Passatempo v. McMenimen

Decision Date12 January 2012
Docket NumberSJC–10978.
Citation960 N.E.2d 275,461 Mass. 279
PartiesRonald P. PASSATEMPO, trustee,1 & others 2 v. Frederick V. McMENIMEN, THIRD, & others.3
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

461 Mass. 279
960 N.E.2d 275

Ronald P. PASSATEMPO, trustee,1 & others 2
v.
Frederick V. McMENIMEN, THIRD, & others.3

SJC–10978.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Sept. 8, 2011.Decided Jan. 12, 2012.


[960 N.E.2d 279]

Charles M. Waters, Boston, for the plaintiffs.

Harvey J. Wolkoff (Alfred A. Day with him), Boston, for Nationwide Life Insurance Company of America & others.

Timothy O. Egan (John J. O'Connor with him), Boston, for Barry G. Armstrong.William P. Corbett, Jr., Lynn, for Frederick V. McMenimen, III.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, & LENK, JJ.

LENK, J.

[461 Mass. 280] Samuel Pietropaolo, Sr. (Sam Sr.),4 directed a substantial portion of his retirement benefits to the upkeep of a life insurance policy that he purchased in 1998

[960 N.E.2d 280]

through his nephew, Frederick V. McMenimen, III, an insurance agent. This policy was the sole asset of an irrevocable trust that Sam Sr. established to provide for his wife should he predecease her. McMenimen assured Sam Sr. and the other plaintiffs that the policy provided death benefits of $500,000. In fact, the policy provided only $200,000 in benefits. Although the plaintiffs regularly received accurate policy statements from the insurer that issued the policy, they relied on McMenimen's assurances as to the policy's value for almost six years, only bringing this action in July of 2004. In the parties' third argument before this court,5 we are asked [461 Mass. 281] to decide, among other questions, whether the plaintiffs' common-law and G.L. c. 93A claims against McMenimen, his former employer, and various companies related to the insurer were properly pleaded in tort and under G.L. c. 93A, and whether they are timely under G.L. c. 175, § 181 ( § 181), and G.L. c. 260, §§ 2A, 5A, and 12.

We conclude that the plaintiffs' claims were properly pleaded in tort and under G.L. c. 93A. Their claims are therefore subject to the limitation periods in G.L. c. 260, §§ 2A and 5A, respectively, which are susceptible of tolling. See G.L. c. 260, § 12. We conclude further that McMenimen's fraudulent concealment of these claims tolled the limitation period as to claims against McMenimen himself, but did not toll the limitation period with regard to the remaining defendants. However, because the limitation period for claims brought under G.L. c. 93A is longer than the limitation period for tort claims, the Nationwide defendants have not shown that the plaintiffs' G.L. c. 93A claim against Nationwide is time barred. Finally, we conclude that the trial judge did not err in deciding that the economic loss doctrine did not bar the plaintiffs' common-law claims; determining that it was not unreasonable as a matter of law for the plaintiffs to have relied on McMenimen's misrepresentations; dismissing the plaintiffs' G.L. c. 93A claim against Barry G. Armstrong; determining the amount of the damages on the plaintiffs' G.L. c. 93A claim against McMenimen; or calculating the award of attorney's fees against McMenimen.

1. Background. The following are the facts the jury could have found from the evidence at trial.

a. Parties. Ronald P. Passatempo, an attorney, is the trustee of the Samuel Pietropaolo Irrevocable Trust (trust). Patricia D. Pietropaolo is the primary beneficiary of the trust. Samuel Pietropaolo, Jr. (Sam Jr.), also an attorney and a former life insurance agent, is the executor of the estate of Sam Sr. Sam Sr. was Patricia's husband, Sam Jr.'s father, and the grantor of the trust.6

Frederick V. McMenimen, III, nephew of Patricia and Sam [461 Mass. 282] Sr., was in 1998 an insurance agent employed by New England Advisory Group, LLC (NEAG), a firm owned and managed by Armstrong. NEAG, in turn, was a sales agent of the Provident Mutual Life Insurance Company (Provident Mutual), the firm that issued the insurance policy at the center of this dispute. Provident Mutual was acquired subsequently by what is now Nationwide Life Insurance Company of America, a group of affiliated insurance and investment

[960 N.E.2d 281]

companies, three of which are defendants in this case.7

b. Facts. In July, 1997, Sam Sr. had just retired from the Revere school system and was concerned about how best to handle his State retirement benefits. He first consulted Sam Jr., but the two quickly agreed that they should seek advice from McMenimen, Sam Sr.'s nephew. McMenimen had been in the insurance business for almost a decade, and he held himself out to the Pietropaolos as an expert in insuring public sector retirees. McMenimen advised the Pietropaolos that they should choose a retirement plan that would forgo death benefits in favor of higher lifetime distributions, and use the difference to fund a life insurance policy on Sam Sr.'s life that would provide better death benefits than the Commonwealth's plan. This type of plan required a signed waiver of Patricia's statutory survivorship rights, which she agreed to on the understanding that she would receive a $500,000 distribution should Sam Sr. predecease her.

