Cincinnati Ins. Cos. v. Barber Insulation

• Decision Date: 09 June 2006
• Docket Number: 1050485.
• Citation: 946 So.2d 441
• Parties: CINCINNATI INSURANCE COMPANIES, as subrogee of Sarah Fain and James Clyde Fain, Jr. v. BARBER INSULATION, INC., and Framco,
• Court: Alabama Supreme Court

946 So.2d 441

CINCINNATI INSURANCE COMPANIES, as subrogee of Sarah Fain and James Clyde Fain, Jr. v. BARBER INSULATION, INC., and Framco,

1050485.

Supreme Court of Alabama.

June 9, 2006.

John D. Richardson, Mark E. Spear, and John M. Teague of Richardson, Spear, Spear & Hamby, P.C., Mobile, for appellant.

William R. Chandler and Richard D. Anderson, Montgomery, for appellee Barber Insulation, Inc.

William Larkin Radney III of Barnes & Radney, P.C., Alexander City, for appellee Framco.

WOODALL, Justice.

Cincinnati Insurance Companies ("CIC"), as subrogee of Sarah Fain and James Clyde Fain, Jr., appeals from a summary judgment in favor of defendant Barber Insulation, Inc. ("Barber"); the trial court's order also enforced a settlement agreement allegedly entered into by CIC and Framco. We affirm in part, reverse in part, and remand.

I. Factual Background

This dispute arose out of a construction contract between the Fains and Dark Alexander & Company, Inc. ("Dark"), dated July 26, 2001, in which Dark agreed to serve as general contractor for the construction of a "lake house" for the Fains in Equality. Subsequently, Dark subcontracted the project to various entities, including Barber and Framco. Dark hired Framco for the framing and siding work, and it entered into an oral agreement with Barber to insulate the house. By February 12, 2002, the house was completed.

On January 25, 2003, a water pipe located in a wall of the house froze, burst, and flooded the interior of the house, causing approximately $63,500 in damage. At that time, the Fains had in force a homeowner's insurance policy issued by CIC. CIC paid the Fains under the policy and sued Dark, Barber, and Framco, seeking to be subrogated to the rights of the Fains for approximately $63,500. CIC sought recovery under claims of third-party-beneficiary breach of contract and negligence. CIC eventually settled its claims against Dark.

Barber filed a motion for a summary judgment. Framco filed a motion alleging that CIC had agreed during a mediation session to settle its claims against Framco for $1,000 and seeking an order enforcing the alleged settlement agreement. On October 24, 2005, the trial court granted both motions. On appeal, CIC challenges that judgment as to both Barber and Framco. We first address the propriety of the summary judgment for Barber.

II. Summary Judgment

"Our review of a summary judgment is de novo." Crutcher v. Wendy's of North Alabama, Inc., 857 So.2d 82, 85 (Ala.2003). "Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P." Childersburg Bancorporation, Inc. v. Alabama Dep't of Envtl. Mgmt., 893 So.2d 1142, 1145 (Ala. 2004). "Once the movant shows that there is no genuine issue of material fact, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact." Id. "In order to defeat a properly supported motion for a summary judgment, the nonmoving party must present substantial evidence that creates a genuine issue of material fact." George v. Raine, 895 So.2d 258, 261 (Ala. 2004). Additionally, "the existence of a duty is a strictly legal question to be determined by the court." Taylor v. Smith, 892 So.2d 887, 891 (Ala.2004). CIC contends that it met its burden as the nonmovant and is entitled to a jury trial on the claims of third-party beneficiary and negligence, by which it seeks to recover from Barber as the Fains' subrogee.

A. Third-Party Beneficiary

According to CIC, the trial court erroneously concluded that the Fains, as owners of the house, were not third-party beneficiaries of the construction subcontract between Dark and Barber, and, consequently, that CIC could not recover from Barber, as the Fains' subrogee, for breach of that contract. Based on the research the parties have presented to this Court, there appears to be a paucity of Alabama caselaw on this precise point. However, it is well established in this State that "[a] party claiming to be a third-party beneficiary, `must establish that the contracting parties intended, upon execution of the contract, to bestow a direct, as opposed to an incidental, benefit upon the third party.'" Ex parte Stamey, 776 So.2d 85, 92 (Ala.2000) (quoting Weathers Auto Glass, Inc. v. Alfa Mut. Ins. Co., 619 So.2d 1328, 1329 (Ala.1993) (emphasis added)).

