New England Acceptance Corp. v. American Mfrs. Mut. Ins. Co.

• Decision Date: 19 March 1976
• Citation: 344 N.E.2d 208,4 Mass.App.Ct. 172
• Parties: New England Acceptance Corporation v. American Manufacturers Mutual Insurance Company
• Court: Appeals Court of Massachusetts

Page 208

344 N.E.2d 208

4 Mass.App.Ct. 172

New England Acceptance Corporation

v. American Manufacturers Mutual Insurance Company

Appeals Court of Massachusetts, Suffolk.

Argued Dec. 11, 1975.

Decided March 19, 1976.

Benjamin Goldman, Boston (Jacob Shair, Boston, with him), for plaintiff.

John J. C. Herlihy, Boston, for defendants.

Before ROSE, KEVILLE and ARMSTRONG, JJ.

ARMSTRONG, Justice.

This is an action to recover $35,718.76 paid by the plaintiff, an insurance premium finance company, to two insurance agents, the brothers Ducott. A jury returned verdicts against the Ducotts on four counts of the declaration, one of which alleged that the money had been obtained by a fraudulent scheme whereby the Dulcotts sold to the plaintiff forged promissory notes secured by nonexistent insurance policies purportedly written by the Ducotts on behalf of the defendant insurance companies (the companies). Judgments were entered for the plaintiff against the Ducotts in accordance with those verdicts. No appeal was taken from those judgments, and no question remains as to the nefarious character of the Ducotts' conduct or their liability for the sums paid them. Rather, the question before us is whether the companies, which knew nothing of the Ducotts' frauds and revoked their agency agreements after learning of them, are similarly liable to the plaintiff for its losses.

The case was initially tried to an auditor (facts not final) before July 1, 1974 (see Mass.R.Civ.P. 1A, subpar. 5, 365 Mass. -- (1974)), and the auditor found for the plaintiff against both the companies and the Ducotts. The jury trial occurred after that date (ibid.), and the auditor's report, together with the testimony of two witnesses and numerous exhibits, were admitted in evidence. The trial judge denied motions by the plaintiff and the companies for directed verdicts, and submitted the case against the companies to the jury in the form of three questions (Mass.R.Civ.P. 49(a), 365 Mass. -- (1974)), by which the jury were asked to decide (1) whether the Ducotts had authority, actual or apparent, to act for the companies in the transaction at issue, ² (2) whether the plaintiff was estopped to assert its claim against the companies, and (3) whether the plaintiff was contributorily negligent. The jury returned special verdicts adverse to the plaintiff on all three questions. The judge, on the plaintiff's motion that verdicts to the contrary on all three questions be directed, then ordered the substitution of negative answers to the second and third questions but refused to disturb the jury's negative answer to the question pertaining to the Ducotts' authority. The judge also denied the plaintiff's motions for a judgment against the companies notwithstanding the verdict and for a new trial, and entered a judgment for the companies. The plaintiff appeals from that judgment and from the order denying its motion for a new trial. ³ The companies appeal from the judge's order that negative answers be entered in place of the special verdicts returned by the jury in response to the questions relating to estoppel and contributory negligence.

We are of the opinion that the plaintiff's motion for judgment against the companies notwithstanding the verdict was improperly denied. We base our opinion on the subsidiary findings of the auditor and on what transpired at the ensuing jury trial. The auditor's subsidiary findings may be summarized as follows. ⁴

At all material times the Ducotts were the duly licensed insurance agents of the companies, which had applied for such licenses from the Commissioner of Insurance in accordance with G.L. c. 175, § 163, and vouched for the character of the Ducotts in so doing. While the Ducotts had a written agency agreement with each of the companies, the plaintiff was not acquainted with the terms of those agreements or aware of any restrictions on the Ducotts' authority contained therein. The Ducotts did have authority to issue and execute insurance policies on behalf of both companies and had been given blank policies to fill out and sign. They were required to send a copy of any policy written by them to the issuing company and to file monthly reports with each company containing a recitation of premiums collected and other information. A field man from the home office of the companies (which appear to be affiliated) made tri-weekly checks on the affairs of their agents.

