Monday, January 30, 2017

St. Paul Mercury Insurance Company v. American Bank Holdings, Inc. (4th Circuit)

Filed: April 14, 2016

Opinion by: Niemeyer

Holding:  Service of process on a Maryland corporation’s resident agent constitutes service of process on the corporation.

Facts:  Defendant’s resident agent was served with a complaint and summons issued from a state court in Illinois on June 18, 2008.  Due to an internal oversight, defendant did not respond to the summons and the court entered a default judgement against it.  Eight months after receipt of the summons and after efforts to collect on the default judgment began, defendant notified its insurer of the lawsuit. 

The insurance policy provided that the insurer must be given written notice of any “claim … as soon as practicable.”  The policy also provided that a claim commenced on “the service of a complaint.”  Insurer denied coverage because of the late notice.  

Defendant eventually had the default judgment vacated and the lawsuit dismissed, which cost defendant $1.8 million.  Insurer sought a declaratory judgment that it had no duty to pay for the defense.  The district court ruled that “constructive notice via service of process on the insured’s resident agent, constitute[d] actual notice for purposes of triggering” its obligation to notify insurer and found the insurer to be within its right to deny coverage.  The Court affirmed. 

Analysis:  Defendant argued that its obligation to notify insurer was not triggered until it had actual knowledge of the complaint, which occurred after attempts to collect the default judgment began.  The Court noted that the Maryland General Corporation Law requires each corporation to designate a resident agent to receive service of process and further provides that service of process on the resident agent “constitutes effective service of process … on the corporation.”  Thus, the Court found service on the resident agent to be effective service on defendant, which triggered defendant’s duty to notify insurer “as soon as practicable.”

Defendant argued that it was not effectively served because its CFO was no longer employed when the resident agent forwarded the lawsuit papers to the CFO on June 19, 2008.  The Court stated that internal “corporate screw-ups” do not provide a basis to excuse providing timely notice to its insurer.  Rather, the Court stated that under Maryland agency law “knowledge of an agent acquired within the scope of the agency relationship is imputable to the corporation.”  Accordingly, the Court found that, under Maryland agency law, the defendant had actual knowledge of the lawsuit on the day its resident agent was served with process. 

The Court found the district court properly rejected defendant’s waiver and estoppel arguments. 

The opinion is available in PDF.

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