between them. While an arms length business relationship generally will not give rise to fiduciary duties, if one of the parties is an agent of the other, the agent will be a fiduciary with respect to all matters within the scope of his agency. United States v. Drumm, 329 F.2d 109, 112 (1st Cir.1964) (quoting Restatement (Second) of Agency, § 13 (1958)); accord, e.g., Mackey v. Rootes Motors, Inc., 348 Mass. 464, 467-468, 204 N.E.2d 436 (1965); Rayden Engineering Corp. v. Church, 337 Mass. 652, 660, 151 N.E.2d 57 (1958). Omaha has alleged that Frontier had full control over the management of the insurance program. It alleges that Frontier made underwriting and rate setting decisions, reported premiums written, risks undertaken, losses claimed and losses paid, and handled and administered claims. These allegations, if proven at trial, might be sufficient to establish that Frontier acted as Omaha's agent. This factual dispute should be resolved at trial and not on a motion to dismiss.

The individual plaintiffs may owe Omaha fiduciary duties derived from those of Frontier. See Rayden, 337 Mass. at 661, 151 N.E.2d 57. Under Massachusetts law, regular employees of an agent may themselves be subagents standing in a fiduciary relation toward a principal, and the subagents may be subject to all the liabilities of the agent "except liability dependent upon the existence of a contractual relationship between them." Id. The individual plaintiffs are alleged to have been either employees of Frontier or a principal and "alter ego" of the company. Hence they all may be found to be subagents of Frontier. And Frontier's fiduciary duties towards Omaha, if any, may be independent of the MGA agreement. For example, Frontier may have owed Omaha a fiduciary duty based upon the course of dealing between Frontier and Omaha after the contract was cancelled on December 31, 1985. There seems to me to be a genuine issue of fact regarding the existence of a fiduciary relationship between Omaha and the individual plaintiffs.

Accordingly, plaintiffs' motion to dismiss Count I of the counterclaim is DENIED.

Count II

Plaintiffs move to dismiss Count II insofar as it applies to the individual plaintiffs. Count II by its terms applies only to Frontier. The motion is therefore moot. Accordingly, plaintiffs' motion to dismiss Count II of the counterclaim is DENIED.

Count III

Plaintiffs move to dismiss Count III, which alleges negligence by the plaintiffs, insofar as it applies to the individual plaintiffs. They contend that Omaha has failed to allege that the individual plaintiffs were personally involved in Frontier's alleged negligence.

Under Massachusetts law, corporate officers are personally liable for any tortious activity in which they personally participate. LaClair v. Silberline Manufacturing Company, Inc., 379 Mass. 21, 29, 393 N.E.2d 867, 872 (1979). See also Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (1st Cir.1980) (quoting Lahr v. Adell Chemical Co., 300 F.2d 256, 260 (1st Cir.1962)). Omaha's counterclaim alleges that the individual plaintiffs are the alter ego, officers or employees of Frontier. It further alleges that

Frontier and the other counterclaim defendants i.e., the plaintiffs, and each of them, failed to observe standards of ordinary care and professional competence in underwriting, by purporting to bind Balboa and its reinsurers to policies reflecting extremely poor risks.... Examples of such improper underwriting include, without limitation, the following:

* * * * * *

(b) Frontier, the other counterclaim defendants and various subproducers for whose acts Frontier is liable conducted wholly inadequate investigations regarding risks to be underwritten;

* * * * * *

(d) In a number of situations, Frontier and the other counterclaim defendants and their subproducers, for whose acts they are liable, have bound Balboa to policies purporting to cover one fleet of cabs when in fact Frontier and the other counterclaim defendants have issued certificates under such policies extending additional coverage to other cab companies for individual cabs, or other additional insureds, which were not part of the actual company or fleet for whom the master policy was issued ...;

(e) On information and belief, Frontier and the other counterclaim defendants have also engaged in practices whereby a company or fleet of cabs would be insured with a premium based on a certain number of cabs, when in fact the company or fleet at different times operated a significantly greater number of cabs ...;

(f) After receiving notice in September, 1985 that their agency and authority to act for Balboa would terminate effective December 31, 1985, Frontier and the other counterclaim defendants engaged in a concerted effort to underwrite as much additional business as possible, however poor the risk, to extend all existing policies to the greatest extent feasible and generally to generate the largest amount of premiums possible, regardless of the risk to Balboa and any reinsurers, and regardless of their actual knowledge that Balboa and any reinsurers did not want to assume any more risk....

(g) Additionally, after their authority had been terminated, Frontier and the other counterclaim defendants continued during 1986 to attempt to bind Balboa, and any possible reinsurers, to new unwanted and unauthorized risks ...; and

(h) On information and belief, Frontier and the other counterclaim defendants have caused certain policies and certificates to be back dated so as to appear to have been written in the time in which Frontier had the authority to act on behalf of Balboa.

15. In addition, Frontier and the other counterclaim defendants have engaged throughout the existence of

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