Augusta Mut. Ins. Co. v. Mason, Record No. 061339.

• Citation: 645 S.E.2d 290
• Decision Date: 08 June 2007
• Docket Number: Record No. 061339.
• Parties: AUGUSTA MUTUAL INSURANCE COMPANY v. Carvie M. MASON, JR., et al.
• Court: Supreme Court of Virginia

645 S.E.2d 290

AUGUSTA MUTUAL INSURANCE COMPANY v. Carvie M. MASON, JR., et al.

Record No. 061339.

Supreme Court of Virginia.

June 8, 2007.

John C. Wirth (Victor M. Santos; Nelson, McPherson, Summers & Santos, on briefs), Staunton, for appellant.

Deborah B. Schechner; Julie S. Palmer (Robin M. Cole; Richard K. Bennett; Siciliano, Ellis, Dyer & Boccarosse; Harman, Claytor, Corrigan & Wellman, on briefs), for appellees Herbert L. Jones, Jr. and Lee-Curtis Insurance Service, Inc.

No brief filed by appellees Carvie M. Mason, Jr. and Joseph W. Mason.

Present: All the Justices.

OPINION BY Justice CYNTHIA D. KINSER.

The dispositive issue in this appeal concerns the legal sufficiency of an insurance company's pleading in a third-party action for damages arising out of an insurance agent's allegedly fraudulent misrepresentations regarding the condition of a dwelling that the insurance company agreed to insure. Because the only duties allegedly violated by the agent emanate exclusively from the parties' preexisting contractual relationship, we conclude that the insurance company failed to properly state claims for either fraud in the inducement or breach of fiduciary duty. Accordingly, we will affirm the circuit court's judgment sustaining demurrers and dismissing the insurance company's amended third-party motion for judgment with prejudice.

I. FACTS AND PROCEEDINGS

Carvie M. Mason, Jr. and Joseph W. Mason filed a motion for judgment against Augusta Mutual Insurance Company (Augusta Mutual) on February 24, 2005, seeking damages for Augusta Mutual's allegedly wrongful denial of coverage for a loss sustained by the Masons on December 25, 2004, when a fire destroyed a dwelling they owned. According to the Masons, Augusta Mutual denied coverage for their fire loss because of a misrepresentation on a "Woodburning Stove Inspection Report" (the Report) that supposedly bore Carvie's signature and was part of the Masons' initial application for a homeowner's insurance policy. The Masons alleged that, on December 7, 1998, Herbert L. Jones, Jr., acting as an agent for Augusta Mutual, completed and signed the Report, which erroneously indicated that a flue in the Masons' dwelling was constructed of masonry lined with tile. The Masons asserted that they never told Jones how the flue was constructed and that Carvie did not sign the Report. In their motion for judgment, the Masons asserted claims against Augusta Mutual for breach of the insurance contract, defamation of Carvie, and bad faith.

Augusta Mutual filed an amended third-party motion for judgment against Jones and Lee-Curtis Insurance Services, Inc. (Lee-Curtis), Jones' employer at the time he allegedly completed the Report.¹ Augusta Mutual alleged that, if the Masons' allegations were true, then Jones, by submitting the Report with actual or constructive knowledge of its inaccuracy and by signing Carvie's name to it, breached contractual duties he owed to Augusta Mutual under an Agency Agreement between Augusta Mutual and Lee-Curtis,² as well as contractual duties set forth in the Report, Augusta Mutual's policy manual, and its underwriting guidelines. Augusta Mutual asserted claims against Jones for fraud in the inducement and breach of fiduciary duties. Augusta Mutual also alleged that Lee-Curtis was vicariously liable for Jones' wrongful acts.

Jones and Lee-Curtis each filed a demurrer to Augusta Mutual's amended third-party motion for judgment. They asserted that any recovery by Augusta Mutual based on the facts alleged would be based in contract, not tort, and, therefore, the claims for fraud in the inducement, breach of fiduciary duty, and respondeat superior must be dismissed. Both third-party defendants also filed separate pleas asserting that the applicable statute of limitations barred Augusta Mutual's claims. The circuit court sustained the third-party defendants' demurrers and pleas of the statute of limitations, and dismissed Augusta Mutual's amended third-party motion for judgment with prejudice. This appeal ensued.

II. ANALYSIS

Augusta Mutual assigns two errors to the circuit court's judgment. First, it argues that the circuit court erred by sustaining the third-party defendants' pleas of the statute of limitations. Second, Augusta Mutual challenges the circuit court's judgment sustaining the demurrers filed by Jones and Lee-Curtis. The second assignment of error is dispositive. In that regard, the parties' dispute centers on the question whether Augusta Mutual's amended third-party motion for judgment stated actionable claims for fraud in the inducement and/or breach of fiduciary duty,³ or whether, as Jones and Lee-Curtis contend, Augusta Mutual attempted to turn what was actually a breach of contract claim into actionable tort claims.

