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FIDELITY & DEPOSIT CO. OF MARYLAND v. PRESIDENT &

January 7, 1980

FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff,
v.
The PRESIDENT AND DIRECTORS OF GEORGETOWN COLLEGE, Defendant.



The opinion of the court was delivered by: ROBINSON, JR.

MEMORANDUM OPINION AND ORDER

Before the Court are Plaintiff's Motion for Summary Judgment and Defendant's Motion for Partial Summary Judgment in an insurance contract action brought by the Fidelity and Deposit Company of Maryland (Fidelity) against the President and Directors of Georgetown College (Georgetown). Jurisdiction is based upon 28 U.S.C. § 1332.

 I. The Facts

 On October 8, 1974, Plaintiff issued a Blanket Crime Policy to the Defendant as the insured. This policy insured Georgetown for up to $ 500,000 against the loss of money, securities, or other property sustained as a result of the dishonest or fraudulent acts of any Georgetown employee. The bond provides, inter alia, that

 
LOSS NOTICE PROOF ACTION AGAINST COMPANY
 
SECTION 8: Upon knowledge or discovery of loss or an occurrence which may give rise to a claim for loss, the Insured shall: (a) give notice thereof as soon as practicable to the Company or any of its authorized agents and . . . (b) file detailed proof of loss, duly sworn to, with the Company within four months after discovery of loss . . . No action shall lie against the Company unless, as a condition precedent thereto, there shall have been full compliance with all terms of this Policy, nor until 90 days after the required proofs of loss have been filed with the Company, nor at all unless commenced within two years from the date when the Insured discovers the loss. . . .

 The Blanket Crime Policy was prepared by Fidelity, and Fidelity is responsible for the language used in Section 8.

 In 1971 and 1972 Defendant was awarded a contract and a grant (grants) by the National Institutes of Health (NIH) to study hypertension. Dr. Frank Finnerty, Jr., a Georgetown faculty member, was the principal investigator of the grants until his resignation on August 1, 1976. Research pursuant to those grants was conducted in the Georgetown Clinic at D.C. General Hospital. Defendant used certain facilities at the hospital pursuant to an affiliation agreement. Other hypertension studies conducted at the Clinic were funded by the federal government and private pharmaceutical companies.

 The substance of the allegations was that the salaries of certain employees being paid by Georgetown were being charged to NIH on that contract when those employees were not doing any work on the NIH contract or were working only part time on that contract. It was alleged that those employees were actually working on research being conducted for private pharmaceutical companies by Dr. Finnerty under contracts between the drug companies and Hypertension Research Associates, Inc. (HRAI), a District of Columbia corporation controlled by Dr. Finnerty's wife, Frances Caputo Finnerty.

 In March of 1976 in the course of his investigation, Mr. Constantine wrote to various pharmaceutical companies with which Dr. Finnerty had contracts and requested information with respect to payments made by those pharmaceutical companies to Dr. Finnerty. The information about which drug companies Dr. Finnerty was working for was initially supplied to the defendant by Dr. Finnerty's attorney in March, 1976.

 In April 1976 Mr. Constantine interviewed approximately 20 employees of the defendant who were working for Dr. Finnerty on these various contracts. These employees were under the direct supervision of Dr. Finnerty. The salaries of the employees who were paid by Georgetown were charged in whole or in part to the NIH contract.

 Included among those interviewed was Dr. William Mroczek, Dr. Finnerty's principal assistant at the clinic. Dr. Mroczek told Mr. Constantine that while his time was being charged to the contract between Georgetown University and the National Institutes of Health, he was not in fact working on the NIH contract. One other employee told Mr. Constantine that either Dr. Finnerty or Frances Caputo Finnerty told her to take the day off when NIH auditors or investigators were scheduled to visit the clinic. Also, Dr. Mroczek told Mr. Constantine that Dr. Finnerty told him to familiarize himself with the NIH contract requirements before the NIH auditors or investigators were to come around.

 On May 12, 1976, Mr. Constantine wrote to Mr. Samuel Browne, the Director of the Office of Insurance of Georgetown University, and indicated that he had reason to believe Dr. Finnerty had diverted revenues from Georgetown University to Hypertension Research Associates, Inc. HRAI had hired Dr. Finnerty as a consultant. Frances Caputo ...


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