Burks v. Federal Ins. Co.

• Decision Date: 19 August 2005
• Parties: Stacy L. BURKS, Appellant v. FEDERAL INSURANCE COMPANY, a Member of the Chubb Group of Insurance Companies, Appellee.
• Court: Pennsylvania Superior Court

883 A.2d 1086

2005 PA Super 297

Stacy L. BURKS, Appellant v. FEDERAL INSURANCE COMPANY, a Member of the Chubb Group of Insurance Companies, Appellee.

Superior Court of Pennsylvania.

Argued October 26, 2004.

Filed August 19, 2005.

Reargument Denied October 20, 2005.

John F. Becker, Pittsburgh, for appellant.

Ansley Westbrook, Pittsburgh, for appellee.

Before: BENDER, PANELLA and POPOVICH, JJ.

BENDER, J.:

¶ 1 Stacy L. Burks (Appellant) appeals from the order granting Federal Insurance Company's preliminary objections in Appellant's action against Federal for payment of her medical bills for treatment of injuries that resulted from a fall in one of the branches of PNC Bank. For the reasons that follow, we affirm.

¶ 2 Appellant initially brought an action against PNC for personal injuries she sustained to her wrist and lower back when she fell in one of PNC's branches. During the trial, Appellant sought compensation for the injuries and damages, which included medical expenses that resulted from the fall. The jury found that Appellant sustained $30,000 in damages as a result of the accident. The jury also found Appellant to be contributorily negligent, and particularly, that 40% of the causal negligence was attributable to her. Thus, the verdict was molded to $18,000. This award was paid in full on PNC's behalf by its insurer, the defendant and the appellee in the instant action, Federal.

¶ 3 After Appellant received the $18,000 for the damages that she sustained in her accident, she then sought to collect payment of her medical bills under the insurance policy between Federal and PNC. The provision under which she sought to recover states:

Subject to the Applicable Limits of Insurance, we will pay each person who sustains bodily injury caused by an accident all medical expenses incurred and reported to us within three years from the date of the accident.

The accident must take place during the policy period and the bodily injury must arise out of premises or operations for which you are afforded bodily injury liability coverage under this contract. The injured person must submit to examination, at our expense, by physicians of our choice as often as we reasonably require.

Reproduced Record (R.) at 88a-89a. In her Complaint, Appellant averred that an unidentified individual from PNC instructed Appellant to deliver her medical bills to the PNC branch office for payment. Complaint, 12/23/03, at ¶ 7; R. at 6a. It was further averred on "information and belief" that PNC submitted these bills to Federal, and Federal refused to pay for them. Id. at ¶ 8; R. at 6a.

¶ 4 Appellant then filed this action against Federal. Federal filed preliminary objections in the form of a demurrer claiming that Appellant was not a third party beneficiary to the insurance contract between Federal and PNC. The trial court agreed, and therefore, it sustained the preliminary objections and dismissed Appellant's complaint. Appellant then filed this appeal.

¶ 5 Although Appellant has framed three questions for our review, their resolution hinges on one issue: Whether the trial court abused its discretion in determining that Appellant was not a third party beneficiary to the contract between Federal and PNC. In considering this issue, we are mindful that when we review a trial court's order granting preliminary objections in the nature of a demurrer, we apply "the same standard employed by the trial court: all material facts set forth in the complaint as well as all inferences reasonably deducible therefrom are admitted as true for the purposes of review." Vosk v. Encompass Ins. Co., 851 A.2d 162, 164 (Pa.Super.2004).

¶ 6 As stated above, the crux of this appeal is whether Appellant is a third party beneficiary to the insurance policy between PNC and Federal. If she is not, then she certainly cannot assert a claim against Federal under the contract. In Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147 (1992), our Supreme Court set forth the current standard for determining whether someone is a third party beneficiary to a contract: "[I]n order for a third party beneficiary to have standing to recover on a contract, both contracting parties must have expressed an intention that the third party be a beneficiary, and that intention must have affirmatively appeared in the contract itself." Id. at 149. Furthermore,

to be a third party beneficiary entitled to recover on a contract it is not enough that it be intended by one of the parties to the contract and the third person that the latter should be a beneficiary, but both parties to the contract must so intend and must indicate that intention in the contract; in other words, a promisor cannot be held liable to an alleged beneficiary of a contract unless the latter was within his contemplation at the time the contract was entered into and such liability was intentionally assumed by him in his undertaking.

