Levine v. Selective Ins. Co. of America, 941719

Decision Date15 September 1995
Docket NumberNo. 941719,941719
Citation250 Va. 282,462 S.E.2d 81
PartiesBarry Wm. LEVINE, et al. v. SELECTIVE INSURANCE COMPANY OF AMERICA. Record
CourtVirginia Supreme Court

Gary B. Mims, Fairfax (Brault, Palmer, Grove, Zimmerman, White & Mims, on brief), for appellee.

Present: CARRICO, C.J., and COMPTON, STEPHENSON, WHITING, 1 LACY, HASSELL and KEENAN, JJ.

HASSELL, Justice.

In this appeal, we consider whether property owners, who are not parties to an insurance contract, have pled a cause of action as third-party beneficiaries against an insurer for breach of an implied covenant of good faith and fair dealing.

I.

This case was decided on the defendant's motion for summary judgment; therefore, we must adopt the facts and inferences from those facts that are most favorable to the non-moving party, unless those inferences are strained, forced, or contrary to reason. Renner v. Stafford, 245 Va. 351, 353, 429 S.E.2d 218, 220 (1993).

Plaintiffs, Barry W. Levine and Patricia Levine, executed a contract with Henry Elmore to construct a house upon their property in Rappahannock County. The construction contract required that Elmore obtain construction hazard insurance, which would provide coverage for loss of materials and personal injuries on the job site, with the plaintiffs named as loss payees.

Elmore procured construction hazard insurance from Selective Insurance Company of America through its agent, Hughes Insurance Company. Although the Levines were not shown as loss payees on the policy, "all parties expressly understood that the beneficiaries of such Policy were the Levines. Elmore has never had and asserts no right or title to the proceeds from the Policy except as trustee for the Levines."

During construction of the house, strong winds caused the partially completed house to collapse. The house's foundation, floor joists, and sub-floor were damaged, but not destroyed, by the windstorm. Hughes Insurance Company was notified of the damage on the same day, and a formal claim was timely submitted to Selective, which dispatched a claim adjuster to evaluate the loss. Selective's claim adjuster was advised of the urgency of prompt processing and payment Selective "dallied in reviewing and paying the claim," and it asked "the Levines and Elmore to provide certain information regarding the loss that Selective Insurance already possessed, and it otherwise delayed paying the claim." Selective refused to pay the claim despite "repeated requests by the Levines and Elmore and repeated warnings that Selective was exposing the remaining structure to additional collapse." Elmore ceased construction of the house and, subsequently, a substantial portion of the remaining foundation collapsed.

of the claim so that the plaintiffs and Elmore could use the funds to preserve the foundation, floor joists, and sub-flooring.

The plaintiffs filed a second claim with Selective for the additional damage. After protracted negotiations, Selective acknowledged coverage of the subject risk and made a partial payment of $25,000 for the first damage claim only. A draft of $25,000 was made payable to Elmore and Mr. Levine. 2 Three months later, Selective issued a second draft in the amount of $87,000, payable to Elmore and Mr. Levine as full payment for the first damage claim only. Selective has refused to pay for any damages associated with the second collapse and has failed to provide any legal basis for its decision.

II.

The plaintiffs argue that the trial court erred in granting summary judgment. The plaintiffs contend that they are third-party beneficiaries to the contract between Selective and Elmore. Selective argues that the plaintiffs are not third-party beneficiaries to the insurance contract, and, therefore, Selective owes no contractual duty to them. We disagree with Selective.

It is well established in this Commonwealth that under certain circumstances, a party may sue to enforce the terms of a contract even though he is not a party to the contract. "[I]n contracts not under seal, it has been held, for two centuries or more, that any one for whose benefit the contract was made may sue upon it." Thacker v. Hubard, 122 Va. 379, 387, 94 S.E. 929, 931 (1918). This rule was codified in the 1849 Code of Virginia, ch. 116, § 2. Thacker, 122 Va. at 390, 94 S.E. at 931-32. The current successor to that statute, Code § 55-22, states:

An immediate estate or interest in or the benefit of a condition respecting any estate may be taken by a person under an instrument, although he be not a party thereto; and if a covenant or promise be made for the benefit, in whole or in part, of a person with whom it is not made, or with whom it is made jointly with others, such person, whether named in the instrument or not, may maintain in his own name any action thereon which he might maintain in case it had been made with him only and the consideration had moved from him to the party making such covenant or promise. In such action the covenantor or promisor shall be permitted to make all defenses he may have, not only against the covenantee or promisee, but against such beneficiary as well.

"The essence of a third-party beneficiary's claim is that others have agreed between themselves to bestow a benefit upon the third party but one of the parties to the agreement fails to uphold his portion of the bargain." Copenhaver v. Rogers, 238 Va. 361, 367, 384 S.E.2d 593, 596 (1989); accord, Cobert v. Home Owners Warranty Corp., 239 Va. 460, 466, 391 S.E.2d 263, 266 (1990); Forbes v. Schaefer, 226 Va. 391, 401, 310 S.E.2d 457, 463 (1983); Richmond Center v. Jackson Co., 220 Va. 135, 142, 255 S.E.2d 518, 523 (1979); Valley Landscape Co. v. Rolland, 218 Va. 257, 259-60, 237 S.E.2d 120, 122 (1977). We have enforced third-party beneficiary contracts when "[t]he third party ... show[s] that the parties to the contract clearly and definitely intended it to confer a benefit upon him." Ward v. Ernst & Young, 246 Va. 317, 330, 435 S.E.2d 628, 634 (1993) (quoting Professional Realty v. Bender, 216 Va. 737, 739, 222 S.E.2d 810, 812 (1976)).

We hold that the plaintiffs pled sufficient facts in their motion for judgment to support their claim that they are third-party beneficiaries to the contract between Elmore and Selective. The contract insures the plaintiffs'

                property, and they alleged in their motion that:  "all parties expressly understood that the beneficiaries of such [insurance contract] were the Levines;"  "Selective Insurance, at all relevant times, has had actual notice of the Levines' status as a third party beneficiary and ultimate payee under the Policy;"  and "Elmore was the named payee and the Levines were a third party beneficiary of the insurance contract that Selective Insurance issued to Elmore."   Additionally, when Selective finally made payment for a portion of the plaintiffs' claims, it issued checks payable to the order of Elmore and Mr. Levine.  These facts, if proven at trial, would support a finding that the contracting parties, in this instance, Elmore and Selective, intended the contract to confer a benefit upon the plaintiffs
                
III.

The plaintiffs assert that they pled sufficient facts to create a jury issue whether Selective breached its contractual duty of good faith and fair dealing in failing to pay their original loss claim within a reasonable time. Selective argues that the trial court did not err in granting its motion for summary judgment on this claim. We disagree with Selective.

Selective does not dispute the existence of this contractual obligation of good faith and fair dealing. Also, Selective does not dispute that it owes a duty of good faith and fair dealing to the plaintiffs as third-party beneficiaries. Indeed, our precedent recognizes that a third-party beneficiary to a contract is entitled to enforce the terms of the contract and is...

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