The principles guiding our review of a trial court's judgment sustaining a demurrer are well-established. "The purpose of a demurrer is to determine whether a motion for judgment states a cause of action upon which the requested relief may be granted." Tronfeld v. Nationwide Mut. Ins. Co., 272 Va. 709, 712, 636 S.E.2d 447, 449 (2006) (citing Welding, Inc. v. Bland County Serv. Auth., 261 Va. 218, 226, 541 S.E.2d 909, 913 (2001)). "A demurrer tests the legal sufficiency of facts alleged in pleadings, not the strength of proof." Glazebrook v. Board of Supervisors, 266 Va. 550, 554, 587 S.E.2d 589, 591 (2003). Accordingly, we accept as true all properly pled facts and all inferences fairly drawn from those facts. Id. "Because the decision whether to grant a demurrer involves issues of law, we review the circuit court's judgment de novo." Dreher v. Budget Rent-A-Car Sys., 272 Va. 390, 395, 634 S.E.2d 324, 326-27 (2006) (citing Glazebrook, 266 Va. at 554, 587 S.E.2d at 591).

We turn first to Augusta Mutual's asserted cause of action for fraud in the inducement. That claim, embodied in Count I of Augusta Mutual's amended third-party motion for judgment, alleged that, if Jones actually stated that the flue was lined with tile and signed Carvie's name on the Report, Jones did so intentionally in order to receive a commission for himself and Lee-Curtis and that, in doing so, Jones misrepresented material facts upon which Augusta Mutual relied to its detriment by issuing a homeowner's insurance policy to the Masons. It is true that a "false representation of a material fact, constituting an inducement to the contract, on which [a party] had a right to rely, is always ground for rescission of the contract by a court of equity" or "ground for an action for damages in a court of law." George Robberecht Seafood, Inc. v. Maitland Bros. Co., 220 Va. 109, 111-12, 255 S.E.2d 682, 683 (1979) (citations omitted). Jones and Lee-Curtis contend, however, that the allegations were insufficient to state an actionable claim for fraud in the inducement because Augusta Mutual failed to assert that Jones' alleged actions violated any duties apart from those contract duties arising by virtue of the Agency Agreement. We agree with Jones and Lee-Curtis.

At the outset, we acknowledge that a single act or occurrence can, in certain circumstances, support causes of action both for breach of contract and for breach of a duty arising in tort. Foreign Mission Bd. v. Wade, 242 Va. 234, 241, 409 S.E.2d 144, 148 (1991) (citing Kamlar Corp. v. Haley, 224 Va. 699, 705, 299 S.E.2d 514, 517 (1983)). To avoid turning every breach of contract into a tort, however, we have enunciated the rule that, in order to recover in tort, "the duty tortiously or negligently breached must be a common law duty, not one existing between the parties solely by virtue of the contract." Id. (citing Spence v. Norfolk & W. R.R. Co., 92 Va. 102, 116, 22 S.E. 815, 818 (1895)).

Our decision in Richmond Metropolitan Authority v. McDevitt Street Bovis, Inc., 256 Va. 553, 507 S.E.2d 344 (1998), exemplifies the application of that rule. There, a municipal corporation entered into an agreement with a private contractor for the construction of a baseball stadium. Id. at 555, 507 S.E.2d at 345. In order to obtain payment for its work, the contractor submitted several documents to the municipal corporation stating under oath that it had completed the construction work according to the design specifications set forth in the contract. Id. at 555-56, 507 S.E.2d at 345. Many years later, the municipal corporation learned that the contractor failed, despite its prior representations, to comply with the design specifications. Id. at 556, 507 S.E.2d at 345. Consequently, the municipal corporation filed an action against the contractor, alleging, inter alia, claims for actual and constructive fraud. Id. at 556, 507 S.E.2d at 345-46. The trial court entered summary judgment for the contractor, finding that the contractor's alleged misrepresentations only breached duties assumed by contract and that nothing demonstrated the breach of any duty that was separate and independent from the contract. Id. at 557, 507 S.E.2d at 346.

On appeal, the municipal corporation contended that the contractor's misrepresentations about its compliance with the contract and its "false applications under oath to induce payments" were "separate and independent wrongs that [went] beyond [the] contractual duties" and supported causes of action for actual and constructive fraud. Id. We rejected this argument and affirmed the judgment of the trial court. Id. at 557, 560, 507 S.E.2d at 346, 348. We explained that the determination whether a cause of action sounds in contract or tort depends on the source of the duty violated. Id. at 558, 507 S.E.2d at 347. Because "each particular misrepresentation by [the contractor] related to a duty or an obligation that was specifically required by the . . . [c]ontract," we concluded that the contractor's misrepresentations did not give rise to a cause of action for actual fraud. Id. at 559, 507 S.E.2d at 347. Likewise, because the record failed to show that the contractor did not...