At this time, Sam Sr. already had a $140,000 life insurance policy with John Hancock Mutual Life Insurance Company (John Hancock). McMenimen, who was then an agent for Mutual of New York (MoNY), advised Sam Sr. to supplement his John Hancock insurance with a $350,000 policy either from MoNY or from a second company for which he also worked. McMenimen did not disclose his relationship with either firm to the plaintiffs, instead telling them that he was an independent broker who would look for the best deal across multiple firms. Sam Sr. followed this advice, and MoNY issued him a $350,000 policy. Accordingly, by December of 1997, the Pietropaolos had met their insurance benefit goal.

[461 Mass. 283] Shortly thereafter, however, McMenimen left MoNY for a position with NEAG, reporting to Armstrong. NEAG existed solely as the corporate embodiment of Armstrong's position for Provident Mutual. NEAG generated a substantial part of its revenue from commissions on the sale of Provident Mutual policies; each employee's ability to generate these commissions factored into his or her compensation.

Almost immediately after joining NEAG in February of 1998, McMenimen advised the Pietropaolos to look for a better deal than Sam Sr. had received from MoNY. He provided the Pietropaolos with an application for a $500,000 policy with Provident Mutual, again failing to disclose his relationship with the company. By March of 1998, McMenimen had told the Pietropaolos that Sam Sr. had been approved for $500,000 of coverage at a better rate than he was getting from MoNY. McMenimen advised the Pietropaolos to cancel the policies with MoNY and John Hancock, and to use the cash surrender value of the latter policy towards payments on a new Provident Mutual policy.

In fact, Provident Mutual never approved a $500,000 policy. Provident Mutual's medical records search revealed that Sam Sr. suffered from a condition which left him ineligible for its standard rate life insurance. Without informing the Pietropaolos, and despite knowing that they had wanted $500,000 in coverage, McMenimen nevertheless told Provident Mutual to issue a $200,000 policy with a premium 250 per cent higher than the standard rate.8

[960 N.E.2d 282]

In the process of finalizing the $200,000 policy, McMenimen submitted to Provident Mutual two separate applications for insurance as well as other documents requiring Sam Sr.'s signature. The jury heard testimony that, in his position as the office of supervisory jurisdiction for NEAG, Armstrong was under a duty to review these documents and attest to their accuracy.9 While a Nationwide witness explained that such a duty is often discharged [461 Mass. 284] by relying on the accuracy of information furnished by sales agents in the field, the jury heard from multiple witnesses that Sam Sr.'s application showed inconsistencies that may have warranted a closer look.10 Nevertheless, Armstrong failed to review the application personally and did not instruct his subordinates to subject it to a higher than normal level of scrutiny. On July 5, 1998, Provident Mutual approved and issued the $200,000 policy.

The plaintiffs had ample means to discover McMenimen's fraud almost from its inception. On May 28, 1998, they received a letter from Provident Mutual informing them that the application for a $500,000 policy had been declined. Further, they received repeated, accurate policy statements, first from Provident Mutual, and later from Nationwide, reflecting the $200,000 death benefit. However, they credited McMenimen's explanations that the $200,000 figure was just a base component and that a secondary benefit in the policy would make up the difference.11 In occasional casual conversations through 2003, McMenimen continued to assure the plaintiffs of the $500,000 in coverage.

The insurance policy was routed through an irrevocable lifetime trust managed by Passatempo, an attorney as well as a close friend and former law school classmate of Sam Jr. Notwithstanding his broad powers under the trust agreement, Passatempo testified that he understood his only role to be to ensure that the insurance company received its payments such that the policy did not lapse. Passatempo did not view it as his role to investigate the terms and quality of the insurance that formed the trust res.

In 2003, Sam Sr. received a telephone call from a Nationwide agent who had been newly assigned to handle the policy. The agent insisted that the policy provided death benefits of only [461 Mass. 285] $200,000. This conversation led to a series of exchanges between the Pietropaolos and McMenimen, in which McMenimen represented the situation as a correctable administrative mistake. When, months later, the Pietropaolos received policy statements still reflecting a $200,000 benefit, McMenimen told them that he was continuing to work with Nationwide and NEAG to correct the error. The Pietropaolos, however,...

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