SUNRISE PROPERTIES, INC. vs. BACON, WILSON, RATNER, COHEN, SALVAGE, FIALKY & FITZGERALD, P.C., & another [Note 1] (and a companion case [Note 2]).

LYNCH, J. This appeal arises from an action brought by

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Sunrise Properties, Inc. (Sunrise), against Bacon, Wilson, Ratner, Cohen, Savage, Fialky & Fitzgerald, a professional corporation (Bacon Wilson) engaged in the practice of law, and Michael S. Ratner, a shareholder of Bacon Wilson and at all relevant times its president and comanager. Sunrise claimed that Ratner had negligently conducted a title examination. The parties entered into a settlement agreement. Bacon Wilson acknowledged that there was sufficient evidence to warrant an entry of judgment against it, and Sunrise received an assignment of Bacon Wilson's rights under their professional liability insurance policy with New England Insurance Company (New England). A judge in the Superior Court entered judgment for Sunrise in the amount of $450,000 against Bacon Wilson which, under the settlement agreement, was only collectible against New England. [Note 3]

Following the entry of judgment, Sunrise moved pursuant to Mass. R. Civ. P. 69, 365 Mass. 836 (1974), for an order directing New England to satisfy the judgment. New England commenced a declaratory judgment action seeking a determination that under the policy Bacon Wilson was not covered for this loss. The cases were consolidated and on the parties' cross motions for summary judgment the judge allowed Sunrise's motion for summary judgment. We granted New England's application for direct appellate review. We vacate the order of the Superior Court granting summary judgment to Sunrise and conclude that an order allowing New England's summary judgment motion should be entered.

Facts. The parties stipulated to the following facts. Between April 1, 1986, and March 30, 1991, Bacon Wilson was a professional corporation with Ratner as its president and a shareholder. New England issued to Bacon Wilson a lawyer's malpractice policy with a policy period from April 1, 1990, to March 31, 1991. The policy was a claims-made policy, providing coverage for claims "first made against the Insured and reported to the Company during the policy period." [Note 4] Insureds under the policy included the professional corporation and

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any lawyers who were stockholders or members of the professional corporation. Notice under the policy was to be given "as soon as practicable" after the insured became aware of any act, error, or omission which could reasonably be expected to be the basis of a claim against the insured. The policy, however, also contained a so-called "innocent insured" provision, which provided that, whenever coverage under any provision of the policy would be lost because of noncompliance with a condition relating to the giving of notice, insureds who did not "personally commit or personally participate in committing or personally acquiesce in or remain passive after having personal knowledge of one or more of the acts, errors or omissions" would remain covered under the policy. [Note 5]

Sunrise first made a claim against Ratner between November 30, 1987, and January 23, 1989. Within that same period, Sunrise "through its oral communications and dealings with Ratner . . . first made a demand for money or services to be provided by Bacon & Wilson." The parties also agree that Ratner was aware, by November 30, 1987, of circumstances that might give rise to a claim by Sunrise against Bacon Wilson. During this time, however, Ratner did not communicate the existence of any claim to the other officers or shareholders of Bacon Wilson. Moreover, although Ratner was aware of the possibility of a claim against Bacon Wilson by November 30, 1987, the claim was not reported to New England until December 6, 1990, when Ratner, on Bacon Wilson letterhead, finally sent a report to New England. The report to New England enclosed a claim letter, dated November 30, 1990, from Sunrise to Ratner regarding the

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claim against Bacon Wilson. After initially defending Sunrise's claim, New England disclaimed coverage, asserting that, because the claim was made to Bacon Wilson but not reported to New England during an earlier policy year, it was not a "claim" under the 1990-1991 policy. [Note 6]

Discussion. Sunrise argues that, while ordinarily under the terms of the insuring agreement a claim must be reported to the insurer by the insured during the policy period in order to be covered, Condition III of the Agreement, the so-called "innocent insured" provision, waives the consequences of failing promptly to report a claim to the insurer where neither the other shareholders nor the corporation knew of the claim. Moreover, according to Sunrise, under the terms of the policy, Bacon Wilson cannot be deemed to have known of any claim against it because the terms of the insurance contract allows recovery for innocent insureds and recognizes that the individual shareholders and the professional corporation were all separate and potentially innocent insureds under the contract. Thus, according to Sunrise, any arguments based on agency principles are irrelevant. Sunrise further argues that, even if agency principles were relevant, Ratner's knowledge should not be imputed to the professional corporation because he was acting adversely to the corporation. We disagree.

A corporation is a separate and distinct legal entity. See Spaneas v. Travelers Indem. Co., 423 Mass. 352, 354 (1996); Gurry v. Cumberland Farms, Inc., 406 Mass. 615, 625-626 (1990). A corporation, however, can only act through its agents. See Commonwealth v. L.A.L. Corp., 400 Mass. 737, 743 (1987); Commonwealth v. Beneficial Fin. Co., 360 Mass. 188 (1971), cert. denied sub nom. Farrell v. Massachusetts, 407 U.S. 910, and sub nom. Beneficial Fin. Co. v. Massachusetts, 407 U.S. 914 (1972).

