A July 9, 2015 decision of the Appeals Court, Ramos et al. v. International Fidelity Insurance Company has resulted in the Massachusetts Appeals Court ruling that an insurance company has liability for its agent’s actions in overcharging for bond premiums and converting bond collateral.
The Court further ruled that although the insurance company did not authorize or have any knowledge of the agent’s actions, it nonetheless had vicarious liability for the agent’s unfair and deceptive acts and would have to pay multiple damages and attorney fees to the plaintiffs.
Court bonds are an obscure part of the surety business. An even more obscure part of court bonds are bail bonds. The posting of these bonds releases defendants in criminal cases from pretrial detention by guaranteeing the appearance of a defendant for trial or sentencing. If the defendant appeared the surety was released from its penal sum and any collateral held was returned. These bonds were once ubiquitous in the Massachusetts criminal justice system but now these bonds and the professional bondsmen have all but disappeared in Massachusetts.
One of the last writers of these bonds in Massachusetts was International Fidelity Insurance (“International Fidelity”). This company got the “International” in its name from its original parent company, Singer Sewing Machine, which formed International Fidelity in 1904, to provide fidelity coverage for its international subsidiaries. In the 1960’s, a group of bond bail agents bought the company and used it as a vehicle for writing bail bonds nationwide.
Deceased agent’s conversion of bond collateral leads to lawsuits against insurance company for punitive damages.
William Fiore, operated as the go-to bail bondsman in the Springfield area until he passed away in 2007.
Mr. Fiore managed his bail bond business under an agency agreement with International Fidelity that allowed him to issue bail bonds under International Fidelity’s name. Upon the filing of a bond in the penal sum of the bail that had been set by the court, the prisoner was freed pending trial.
Mr. Fiore charged defendants a ten (10%) percent premium of the penal sum of the bond before he would obtain a defendant’s release. He would also in many cases demand and receive cash or noncash collateral to secure the penal sum of the bond.
In conducting his agency for International Fidelity, Mr. Fiore’s basic business record turned out to be the back of his business card.
In accepting the ten percent premium Mr. Fiore would simply give the person paying the bond premium a receipt on the back of his business card stating the amount paid. Additionally, in those cases where Mr. Fiore would require collateral in addition to the bond premium, he would simply write on the back of his business card the amount of the collateral received and the fact that the collateral would be returned “at the end of the case.”
Under the agency agreement between Mr. Fiore and International Fidelity cash collateral received on behalf of International Fidelity by Mr. Fiore was required to be “held in a separate cash collateral account and not [to] be commingled with other funds.”
Insurance company’s defense that Mr. Fiore was not its agent and that it had no liability for his fraud is rejected by Appeals Court
In 2008 and 2009, after cases where persons who had posted collateral with Mr. Fiore ended, they learned that Mr. Fiore had died and that he had never put their collateral in escrow as required. They also found that they had no recourse against Mr. Fiore’s estate as his estate was insolvent.
When these persons demanded that International Fidelity make good on its agent’s conversion of their collateral, they all received the same response: That Mr. Fiore was an independent businessman who had a contractual relationship with” IFIC, that the “relationship was defined by this contract,” and that IFIC therefore was not liable for his wrongdoing.
Not surprisingly, all filed suit against International Fidelity alleging breach of the contract made by Mr. Fiore as International Fidelity’s agent to return the escrow “at the end of the case” and for multiple damages and attorney fees under G.L. c. 93A for Mr. Fiore’s unfair and deceptive acts.
Superior grants summary judgment against insurer on contract claim but denies plaintiffs multiple damages and attorney fees under G.L. c. 93A
In the Superior Court case, the judge awarded summary judgment to the seven defendants seeking return of collateral against International Fidelity sweeping aside the company’s arguments that it was not responsible for Mr. Fiore’s actions.
The Judge also awarded each plaintiff a return of fifty (50%) of the bond premium charged plus interest. This award resulted from the plaintiffs having learned that the Superior Court Rule for bail bond set the maximum premium payable at five (5%) percent and not the ten (10%) that Mr. Fiore routinely charged.
The Superior Court judge, however, found against the plaintiffs for multiple damages under General Law 93A ruling that International Fidelity’s denial of liability did not amount to an unfair or deceptive act under the statute.
Appeals Court affirms contract claims but reverses 93A denial and order award of multiple damages and attorney fees for plaintiffs
Both the plaintiffs and International Fidelity appealed. International Fidelity appealed the summary judgement on contract damages awarded by the Superior Court and the plaintiffs who lost their collateral appealed claiming the right to receive multiple damages and attorney fees under Chapter 93A for the fraud committed by International Fidelity’s agent.
The Appeals Court summarily affirmed the breach of contract claims since there was no real dispute that Mr. Fiore acted with actual authority from International Fidelity when he entered into the bonding and collateral agreements with the plaintiffs.
In a futile effort to sustain the Superior Court’s finding in its favor on the 93A claims, International Fidelity argued that it should not be held liable for Mr. Fiore’s fraud because (1) Mr. Fiore’s actions were not motivated by a desire to benefit it, and (2) it was wholly ignorant of such actions.
On appeal, the Appeals Court rejected this argument and ordered the Superior Court to enter judgment in favor of the plaintiffs on the 93A claims and to assess damages and attorney fees. In stating the rationale for its decision, the Court pointed out that the law is clear in this case that an insurance company:
may be liable for the fraud of an agent who is acting entirely for his own purposes but who, to the defrauded party, is apparently acting for the [insurance company]”
While the rule in this case applied to an insurance company, agencies should be aware that this same principle would apply to their employees or producers.
A copy of the decision can be accessed by clicking on this link: Ramos v. International Fidelity.