Are independent agents liable for giving bad advice on how long insureds should keep their insurance policies? That is the question that The Fessenden School (“Fessenden”) sought to have sent back to the Superior Court for trial after the Superior Court dismissed Fessenden’s damage suit against Hub International, the alleged corporate successor to Fessenden’s agent, Brewer & Lord. (Designated, interchangeably as either “Hub” or “Brewer & Lord”).
Since 2011, Fessenden has received demand letters from some fourteen former students who attended the school in the 1960s and 1970s alleging that the school’s negligence resulted in their being sexually abused by school employees. Fessenden had liability insurance coverage throughout the 1960s and 1970s, which it had procured on the advice of Brewer & Lord. However, Brewer & Lord, until the 1980s, had advised Fessenden that it only needed to retain its insurance policies for seven years.
Because it relied on Brewer & Lord’s advice, Fessenden could not produce copies of the insurance policies it needed to prove to its liability insurer, Aetna Insurance, which is now Chubb Limited (“Chubb”), that it had any valid policies. Fessenden did obtain some coverage for 1974 to 1977 based on an archeological coverage search. However, Chubb in 2012 denied coverage for alleged abuse occurring during the 1963-1973 period.
Fessenden sued Hub as the successor to Brewer & Lord for negligence and breach of fiduciary duty based on the advice Brewer & Lord allegedly gave Fessenden to only keep policies for seven years. However, the Superior Court and the Appeals Court found that the statute of limitations began to run on Fessenden’s lawsuit in 2012 when Chubb denied coverage, and since Fessenden did not bring its suit within three years, its claims were time-barred. Both courts found Fessenden filed its first suit against Hub in 2016, a year after the statute of limitations had expired.
Brewer & Lord’s advice that Fessenden did not need to retain its insurance policies more than seven years
Fessenden is a private boys’ boarding and day school for Pre-Kindergarten through 9th grade, located in West Newton on a 41-acre campus,
In the 1960s and 1970s, Fessenden used an independent agent, Brewer & Lord, as its broker to obtain insurance. According to Fessenden, Brewer & Lord held itself out as possessing particular skills and knowledge with respect to insurance, and it often undertook to advise Fessenden and to make recommendations to it.
Fessenden routinely followed Brewer & Lord’s advice and instruction regarding insurance. For example, Brewer & Lord communicated directly with the school’s legal counsel by letter in 1970 and advised on the insurance-related terms that should be included in a lease that the school was negotiating. The next year, Brewer & Lord informed the school’s Board of Trustees that it should increase the amount of insurance it was carrying to cover certain risks, including (i) possible financial loss due to an event that might necessitate the demolition of buildings and reconstruction under new building code requirements and (ii) potential tuition refund requirements. According to the board of trustee minutes of Fessenden, Brewer & Lord’s recommendation received “the enthusiastic endorsement” of the board.
Also, Fessenden allegedly had other documents supporting its claim that Brewer & Lord instructed Fessenden on all aspects of its insurance coverage and risk-control practices and that Fessenden followed Brewer & Lord’s advice in this regard.
In 1995, Fessenden received a claim by a former student concerning sexual abuse by a Fessenden employee that occurred in 1974. Fessenden could not locate an insurance policy for that year, so its attorney sought to establish that the school had insurance coverage for the claim. She interviewed Fessenden’s insurance representative at Brewer & Lord. This person told the attorney that prior to the 1980s, Brewer & Lord advised clients to retain their insurance policies for seven years. According to the Brewer & Lord contact, as of the 1980’s Brewer & Lord no longer gave that advice and had begun advising clients to retain their policies indefinitely.
However, up until the early 1980s, Fessenden followed Brewer & Lord’s advice on insurance policy retention and, as a result, had no copies of its insurance policies before that period.
Hub International acquires Brewer & Lord
In 2006, Hub acquired three insurance agencies owned by Citizens Bank for $80 million. Two of the three agencies acquired were Massachusetts based: Brewer & Lord. in Norwell, Mass.; and Feitelberg Insurance in Fall River, Mass. After the acquisition, Brewer & Lord’s business was merged into Hub’s wholly-owned subsidiary, Hub NE (Hub New England).
