Supreme Judicial Court -- January 12, 2012
FACTS: Plaintiff invested a substantial portion of his retirement benefits in successive life insurance policies that he purchased through his nephew, an insurance agent. Initially, Plaintiff had a $140,000 life insurance policy with John Hancock Mutual Life which he held in trust. Defendant, McMenimen, who was his agent and nephew, advised Plaintiff to supplement this policy with an additional policy from one of two companies without disclosing his representative relationship to them. Plaintiff followed the advice and obtained a policy for $350,000 from Mutual of New York. Defendant later took a job with New England Advisory Group (NEAG), which generated its profits mainly from the sale of Provident Mutual (PM) (later acquired by Nationwide) and compensated its agents based on their ability to generate commissions. Defendant immediately advised Plaintiff to transfer his policies to NEAG, providing him with an application for a $500,000 policy, and convincing him to use the surrender values of the other policies to fund the new one. However, the application was subsequently rejected by PM and Defendant instructed the insurer to issue a policy for $200,000 instead with premiums 250% above the standard rate, without consulting the Plaintiff. Defendant never disclosed his relationships to his employer or the Plaintiff and assured the Plaintiff that the final policy provided death benefits of $500,000. The Plaintiff brought several actions against the insurance agent, the agent's supervisor, agent's employer and the insurer that issued the policy. The claims were reduced to fraud, negligence, negligent misrepresentation, and violations under G.L. c. 93A, in two prior proceedings. The Superior Court entered summary judgment dismissing claims against an insurer, and, following a jury trial on common law claims and a bench trial on statutory claims, entered judgment in favor of plaintiffs. Parties appealed and cross-appealed.
ISSUE 1: Whether the plaintiffs' claims against the insurance agent, his former employer, and the insurers that issued policies were properly pleaded in tort and under G.L. c. 93A, as opposed to the statute governing insurance contracts.
Yes. Although the gravamen of the plaintiffs' claims falls within G.L. c. 175, §181, governing insurance contracts, the Plaintiff does not seek rescission of an issued policy, or adjudication of his rights under an insurance contract. Plaintiff contends that the defendants' fraud or negligence deceived him into believing that he was insured for $500,000 even though the policy reflected a death benefit of only $200,000. The agent was the insured's nephew who concealed his relationship with the insurer that issued the policy, and concocted an elaborate explanation for the discrepancy in the documents. The statute, allowing an insured to recover from insurance companies, premiums paid on a life or endowment insurance policy when the policy was procured by misrepresentation of policy terms, was not intended to create an exclusive remedy that would preempt civil remedies. The Court inferred from the legislative history that one of the primary purposes in amending §181, was to heighten the statute's deterrent effect. Therefore, it seemed unlikely that the Legislature intended to insulate agents from common law claims by making rescission the exclusive civil remedy against insurance companies for those who have been induced to purchase life insurance by fraud.
ISSUE 2: Whether the claims are timely under G.L. c. 175, § 181, and G.L. c. 260.
Yes. The plaintiffs' common-law claims allege misrepresentation based in tort, with a three-year limitation period provided by G.L. c. 260, § 2A, and are susceptible to tolling. Therefore, the claims are timely as to the insurance agent, but not as to the other defendants. However, because the limitation period for claims brought under G.L. c. 93A, is one year longer than the limitation period for tort claims, the Nationwide defendants have not shown that the plaintiffs' G.L. c. 93A, claim against them is time barred.
ISSUE 3: Whether the judge erred in calculating damages using a benefit of the bargain basis and improperly awarding treble damages.
No. The economic loss doctrine states that purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury or property damage; but this doctrine does not apply to loss incurred through misrepresentation. The usual rule for determining damages for misrepresentation is that the injured party receives benefit of the bargain damages, particularly when an insured obtains a misrepresented policy that is of less value than what he was led to believe. Treble damages were properly awarded under G.L. c. 93A. Although the statute limits recovery with regard to any security to the amount of actual damages, the Uniform Securities Act, as enacted in Massachusetts, explicitly excludes insurance policies from the definition of a security.
ISSUE 4: Whether Plaintiff reasonably relied on agent's misrepresentations.
Yes. Case law expressly distinguishes between cases in which plaintiffs rely on oral statements contradicted by written agreements, and claims where defendants conceal or otherwise “lull the plaintiffs into ignoring” obvious red flags. In this case, the jury heard evidence that the agent concocted an elaborate explanation why the documentation reflected a $200,000 death benefit instead of a $500,000. There was also evidence that the agent failed to disclose his relationship with the insurers to the plaintiff. Further, the Plaintiff was working with a trusted family member whom they had specifically sought out for unbiased advice as opposed to a party with adverse pecuniary interests.
Conclusion: The Supreme Judicial Court concluded that the Plaintiff’s claims were properly pleaded, timely, and susceptible to tolling against the agent and Nationwide, but not against the remaining defendants. The Court also concluded that the trial judge properly decided the damages against the agent, and correctly determined that the Plaintiff reasonably relied on the agent’s misrepresentations, but failed to provide sufficient notice under G.L. c. 93A, to one of the Defendants. (H.G.)