The plaintiff was an insurance premium finance agency licensed under G.L. c. 255C, inserted by St.1964, c. 727, § 1. Its Boston office was headed by one Trainor, a vice-president of the plaintiff. In 1967 and 1968 Trainor, having satisfied himself by an examination of the records of the Commissioner of Insurance that the Ducotts were the duly licensed agents of the companies, took assignments on behalf of the plaintiff of many notes secured by insurance policies supposedly issued by the Ducotts for one or the other of the companies. Each of the notes was ostensibly signed by an insured as maker, was payable to the order of the Ducott agency in monthly installments, recited the particulars of the policy and contained a warranty by the Ducotts as to the validity of the note itself and of the policy securing it. ⁵ As each note was assigned to the plaintiff, Trainor would write a check in the amount of the premium due, payable to the order of the Ducott agency, and the check would be deposited in the Ducotts' bank account. Trainor would then forward the note to the plaintiff's home office, which would send the insurer a card describing the transaction, setting forth the particulars of the policy or policies taken as security (including policy number and name of insured), and requesting notification of any change in the policy provisions and of any cancellation or loss.

It had long been the practice in the insurance business for insurance companies to recognize and cooperate with premium finance agencies, and to honor requests by those agencies for cancellation and reinstatement of policies. The defendant companies were at all times aware that the financing of insurance premiums by firms such as the plaintiff was a method commonly employed in effecting sales of policies and the payment of premiums thereon. They were also aware that the plaintiff was paying the Ducotts the full premium in each instance, and never questioned or objected to this practice. However, although the companies received all the notices of premium financing sent to them by the plaintiff, and thereby had the means of knowing that the Ducotts had been paid premiums on nonexistent policies, the companies in practice merely filed the notices away, apparently without examination, and never advised the plaintiff of any discrepancy.

In most instances payments on the notes assigned by the Ducotts to the plaintiff were made promptly and regularly. But in the case of thirty of the notes, payments ceased in May, 1969. An investigation thereafter disclosed that the fifty-eight policies described in those notes had never been issued and that the Ducotts had never intended to issue them. The thirty notes were therefore unsecured, and the plaintiff's efforts to collect the amounts due thereon from the supposed makers and from the companies proved unavailing.

When the plaintiff purchased the notes it relied on the Ducotts' representations as to their genuineness and the existence of the policies. The latter was of utmost importance to the plaintiff, as the existence of valuable security rendered the identity and financial status of the insureds of little or no importance to it. The plaintiff also relied on the fact that the Ducotts were the duly licensed agents of the companies and on the assumption that these transactions were being conducted by the Ducotts in their capacity as such. The plaintiff would not otherwise have purchased the notes. Until the investigation in 1969, the plaintiff had enjoyed good relations with the Ducotts and had no reason to suspect their integrity.

At the jury trial the plaintiff introduced the auditor's report in evidence and rested. The companies elicited testimony from Trainor and from an officer of the two companies which was largely confirmatory of the auditor's findings. The companies also introduced each of the thirty spurious notes in evidence. In doing so attention was called to certain errors and omissions on some of the notes, which may have raised a question as to whether the plaintiff's reliance on the Ducotts' representations regarding the notes and policies was justified. That question, however, would affect the liability of the Ducotts and the companies equally, and the verdicts returned by the jury against the Ducotts laid it to rest. There was no other evidence presented to the jury to controvert or limit the auditor's findings.

The auditor's remaining findings, as outlined above, were therefore conclusive, because no evidence had been introduced to dissipate their prima facie effect. See G.L. c. 221, § 56, as in effect prior to July 1, 1974; Mass.R.Civ.P. 53(e) (3), 365 Mass. --- (1974); Cook v. Farm Serv. Stores, Inc., 301 Mass. 564, 566, 17 N.E.2d 890 (1938). The evidence presented no other question of fact to be submitted to the jury.

On the basis of the auditor's findings, coupled with the verdicts against the Ducotts, we hold the companies to be liable for the conduct of the Ducotts as a matter of law. In the first place we are of the opinion that the Ducotts were at least impliedly authorized by the companies to engage in legitimate premium financing transactions as the companies' agents. It is to be emphasized that the Ducotts were licensed as insurance agents and hence as representatives of the companies rather than of their customers; they are to be distinguished from insurance brokers, who represent the customers for most purposes rather than the company. See G.L. c. 175, § 162; Ritson v. Atlas Assur. Co. Ltd. 279 Mass. 385, 392...