Hudson v. Massachusetts Property Ins. Underwriting Ass'n

• Decision Date: 04 June 1982
• Parties: Roosevelt HUDSON v. MASSACHUSETTS PROPERTY INSURANCE UNDERWRITING ASSOCIATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 155

436 N.E.2d 155

386 Mass. 450

Roosevelt HUDSON v. MASSACHUSETTS PROPERTY INSURANCE UNDERWRITING ASSOCIATION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Feb. 5, 1982.

Decided June 4, 1982.

Emidio DiLoreto, Winchester (Elizabeth A. DiLoreto, Winchester, with him), for plaintiff.

Acheson H. Callaghan, Jr., Boston, for defendant.

Before HENNESSEY, C. J., and ABRAMS, NOLAN and O'CONNOR, JJ.

ABRAMS, Justice.

The plaintiff appeals from a determination of the Appellate Division of the District Courts on a report from a District court judge that a policy issued by the defendant, Massachusetts Property Insurance Underwriting Association (MPIUA), took effect on October 12, 1976, and that the broker selected by the plaintiff was not an agent of the defendant. We conclude that the order dismissing the report should be affirmed.

We summarize the facts. On September 2, 1976, the plaintiff, Roosevelt Hudson, applied for homeowners insurance from Frederick Cross, doing business as United Real Estate and Insurance Agency, acting on behalf of Bay Colony Insurance Agency, Inc. The plaintiff paid $40 of the $65 premium to Cross. The plaintiff also signed a financing statement from Allston Finance Co., Inc., for the balance of the premium. This financing statement included information identifying the insurance company as "Mass. Property" and the policy number as H-69046. Later, the plaintiff was issued a policy numbered H-69046-6 through MPIUA. The effective date listed on the policy is October 12, 1976.

On October 5, 1976, the plaintiff's home was burglarized. MPIUA denied liability for this claim. MPIUA asserted that the policy was not in effect on October 5, 1976.

On January 25, 1978, the plaintiff instituted this action in the Dorchester District Court. The plaintiff claimed that MPIUA, through its agent Bay Colony, represented that his homeowner's policy took effect on September 2, 1976. Since a principal is bound by the representations of its agents, the plaintiff argued that his policy with MPIUA went into effect on September 2, 1976. Thus, the plaintiff asserted that MPIUA must compensate him for the loss that he suffered on October 5, 1976.

After trial, the trial judge ruled that Bay Colony was not an agent of MPIUA. In addition, the judge ruled that the policy took effect on October 12, 1976. The plaintiff requested that these rulings be reported to the Appellate Division of the District Courts. ¹ The judge did so. The Appellate Division concluded that there was no error and dismissed this report. The plaintiff appeals. ²

We agree with the judge that Bay Colony is not an agent of MPIUA. In addition, we conclude that a policy issued through MPIUA may not take effect until MPIUA receives payment of the premium. Thus, we believe that the judge correctly ruled that the policy was not in effect until October 12, 1976.

1. History of MPIUA. The urban riots of 1967 brought the problems of our central cities to the nation's attention. In the aftermath of those disturbances, "Congress found that the vitality of many of our cities (was) being threatened by the deterioration of their inner city areas. One aspect of this (was) that many responsible owners of properties in these areas (were) unable to obtain adequate property insurance coverage against fire, crime and other perils. This hasten(ed) the deterioration." District of Columbia Ins. Placement Facility v. Washington, 269 A.2d 45, 47 (D.C.Ct.App.1970). See President's National Advisory Panel on Insurance in Riot-Affected Areas, Meeting the Insurance Crisis of our Cities (1968); Note, Fair Plans: History, Holtzman and the Arson-for-Profit Hazard, 7 Fordham Urb.L.J. 617, 618-621 (1979).

To alleviate this problem, Congress enacted the Urban Property Protection and Reinsurance Act of 1968, 12 U.S.C. § 1749bbb, et seq. The stated purpose of this act was to "encourage and assist the various State insurance authorities and the property insurance industry to develop and carry out statewide programs which will make necessary property insurance coverage against the fire, crime, and other perils more readily available for residential, business and other properties meeting reasonable underwriting standards." Pub.L.No.90-448, § 1102, 82 Stat. 556 (1968). This act encouraged States to establish insurance placement facilities which would equitably distribute among the companies participating in each facility the risk of insuring hard-to-insure urban properties. Thus, the act shifts the burden of finding property insurance from the urban resident to an institutionalized structure that is geared to that task. Note, The Central City Insurance Crisis: Experience Under the Urban Property Protection and Reinsurance Act of 1968, 38 U.Chi.L.Rev. 665, 671 (1971). As an incentive for States to establish urban placement facilities, Congress provided Federal reinsurance against abnormally high property insurance losses from riots and other civil disturbances to companies that participated in the State plans.