Moreover, it is generally recognized that in the construction-contract context, the owner of the building being constructed is typically regarded as merely an incidental beneficiary of the contract between the general contractor and its subcontractor, and, therefore, has no enforceable rights under a subcontract. See, e.g., Restatement (Second) of Contracts § 302 comment e, illustration 19 (1981)("A contracts to erect a building for C. B then contracts with A to supply lumber needed for the building. C is an incidental beneficiary of B's promise, and B is an incidental beneficiary of C's promise to pay A for the building."); 9 Arthur L. Corbin, Corbin on Contracts § 779D (1951). The operation and rationale of this principle were succinctly explained by Professor Corbin in his treatise on contracts:

"Where A owes money to a creditor C, or to several creditors, and B promises A to supply him with the money necessary to pay such debts, no creditor can maintain suit against B on this promise. The same is true in any case where A [the general contractor] is under a contractual duty to C [the owner] the performance of which requires labor or materials, and B [the subcontractor] promises A to supply to him such labor or material; C has no action against B on this promise. In such cases the performance promised by B does not in itself discharge A's duty to C or in any other way affect the legal relations of C. It may, indeed, tend toward C's getting what A owes him, since it supplies A with the money or material that will enable A to perform, but such a result requires the intervening voluntary action of A. B's performance may take place in full without C's ever getting any performance by A or receiving any benefit whatever. In such cases, therefore, C is called an `incidental' beneficiary and is held to have no right. ...

"The foregoing is applicable to most cases of contracts between a principal building contractor and subcontractors. Such contracts are made to enable the principal contractor to perform; and their performance by the subcontractor does not in itself discharge the principal contractor's duty to the owner with whom he has contracted. The installation of plumbing fixtures or the construction of cement floors by a subcontractor is not a discharge of the principal contractor's duty to the owner to deliver a finished building containing those items; and if after their installation the undelivered building is destroyed by fire, the principal contractor must replace them for the owner, even though he must pay the subcontractor in full and has no right that the latter shall replace them. It seems, therefore, that the owner has no right against the subcontractor, in the absence of clear words to the contrary. The owner is neither a creditor beneficiary nor a donee beneficiary; the benefit that he receives from performance must be regarded as merely incidental."

Corbin, § 779D, at 38-41 (emphasis added; footnotes omitted). See also Outlaw v. Airtech Air Conditioning & Heating, Inc., 412 F.3d 156, 164 (C.A.D.C.2005) (applying "the traditional contract law rule that, absent any indication to the contrary in an agreement, property owners are not intended or third-party beneficiaries of contracts between contractors and subcontractors"); Pierce Assocs., Inc. v. Nemours Found., 865 F.2d 530 (3d Cir.1989); Cox v. Curnutt, 271 P.2d 342 (Okla.1954).

Of course, "[i]t would be possible for [the general contractor] to make his contract with [a subcontractor] in such terms as to show that [the general contractor] was making it for [the owner's] benefit and intended [the owner] to have an enforceable right." Corbin, supra, § 779D, at 40 (emphasis added). Indeed, in Vesta Fire Insurance Corp. v. Milam & Co. Construction, Inc., 901 So.2d 84 (Ala.2004)—on which CIC relies—this Court reversed a summary judgment for Landmark Electric Company, Inc. ("Landmark"), a subcontractor for the construction of a building owned by A & M Bessemer, LLC ("A & M"), and occupied by Hollywood Entertainment Corporation ("Hollywood"), when the building was destroyed by fire on July 24, 1998. That dispute involved claims by Vesta Fire Insurance Corporation ("Vesta") and Wausau Insurance Company ("Wausau"), subrogees of A & M and Hollywood, respectively, alleging that the fire had resulted from the culpable conduct of, among others, Landmark. Id. at 87-88. This Court held that there were genuine issues of fact as to whether Vesta and Wausau were third-party beneficiaries of a subcontract between Landmark and Milam & Company Construction, Inc., the general contractor. Id. at 103-04.

It did so, however, on the basis of paragraph 4.5.1 of the subcontract, which stated:

"`The Subcontractor warrants to the Owner, Architect, and Contractor that materials and equipment furnished under this Subcontract will be of good quality and new unless otherwise required or permitted by the Subcontract Documents, that the work of this Subcontract will be free from defects not inherent in the quality required or permitted, and that the work will conform with the requirements of the Subcontract documents. Work not conforming to these requirements, including substitutions not properly approved and authorized, may be considered defective. The Subcontractor's warranty excludes remedy for damage or defect caused by abuse, modifications not executed by the Subcontractor, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. This warranty shall be in addition to and...