Massachusetts Employers Ins. Exchange v. Propac-Mass, Inc.

• Decision Date: 11 April 1995
• Docket Number: INC,PROPAC-MAS
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: MASSACHUSETTS EMPLOYERS INSURANCE EXCHANGE & others 1 v.

Page 435

648 N.E.2d 435

420 Mass. 39

MASSACHUSETTS EMPLOYERS INSURANCE EXCHANGE & others¹ v. PROPAC-MASS, INC.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Jan. 12, 1995.

Decided April 11, 1995.

Edward B. Deutsch, Morristown, NJ (Raymond J. Kenney, Jr., Boston, with him), for defendant.

Mitchell Kaplan, Boston (Michael R. Reinemann with him), for plaintiffs.

Before LIACOS, C.J., and WILKINS, NOLAN and GREANEY, JJ.

WILKINS, Justice.

The principal issue in this case is whether the plaintiff, an unincorporated domestic reciprocal insurance exchange (Exchange), created pursuant to G.L. c. 175, §§ 94A-94M (1992 ed.), lawfully terminated its attorney-in-fact agreement (agreement) with the defendant (Propac). Under the agreement, Propac agreed to perform certain management service functions in providing workers' compensation insurance to members of the Exchange. The Exchange was established under the auspices of the plaintiff Associated Industries of Massachusetts, Inc. A Superior Court judge ruled that the Exchange had lawfully terminated the agreement and that Propac had violated (a) the agreement's implied covenant of good faith and fair dealing and (b) G.L. c. 93A, §§ 2 & 11 (1992 ed.). He also granted injunctive relief. We allowed Propac's application for direct appellate review and now affirm the judgment.

The termination issue can be answered by deciding straight-forward questions of law without the need to understand the detail of the functions of a reciprocal insurance exchange ² or the role of an attorney-in-fact ³ in the exchange of contracts of insurance of subscribers ⁴ of an exchange. The attorney-in-fact agreement between the Exchange and Propac provided that, unless terminated for cause, it would be effective for a five-year term from the first day of the month in which the Exchange commenced operations (which was January 1, 1989) "unless terminated by either party on the fifth year, by one year's prior written notice" (or annually thereafter on one year's written notice).

The Exchange had a board of advisors or advisory committee, as required by G.L. c. 175, § 94K (1992 ed.). By letter dated December 4, 1992, the advisory committee informed Propac that it was "terminating the Agreement on the completion of the five year term, ending December 31, 1993." ⁵ The Exchange's bylaws provide that "[t]he business and affairs of the Exchange, subject to the contract with the Attorney-In-Fact, shall be under the advice and direction of the Board of Advisors." Propac argues that the agreement could only be terminated by a "party" and that the Exchange, not its advisory committee, was the only other party that had the power to terminate the agreement.

The Exchange, an unincorporated association of hundreds of individual subscribers, as a party to the agreement, had to act through some person or persons in exercising its right. By agreement of the subscribers, the Exchange's bylaws placed the direction of the business of the Exchange in the hands of its board of advisors. ⁶ If the board of advisors did not have authority to act for the Exchange to terminate the agreement without cause, the termination provision would have no effective purpose for the Exchange. As the judge in effect noted, one is unlikely to attribute to the parties an intention to accept a contract provision that has no practical effect. It is hardly a surprise that we rule that an organization may act through its designated representatives.

The judge ruled that Propac had violated both G.L. c. 93A, § 11 (1992 ed.), and the agreement's implied covenant of good faith and fair dealing. See Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471-472, 474, 583 N.E.2d 806 (1991). He found that following notice of termination Propac had refused and continued to refuse "to cooperate with the Exchange in an orderly transition to a new attorney-in-fact. Rather, Propac engages in a campaign to retain office in breach of a covenant, fairly read, that permits the Exchange, without cause, to terminate it." The agreement provided that, on notice of termination, Propac "will cooperate with the Exchange toward the end that there will be an orderly transfer of management service functions, in respect to the Exchange's business, from [Propac] to the Exchange or its designee." The judge was fully warranted in concluding that Propac violated that provision.

The judge found that, while it was challenging the Exchange's authority to terminate the agreement, Propac removed files to another location without notice to the Exchange; informed the Exchange on November 15, 1993, that it was vacating the Exchange's principal office; told subscribers that their workers' compensation insurance would be jeopardized if they signed a new power of attorney appointing a different attorney-in-fact; instructed subscribers to pay premiums to it instead of to the Exchange; and conducted a campaign to solicit subscribers for its own account.

Propac argues that it relied in good faith on its construction of the agreement and that its breach of contract cannot alone be an unfair act or practice under G.L. c. 93A, § 2. We view as uninstructive phrases such as "level of rascality" (Levings v. Forbes & Wallace, Inc., 8 Mass.App.Ct. 498, 504, 396 N.E.2d 149 [1979] ) and "rancid flavor of unfairness" (Atkinson v. Rosenthal, 33 Mass.App.Ct. 219, 226, 598 N.E.2d 666 [1992] ), in deciding questions of unfairness under G.L. c. 93A. We focus on the nature of challenged conduct and on the purpose and effect of that conduct as the crucial factors in making a G.L. c. 93A fairness determination. See PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596, 321 N.E.2d 915 (1975). Propac proceeded to act as if it were to be an effective authorized attorney-in-fact after the end of the five-year term of the agreement without the approval of, or even consultation with, the State...