Responding to this incentive, the Massachusetts Legislature mandated the creation of the Urban Area Insurance Placement Facility. G.L. c. 175C, inserted by St.1968, c. 731, § 1. All insurance companies licensed to provide basic property insurance within the Commonwealth were required to cooperate in the organization of the urban insurance placement facility now known as MPIUA. To make insurance more readily available to owners of property in urban areas, G.L. c. 175C, § 2(3)(a ), provides that "(e)very eligible applicant for basic property insurance upon proof that he has made a reasonable effort to obtain insurance and has been unable to obtain it shall be entitled on request to the facility to ... a prompt inspection of his property by representatives of the facility ...." After inspection, the applicant receives a report indicating whether any of the insurance companies participating in the facility have agreed to provide coverage. G.L. c. 175C, § 2(3)(b ). If coverage has been agreed upon, the applicant obtains insurance "upon payment of the required premium to the company or companies, or agent thereof, that agree to provide the coverage." G.L. c. 175C § 2(3)(c ).

2. Agency. The plaintiff bases his claim that Bay Colony is an agent of MPIUA on three different theories. (1) Since G.L. c. 175C, § 3, encourages brokers to obtain insurance for their customers through MPIUA, the plaintiff argues that the statute gives brokers, like Bay Colony, the express authority to act on behalf of MPIUA. ³ (2) Relying on G.L. c. 175, § 169, the plaintiff claims that Bay Colony is an agent of MPIUA as a matter of law. (3) The plaintiff also asserts that when a consumer purchases an MPIUA policy through a broker such as Bay Colony, he has good reason to believe that the broker is acting on behalf of MPIUA. Thus, the plaintiff concludes that Bay Colony has apparent or ostensible authority to act on behalf of MPIUA and that MPIUA is estopped from denying that Bay Colony is its agent. We do not agree with any of the plaintiff's theories.

a. Express authority. To achieve the congressional purpose of making property insurance more readily available in urban areas, G.L. c. 175C, § 3, as amended by St.1969, c. 528, § 3, provides that "(n)o insurance company shall direct any agent or other producer not to solicit business through the facility; no insurance agent shall direct any other agent in his employ or any broker or other producer not to solicit business through the facility; and no agent, broker or other producer shall be penalized in any way by an insurance company or employer producer for submitting applications to the facility." In addition, G.L. c. 175C, § 3, states that "(n)o insurance agent or broker licensed to sell basic property insurance shall be allowed to refuse a request for inspection from an eligible applicant for basic property insurance unless such applicant is: (a ) Then indebted to any agent, broker or company for coverage requested; (b ) Then unwilling to make satisfactory payment arrangements for the coverage requested." Relying on these provisions, the plaintiff claims that the statute expressly makes brokers like Bay Colony agents of MPIUA.

General Laws c. 175, § 162, as amended by St.1941, c. 286, creates a distinction between insurance brokers and insurance agents. An insurance broker is a person other than an insurance agent, who for compensation "acts or aids in any matter in negotiating policies of insurance or annuity or pure endowment contracts, or placing risks or effecting insurance, or in negotiating the continuance or renewal of such policies or contracts for a person other than himself." An insurance agent is a person other than an insurance broker who for compensation, "solicits insurance on behalf of any company, or transmits for a person other than himself an application for a policy of insurance or an annuity or pure endowment contract to or from such company, or offers or assumes to act in the negotiation of any such policy or contract, or in the negotiation of its continuance or renewal." Id. Thus "(t)he insurance agent is the representative of the company, and the insurance broker is ordinarily the agent of the insured ...." 15 Mass.L.Q. 59 (No. 3, 1930). See Michelson v. Franklin Fire Ins., 252 Mass. 336, 147 N.E. 851 (1925). "Insurance agents have a fixed and permanent relation to the companies they represent and have certain duties to such companies." Black v. Illinois Fair Plan Ass'n, 87 Ill.App.3d 1106, 1108, 42 Ill.Dec. 934, 409 N.E.2d 549 (1980), quoting Galiher v. Spates, 129 Ill.App.2d 204, 207, 262 N.E.2d 626 (1970).

Further, G.L. c. 175, §§ 163, 166, establish separate requirements for the licensing of brokers and agents. Under G.L. c. 175, § 163, an agent may only receive a license on written notice to the Commissioner of Insurance from the company. No notice from any insurance company is required for a...