Under agency principles, notice to a corporation's agent is notice to the corporation. "When an agent acquires knowledge in the scope of [his] employment, the principal . . . is held to have constructive knowledge of that information." DeVaux v. American Home Assur. Co., 387 Mass. 814, 818 (1983), citing Bockser v. Dorchester Mut. Fire Ms. Co., 327

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Mass. 473, 477-478 (1951), and Union Old Lowell Nat'l Bank, 318 Mass. 313, 323-324 (1945). Juergens v. Venture Capital Corp., 1 Mass. App. Ct. 274, 278 (1973) (corporate officer's knowledge of transaction was constructive notice to corporation). However, an agent's knowledge of his own unauthorized acts is not imputed to the principal when the agent has acted fraudulently toward the principal and is engaged in an independent fraudulent act from which the principal does not benefit. Tremont Trust Co. v. Noyes, 246 Mass. 197, 207 (1923). See Restatement (Second) of Agency s. 282 (1958) ("[a] principal is not affected by the knowledge of an agent in a transaction in which the agent secretly is acting adversely to the principal and entirely for his own or another's purposes").

Ratner, as president and comanager of Bacon Wilson, was an agent of Bacon Wilson who was acting within the scope of his employment when he learned of circumstances that might give rise to a claim against both him and Bacon Wilson. [Note 7] Thus, under ordinary agency principles, Ratner's knowledge is imputed to Bacon Wilson. [Note 8]

This conclusion cannot be avoided by Sunrise's argument that Ratner's knowledge is not imputable to Bacon Wilson because he was acting adversely toward Bacon Wilson. The Restatement (Second) of Agency, supra at s. 282 (2) (a), provides that the principal is affected by the knowledge of an agent who acts adversely to the principal if "the failure of the agent to act upon or to reveal the information results in a violation of a contractual or relational duty of the principal to a person harmed thereby." Clearly, Ratner's failure to share his knowledge resulted in Bacon Wilson's noncompli-

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ance with the terms of the insurance contract, and such delay, by its very nature, adversely affects an insurer issuing a claims-made policy. [Note 9] Tenovsky v. Alliance Syndicate, Inc., 424 Mass. 678, 681 (1997).

Because, as a matter of law, Bacon Wilson knew of circumstances that could reasonably be expected to result in a claim by January of 1989, it was obligated to report the claim as soon as was practicable within the 1988-1989 policy year. [Note 10] Failure to do so relieved New England of any obligation to Sunrise arising under the policy. Because Bacon Wilson is deemed to have knowledge of the claim, it is afforded no relief under the innocent insured provision of the policy. Indeed, while Sunrise argues that a corporation cannot "personally" commit or participate in any wrongdoing contemplated by the innocent insured provision, a corporation cannot absolve itself of its agent's wrongdoing by hiding behind the corporate shield. See Commonwealth v. L.A.L. Corp., supra at 743 (corporation may be criminally liable for wrongdoings of its agents); United States v. Bank of New England, 821 F.2d 844, 856, cert. denied, 484 U.S. 943 (1987) (knowledge obtained by corporate employees acting within scope of their employment is imputed to corporation, in context of corporate criminal liability).

That the insurance contract recognized that both the professional corporation and individuals were separate insureds under the contract does not, as Sunrise argues, compel the conclusion that Ratner's knowledge cannot be imputed to the corporation as a matter of contract law. Insuring both the

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corporation and individual shareholders under the contract recognizes that both the professional corporation and its individual shareholders may be liable in certain circumstances. See S.J.C. Rule 3:06 (3), as appearing in 421 Mass. 1306 (1996). There is nothing about the policy that would overrule the long-standing principle that a corporation is a separate entity that can only act through its agents. To conclude otherwise would run counter to the principle that a corporation should not be allowed to "assume the benefits of the corporate form and then disavow that form when it is to their and their stockholders' advantage." Spaneas v. Travelers Indem. Co., 423 Mass. 352, 354 (1996), quoting Berger v. H.P. Hood, Inc., 416 Mass. 652, 658 (1993), S.C., 424 Mass. 144 (1997). [Note 11]

Contrary to Sunrise's assertions, our interpretation of the policy does not render the innocent insured provision meaningless and deprive Bacon Wilson of the benefits of its bargain. By concluding that Bacon Wilson is not covered because the claim was not reported as required, we offer no opinion on the policy's applicability as to other insureds who may be personally liable.

The judge's order is vacated and the case is remanded to Superior Court for further proceedings consistent with this opinion.

So ordered.