Autumn Ridge v. Acordia of Virginia Ins.

• Decision Date: 09 June 2005
• Docket Number: Record No. 041934.
• Parties: AUTUMN RIDGE, L.P., et al. v. ACORDIA OF VIRGINIA INSURANCE AGENCY, INC. t/a Acordia of Virginia.
• Court: Virginia Supreme Court

613 S.E.2d 435

AUTUMN RIDGE, L.P., et al. v. ACORDIA OF VIRGINIA INSURANCE AGENCY, INC. t/a Acordia of Virginia.

Record No. 041934.

Supreme Court of Virginia.

June 9, 2005.

J. Gray Lawrence, Jr. (Faggert & Frieden, on briefs), Virginia Beach, for appellants.

Michael D. Lorensen (Bowles, Rice, McDavid, Graff & Love, on brief), Martinsburg, WV, for appellee.

Present: All the Justices.

KINSER, Justice.

The appellants, 12 limited partnerships,¹ brought this action against Acordia of Virginia Insurance Agency, Inc. t/a Acordia of Virginia (Acordia), under the Multiple Claimant Litigation Act, Code § 8.01-267.1 et seq. The limited partnerships asserted claims for negligence and breach of contract due to Acordia's failure to include them as named insureds on a builders risk insurance policy and sought recovery of the premiums each limited partnership had paid.² The circuit court entered judgment for Acordia, finding that the limited partnerships "can show no damages for which they have not already been compensated." We conclude, however, that, when no loss has occurred that would have been covered by the requested insurance policy, the measure of damages for failure to procure insurance is the amount paid by the intended insured as the premium. Therefore, we will reverse the judgment of the circuit court.

RELEVANT FACTS AND PROCEEDINGS

The limited partnerships each owned a separate multifamily housing project. The projects were financed by proceeds realized from selling, on the open market, tax credits authorized by various state housing authorities. Because of the financing arrangement, each project was required to provide a "cost certification" to the respective state housing authorities, which included the costs of a builders risk insurance policy.

National Housing Corporation (NHC) performed administrative tasks for the limited partnerships, including, among other things, procuring necessary insurance for them. In that regard, NHC contracted with Acordia, an insurance broker, to purchase a builders risk insurance policy to insure the 12 limited partnerships and each partnership's respective housing project.³ NHC did not own any of the housing projects but, as acknowledged by the parties, acted as the limited partnerships' agent for the purpose of procuring the builders risk insurance policy at issue in this case.

Acordia contracted with Security Insurance Company of Hartford (Security) to provide the requested insurance. The policy named NHC as the "insured" and listed the housing projects owned by the limited partnerships as "covered properties." The policy, however, did not include the limited partnerships that actually owned the housing projects as "named insureds." Acordia had no explanation why the limited partnerships were not included as named insureds on the policy and admitted that it had failed to comply with the applicable standard of care, or was negligent or in breach of its contract, by not including the limited partnerships as named insureds on the builders risk insurance policy. In addition, an adjuster for the company underwriting the builders risk insurance policy stated that the owners of the property and "the people ... insured [under that policy] were different entities and, therefore, the owners of the property had no insurable interest under [the] policy." When asked whether a claim would have been paid to NHC instead of the owners of the projects, knowing that NHC was not the owner, he responded, "Only in a mistake."

Acordia invoiced NHC for the total amount of the premium for the builders risk insurance policy. NHC paid that sum to Acordia, which then deducted its commission and forwarded the remainder of the premium to Security. Each limited partnership was supposed to reimburse NHC for its proportionate share of the premium, which was based on the estimated value of each partnership's housing project at the time of completion.⁴

Prior to this action filed by the 12 limited partnerships, Genito Glenn, L.P. (Genito), Autumn Ridge, L.P. (Autumn Ridge), Sunchase of GA, L.P. (Sunchase) and Madison Ridge, L.P. (Madison Ridge) suffered losses at their respective housing projects. Security paid the losses at Autumn Ridge and Sunchase by issuing checks payable to NHC. Those checks listed NHC as the "assured." A senior vice-president for Acordia admitted that Security paid NHC because Security did not know at the time of payment that the limited partnerships even existed and that they were the owners of the housing projects. Security denied Madison Ridge's claim because the loss was not a covered loss under the builders risk insurance policy.

When Genito made a claim under the builders risk insurance policy, Security denied coverage on the ground that Genito was not a named insured under the policy.⁵ Genito then filed an action against Acordia for its failure to include Genito as an insured on the builders risk insurance policy and successfully recovered economic loss damages for Acordia's negligent performance of its contractual obligations. Acordia of Virginia Ins. Agency, Inc. v. Genito Glenn, L.P., 263 Va. 377, 380-81, 560 S.E.2d 246, 247 (2002).

