"INNOCENT INSURED" PROVISION HELD NOT APPLICABLE TO CORPORATION FOR LATE CLAIM REPORT BY ITS PRESIDENT

"INNOCENT INSURED" PROVISION HELD NOT APPLICABLE TO CORPORATION FOR LATE CLAIM REPORT BY ITS PRESIDENT 399_C029

"INNOCENT INSURED" PROVISION HELD NOT APPLICABLE TO CORPORATION FOR LATE CLAIM REPORT BY ITS PRESIDENT

The president of a law firm and the firm, a professional corporation, were sued by a client for alleged negligent title examination by the president. The central issue in this case was whether the law firm was covered under its professional liability policy by virtue of an "innocent insured" provision in the policy.

A settlement agreement was reached between the law firm and the client, which included assignment to the client of the firm's rights under its professional liability policy. The insurer sought declaratory judgment that the policy did not cover the loss, and appealed a trial court judgment for the client on its motion for summary judgment.

The appeal court noted that the policy under which claim was made (a "claims made" contract) was effective for a period of one year, and that the insurer had issued identical policies in each of the preceding three years, although he knew of the likelihood of claim and demand by the client for compensation during the terms of the three preceding policies.

The corporation claimed coverage, despite its president's actions and the insurer's consequent denial, because of the "innocent insured" provision in the policy. It argued that the provision relieved it (the corporation) from the "no coverage" effect of failure to report a claim against it as required by the insurance contract.

The appeal court stated that "....under agency principles, notice to a corporation's agent is notice to the corporation." It said that the president (who was also co-manager) of the law firm was an agent of the firm "....who was acting within the scope of his employment when he learned of circumstances that might give rise to a claim...." against the firm as well as himself. By agency principles, the knowledge of the agent was imputed to the law firm.

The order of the trial court granting summary judgment to the client was vacated; the insurer's motion for summary judgment was ordered.

(SUNRISE PROPERTIES, INCORPORATED, Appellants v. BACON, WILSON, RATNER, COHEN, SALVAGE, FIALKY & FITZGERALD, P.C. ET AL., Appellees. Massachusetts Supreme Judicial Court. No. SJC 07242. May 21, 1997. CCH 1997 Fire and Casualty Cases, Paragraph 6124.)