Sexual abuse claims arising from Fessenden’s negligent supervision of staff
In 2011, Fessenden began receiving demand letters from former students alleging that the school’s negligent supervision of its staff had resulted in their being sexually abused by school employees during the 1960s and 1970s.
Personal injury claims usually have a three-year statute of limitations which ordinarily would bar claims from the 1960s and 1970s brought in 2011. However, sexual abuse claims brought by adults long after they were allegedly sexually abused as minors often have the statute of limitations tolled by evidence of post-traumatic memories that made the abuse essentially “undiscoverable.” In 2014, the Legislature recognized this psychological effect by retroactively making the statute of limitations for claims of negligent supervision of a person who sexually abuses a minor thirty-five years after the minor turns eighteen (until age fifty-three).
In response to these claims, Fessenden made a broader search of its records for any insurance policies from this period but was unable to locate copies of any of the liability policies that it obtained through Brewer & Lord.
Marsh’s insurance archeology department discovers some coverage for Fessenden
After Fessenden received additional demand letters from former students alleging Fessenden’s negligence resulted in their being sexually abused by some school employees during the period from 1963 through 1977, Fessenden hired Marsh & McLennan Companies (“Marsh”) in 2012 to attempt to reconstruct the school’s insurance program over the relevant time period from secondary records and sources.
After Marsh’s Insurance Archaeology Department conducted a detailed search, its Vice President, Jennifer Lee, presented Marsh’s findings and the documents evidencing coverage to Chubb. Based on Marsh’s findings, Chubb agreed that it had to provide coverage for Fessenden for four claims having occurrence events between 1974 and 1977.
However, Chubb refused to cover seven claims that alleged abuse at the school prior to 1974 because neither Fessenden nor Marsh could produce a copy of any policies or secondary evidence from that period sufficient to establish a reasonable basis for establishing coverage.
Fessenden sues Chubb and then sues Hub as successor to Brewer & Lord
In 2016, Fessenden filed suit in the United States District Court for the District of Massachusetts against Chubb to obtain coverage for claims arising during the period 1963-1973. However, later that year, the school voluntarily dismissed its suit without prejudice.
In October 2016, Fessenden sent a letter to Hub claiming Hub had responsibility for Brewer & Lord’s negligent advice that had caused harm to Fessenden because of its inability to obtain coverage under the missing policies. The letter demanded that Hub search and produce any files or documents relating to policies issued to Fessenden during the relevant time period.
In making the demand on Hub, Fessenden claimed that Hub was the successor-in-liability to Brewer & Lord’s alleged negligence and breach of fiduciary duty because Hub’s wholly-owned subsidiary, Hub NE, had merged with Brewer & Lord on December 31, 2007.
In November 2016, Hub responded to Fessenden, affirming that Hub had searched for and produced any insurance policies and related documents it had relating to Fessenden’s coverage. However, Hub could not produce any of Fessenden’s policies for the policy periods in question.
On November 30, 2016, Fessenden sued Hub in federal court. However, because of a legal technicality, Fessenden also dismissed this suit, with Hub and Fessenden agreeing that pending Fessenden filing a suit by a date certain in the Massachusetts Superior Court, the statute of limitations would be tolled.
Fessenden files new suit against Hub in state court as the successor-in-interest to Brewer & Lord
On October 24, 2019, Fessenden filed its suit against Hub in the Middlesex Superior Court, alleging that Brewer & Lord acted as an agent of Fessenden and had a duty of due care performing as Fessenden’s agent.
The complaint further alleged that because Brewer & Lord (now Hub) held itself out to Fessenden as an insurance specialist, consultant, or counselor by providing advice and taking on an active role in the procurement of and decision-making with respect to insurance policies for Fessenden, it had a fiduciary relationship with Fessenden.
The complaint sought damages for Brewer & Lord negligently advising Fessenden to only hold its insurance policies for seven years before discarding them. The complaint also claimed that Brewer & Lord was aware that Fessenden relied on it for advice and expertise, and therefore Brewer & Lord had a fiduciary relationship with Fessenden, which it breached by its erroneous advice about Fessenden maintaining its policies for just seven years.