Spires v. Hanover Fire Ins. Co., 364 Pa. 52, 70 A.2d 828, 830-31 (1950). While Spires was overruled in Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744 (1983), it was only overruled "to the extent that it states the exclusive test for third party beneficiaries." Id. at 751.

¶ 7 In Guy, our Supreme Court established a "narrow class of third party beneficiaries." Scarpitti, 609 A.2d at 151. This narrow exception established a "restricted cause of action" for third party beneficiaries by adopting Section 302 of the RESTATEMENT (SECOND) OF CONTRACTS (1979), which states:

§ 302 Intended and Incidental Beneficiaries

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Guy, 459 A.2d at 751 (quoting RESTATEMENT (SECOND) OF CONTRACTS § 302 (1979)). The court explained that Section 302 involves a two-part test to determine whether one is a third party beneficiary to a contract, which requires that:

(1) the recognition of the beneficiary's right must be appropriate to effectuate the intention of the parties, and (2) the performance must satisfy an obligation of the promisee to pay money to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

Guy, 459 A.2d at 751 (quotation marks omitted).

¶ 8 Therefore, even when the contract does not expressly state that the third party is intended to be a beneficiary, as in the instant case, the party may still be a third party beneficiary under the foregoing test. But Guy did not alter the requirement that in order for one to achieve third party beneficiary status, that party must show that both parties to the contract so intended, and that such intent was within the parties' contemplation at the time the contract was formed.

¶ 9 The exception annunciated in Guy was applied in Scarpitti, where the court held that the plaintiffs, who had purchased real estate lots in a residential subdivision, were third-party beneficiaries to the contract between the subdivision developer and the architect even though the contract did not state that the lot owners were third party beneficiaries. See Scarpitti, 609 A.2d at 151. In Scarpitti, the plaintiffs had submitted building plans to the architect who, pursuant to the contract between himself and the subdivision developer, was to enforce building restrictions within the subdivision. The plaintiffs' building plans included three-car garages for the homes. The architect disapproved these plans because they were in violation of a building restriction that required each home to have either a two or two and one-half-car garage. The plaintiffs then built their homes accordingly with either two or two and one-half-car garages. Subsequently, the architect approved building plans for homes with three-car garages for other lot owners.

¶ 10 The plaintiffs then brought an action against the architect for breach of contract under the theory that they were third party beneficiaries to the contract between the subdivision developer and the architect. The court began its analysis by expounding upon the meaning of the two-part test set forth in Guy as follows:

The first part of the test sets forth a standing requirement which leaves discretion with the court to determine whether recognition of third party beneficiary status would be appropriate. The second part defines the two types of claimants who may be intended as third party beneficiaries. If a party satisfies both parts of the test, a claim may be asserted under the contract.

Scarpitti, 609 A.2d at 150.

¶ 11 The Scarpitti court reasoned that because in the underlying contract the architect promised to review all building plans and enforce restrictions within the subdivision, "the purpose of this agreement was to make the lots more attractive to prospective purchasers by assuring that other homeowners in the subdivision would be required to abide by the recorded subdivision restrictions." Id. at 151. Accordingly, "at the time of contracting," both parties contemplated that the subdivision lot owners would be third party beneficiaries to the contract because the future home owners would have the greatest interest in uniform enforcement of the building restrictions, and they would be the ones primarily "benefited by the establishment of a vehicle to enforce the restrictions." Id. (emphasis added). The court held that although the contract did not expressly state that the parties intended to benefit the future home owners, the circumstances were "so compelling" that "recognition of a right to uniform...