Wednesday, March 31, 2010

Massachusetts Appeals Court holds that discovery rule does not apply to allegation that insurance agency employed unlicensed broker

In my last post I discussed Anawan Ins. Agency, Inc. v. Division of Ins., 76 Mass. App. Ct. 447 (2010), in which an insurance agency was accused of employing an unlicensed broker.

After determining that a four year statute of limitations applied, the court held that the discovery rule does not apply. The discovery rule tolls the statute of limitations until a plaintiff knew or should have known that he or she may have a cause of action. For example, in a medical malpractice claim, under the discovery rule in certain circumstances the statute of limitations may be tolled until the plaintiff develops symptoms putting him or her on notice of the malpractice.

In Anawan, in 1999 the division of insurance received anonymous letters stating that Anawan had illegally opened a second location. The division investigated and learned that Prum was doing business at the second location under an expired broker's license. On June 23, 2004, Anawan's director confirmed in writing that it had paid commissions to Prum.

The Massachusetts Appeals Court held that the discovery rule did not apply to punitive civil statutes including the one prohibiting an insurance agency from employing an unlicensed broker. In support of its determination the court quoted 3M Corp. v. Browner, 17 F.3d 1453, 1455 (D. C. Cir. 1994), which stated:

In an action for a civil penalty, the government's burden is to prove the violation; injuries or damages resulting from the violation are not part of the cause of action; the suit may be maintained regardless of damages.

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