Hub’s motion to dismiss allowed as the Superior Court finds the statute of limitations applies
On December 19, 2019, less than two months after Fessenden filed its suit, Hub filed a motion to dismiss Fessenden’s complaint.
Hub argued that accepting all of Fessenden’s complaint’s allegations as true, Fessenden’s complaint should be dismissed. While the motion contained various legal arguments, the main argument was that Fessenden had failed to bring suit before the expiration of the applicable three-year statute of limitations.
On August 7, 2020, the Superior Court allowed Hub’s motion to dismiss on the sole basis that the three-year statute of limitations for professional liability claims against an insurance agent had expired before Fessenden had filed its first suit against Hub.
The Superior Court found that based on Fessenden’s complaint’s allegations that:
“Fessenden knew in 1995, and certainly by 2011 that it had been misadvised by Brewer & Lord’s recommendation that it need only retain its insurance policies for seven years.”
“Fessenden suffered appreciable harm from that advice as early as 1995 when it incurred legal costs in attempting to obtain coverage despite the missing policy.”
The Superior Court noted that negligence and breach of fiduciary duty are governed by a three-year statute of limitations. Based on the allegations of Fessenden’s complaint, the Superior Court concluded that this three-year statute of limitations began to run on Fessenden’s claims against Brewer & Lord by 2012 at the latest when Fessenden learned that Chubb would not cover pre-1974 claim without Fessenden producing policies. Thus, based on that 2012 date, the statute of limitations expired in 2015, a year before Fessenden filed its first action against Hub.
After the Superior Court dismissed Fessenden’s complaint, Fessenden appealed to the Appeals Court.
Appeals Court affirms the Superior Court on all points
In the Appeals Court, Fessenden’s arguments had no traction. The Court started with the premise that the law with respect to the statute of limitation for claims of professional negligence and breach of fiduciary duty is well established. The limitations period that is applicable generally to tort claims–three years from the date the cause of action accrued.
In this case, the Court noted there were two events that provided Fessenden with notice of Brewer & Lord’s alleged breach of duty that determined when Fessenden’s cause of action accrued.
The first event was the 1995 claim from a former student alleging that the student had been abused at the school in 1974 by a staff member. The lawyer Fessenden retained investigated the status of Fessenden’s insurance coverage for the student’s claim and could not locate any of Fessenden’s insurance policies from the 1974 time period. During this investigation, the lawyer and Fessenden learned about allegedly erroneous advice that Brewer & Lord had given to Fessenden about discarding policies after seven years.
The second event was when the issue of Fessenden’s insurance coverage arose again in 2011-2012 when Fessenden received a series of additional abuse claims involving occurrences during the years 1963-1977 and 1979-1980. Fessenden hired Marsh & McLennan “to reconstruct the school’s insurance program over the 1963 to 1977 time period.” Also, the case record showed that Fessenden retained Marsh to aid Fessenden in its “negotiations with the insurance companies” regarding coverage for the new student claims.
The Court then held that Fessenden was on notice that it had been harmed by Brewer & Lord’s allegedly bad advice in 2012 when it incurred the costs of Marsh’s investigation, which Fessenden knew or should have known resulted from Brewer & Lord’s alleged negligence. Marsh was retained because the insurer’s policies could not be located at Fessenden, and the reason they could not be located was that Brewer & Lord had advised Fessenden to discard them. The Court concluded that based on Fessenden incurring appreciable costs in 2012 because of Brewer & Lord’s faulty advice, the statute of limitation for Fessenden to file against Hub as the successor of Brewer & Lord for negligence and breach of fiduciary duty began to run in 2012.
The Court ended by stating:
“In short, here the record showed that Fessenden’s claim for negligence and breach of fiduciary duty had accrued by 2012, more than three years prior to suit, due to “[t]he necessary coalescence of discovery and appreciable harm.”
The final order of the Appeals Court affirmed the dismissal of Fessenden’s claims as time-barred
Twenty days to apply for further appellate review to the Supreme Judicial Court
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Under the Massachusetts Rules of Appellate Procedure, Fessenden will have until July 21, 2021, to apply for further appellate review.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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