When the 12 limited partnerships discovered that they were not listed as named insureds on the builders risk insurance policy for which they claimed to have paid premiums, they filed this action against Acordia. After hearing evidence ore tenus, the circuit court concluded in a letter opinion, which was incorporated into its final order, that the "[limited partnerships'] damages in contract [were] limited to [their] losses due to the breach ... [and they] simply already [had] been restored to the condition in which they would have been had the contract been performed as promised" due to Security's payment of the claims made for losses at the housing projects owned by Autumn Ridge and Sunchase as well as the judgment in favor of Genito against Acordia. Relying on Link Associates v. Jefferson Standard Life Insurance Company, 223 Va. 479, 291 S.E.2d 212 (1982), the court reasoned that "[w]hen [Genito] chose to pursue recovery for the amount of its denied claim, it foreclosed NHC's option of recovering the consideration it paid for the benefits under the builder's risk policy." In the circuit court's view, the limited partnerships had accepted the benefits of the builders risk insurance policy "by their acceptance of, and successful action at law for, amounts equal to benefits they would have received under a valid policy."

The circuit court also concluded that the measure of damages for a breach of contract to procure insurance is the amount of loss that would have been subject to insurance coverage and not the return of paid premiums. The circuit court rejected the holding in Ingrams v. Mutual Assurance Society, 40 Va. (1 Rob.) 661, 668 (1843), because, in the court's view, a subsequent case, Virginia First Savings & Loan Association v. Wells, 224 Va. 691, 695, 299 S.E.2d 370, 372 (1983), superseded the precedential value of Ingrams. We awarded the 12 limited partnerships this appeal.

ANALYSIS

The limited partnerships assert several assignments of error. The overriding question, however, is whether the circuit court erred in concluding that the 12 limited partnerships are not entitled to a return of the premiums they claimed to have paid for the builders risk insurance policy as damages for Acordia's admitted breach of contract and/or negligence in failing to procure insurance coverage. To decide that question, we apply certain legal principles regarding contracts of insurance.

A contract of insurance is "`[a]n agreement by which one party for a consideration (which is usually paid in money, either in one sum, or at different times during the continuance of the risk), promises to make a certain payment of money upon the destruction or injury of something in which the other party has an interest.'" Cosmopolitan Life Ins. Assn. v. Koegel, 104 Va. 619, 624, 52 S.E. 166, 168 (1905); accord Sims v. Commonwealth, 114 Ky. 827, 71 S.W. 929, 929 (1903); Commonwealth v. Wetherbee, 105 Mass. 149, 160 (1870). The risk undertaken by the insurer is an essential element of a contract of insurance, and no premium is due from the insured unless the risk attaches. Smithart v. John Hancock Mut. Life Ins Co., 167 Tenn. 513, 71 S.W.2d 1059, 1062 (1934); Huntington Ins. Agency v. County Court of Wyoming County, 98 W.Va. 352, 127 S.E. 64, 65 (1925). Likewise, if, through no fault or fraud by the insured, the risk never attaches under a policy of insurance, the insurer must return any premium paid by the insured. Kansas City Col. of Osteopathic Med. v. Employers' Surplus Lines Ins. Co., 581 F.2d 299, 301-02 (1st Cir.1978); Tyler v. Capitol Indem. Ins. Co., 206 Md. 129, 110 A.2d 528, 531-32 (1955); Parsons, Rich & Co. v. Lane, 97 Minn. 98, 106 N.W. 485, 494 (1906); Latta v. Farmers County Mut. Fire Ins. Co., 67 N.C.App. 494, 313 S.E.2d 214, 215 (1984); see Young Am., Inc. v. Union Cent. Life Ins. Co., 101 F.3d 546, 548 (8th Cir.1996) (employer entitled to refund of premiums paid under mistaken belief that corporate officers were eligible insureds).

Clearly, a risk never attached as to each of the 12 limited partnerships because they were not included as named insureds on the builders risk insurance policy. See Busby v. Simmons, 103 N.C.App. 592, 406 S.E.2d 628, 630 (1991) (the term "`[n]amed insured' has a common sense and explicit meaning[;][i]t is the named individual (or corporation) on the declarations page of the policy"). Indeed, Security denied Genito's claim because it was not a named insured. Acordia, 263 Va. at 381, 560 S.E.2d at 248. Also, the adjuster for the company underwriting the builders risk insurance policy testified that the owners of the housing projects "had no insurable interest under [the] policy" as issued. Contrary to Acordia's argument, failure to include the limited partnerships as named insureds on the policy was not merely...