Wunschel v. Transcontinental Ins. Co.

• Decision Date: 25 September 1992
• Docket Number: No. 67443,67443
• Citation: 839 P.2d 64,17 Kan.App.2d 457
• Parties: Russell S. WUNSCHEL and Lois A. Wunschel, Appellants, v. TRANSCONTINENTAL INSURANCE COMPANY, Appellee.
• Court: Kansas Court of Appeals

Page 64

839 P.2d 64

17 Kan.App.2d 457

Russell S. WUNSCHEL and Lois A. Wunschel, Appellants, v. TRANSCONTINENTAL INSURANCE COMPANY, Appellee.

No. 67443.

Court of Appeals of Kansas.

Sept. 25, 1992.

Syllabus by the Court

1. Under Vargas v. Nautilus Ins. Co., 248 Kan. 881, 811 P.2d 868 (1991), a party named as a loss payee under an insurance contract between two other parties does not have a contractual relationship with the insurance company and, in some instances, has no rights independent of the insured's rights.

2. The rule stated in Vargas v. Nautilus Ins. Co., 248 Kan. 881, 811 P.2d 868 (1991), under the facts shown, may not be invoked to bar an action by a loss payee against an insurance company which has breached its own policy by failing to pay the proceeds in the manner required under the loss payable provisions of the policy.

3. A named loss payee of an insurance contract between two other parties may file suit for breach of the loss payable provisions of the policy as a third-party beneficiary.

4. A third-party beneficiary may sue for the breach of a contract made for that party's benefit even though such party has no contractual relationship or privity with the party sued under the agreement.

5. Under the facts shown, the rights of a loss payee to enforce a valid insurance contract made for its benefit are not derived from the insured nor dependent upon the rights of the insured.

Bruce C. Harrington, Topeka, for appellants.

Paul Hasty, Jr. and F. Russell Peterson, of Wallace, Saunders, Austin, Brown & Enochs, Chartered, Overland Park, for appellee.

Before DAVIS, P.J., LEWIS, J., and ROBERT C. HELSEL, District Judge Retired, Assigned.

LEWIS, Judge:

Appellants, Russell S. and Lois A. Wunschel (Wunschels), appeal from the granting of summary judgment in favor of Transcontinental Insurance Company (TIC). We reverse and remand.

Lois Wunschel was the owner of property located in Shawnee County and known as the Kaw Valley Country Inn (Inn). The Inn was leased to Robert N. Holmes by the Wunschels under a written lease agreement. This lease agreement, among other things, specifically required Holmes to maintain casualty insurance. In the event a casualty were to occur, Holmes was required to use the insurance proceeds to repair or rebuild the Inn. The Wunschels also contend that the lease required Holmes to list them as loss payees under any policy procured under the lease.

In satisfaction of the requirements of the lease, Holmes obtained the necessary fire, wind, and hail policy on the Inn from TIC. TIC issued the policy to Holmes as the insured. The policy contained a clause headed "Loss Payable Provisions." That clause of the policy covered the building and contents of the insured property and listed as the loss payee "Mr. & Mrs. Russell Wunschel, 805 N. Main, Carroll, IA 51401." One pertinent portion of the loss payable clause of the policy reads as follows:

"A. LOSS PAYABLE

For Covered Property in which both you and a Loss Payee shown in the Schedule or in the Declarations have an insurable interest, we will:

1. Adjust losses with you; and

2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear." (Emphasis added.)

In another section, the policy states:

"2. For Covered Property in which both you and a Loss Payee have an insurable interest:

a. We will pay for covered loss or damage to each Loss Payee in their order of precedence, as interests may appear." (Emphasis added.)

The Inn was subsequently damaged in a storm. Holmes, as the insured, made a claim under the TIC policy for damage to the Inn, and TIC and Holmes agreed on the dollar value of the damage. Subsequently, TIC paid to Holmes alone the sum of $36,337.65. The insurance company's draft was not made jointly payable to Holmes and the Wunschels, and it is apparent that the Wunschels were completely ignored by TIC in the adjustment and payment of this loss despite being listed in the policy as loss payees.

The Wunschels claim that they had no knowledge that the Inn had been damaged by a storm and were not aware that Holmes had reported and been paid for the loss by TIC. The Wunschels further contend that Holmes did not use the money to repair the damage to the Inn but spent it on other personal obligations.

There is a conflict in the evidence about who knew what and when they knew it. Holmes testified that he notified Russell Wunschel of the damage and that an insurance check for $36,000 would be forthcoming. He also testified that he later notified Wunschel that his name was not on the insurance draft and that Russell Wunschel told him to deposit the draft in the Inn's account. On their part, the Wunschels deny that any of the conversations related by Holmes took place and testified that they did not even find out about the loss and the insurance payment until late 1988 or early 1989.

Holmes ultimately defaulted on the lease agreement with the Wunschels. On April 1, 1988, the Wunschels and Holmes entered into a contract designated an "Agreement," which replaced the earlier lease agreement. In the management agreement, the parties provided that for consideration "Wunschel will forgive all monies due and owing from Holmes, EXCEPT the real estate taxes for the period of time Holmes occupied the real estate." The agreement also provided: "The only debt from Holmes to Wunschel will be the unpaid real estate taxes for the twelve months Holmes occupied said property."

The Wunschels testified that, when they entered into the management agreement with Holmes, they did not know that the motel had been damaged by a storm and did not know that the insurance payment had been made to Holmes alone and that Holmes had failed to use that money to repair the premises. As a result, the Wunschels insist that they did not intend by that agreement to release Holmes from any obligation to repair the property or apply the insurance money to such repairs.

Ultimately, the Wunschels sued both Holmes and TIC. In their suit against Holmes, they alleged Holmes had breached a contractual obligation to either repair the storm damage or pay the insurance proceeds to them. For reasons which are not entirely clear, the Wunschels later dismissed the lawsuit against Holmes without prejudice.

The basis of the suit by the Wunschels against TIC was contractual. The Wunschels allege that TIC breached its contractual obligation to pay the insurance proceeds to the loss payees, or to the loss payees and Holmes jointly, as provided by the policy.

TIC filed a motion for summary judgment against the Wunschels. The trial court sustained that motion, holding as follows: (a) The Wunschels had released Holmes from any claims they had against him for misappropriation of the insurance funds or for his failure to repair the Inn; (b) the Wunschels, as loss payees, could not sue TIC after releasing their claim against the insured; and (c) under Vargas v. Nautilus Ins. Co., 248 Kan. 881, 811 P.2d 868 (1991), the Wunschels could not sue TIC for breach of contract because they had no contractual relationship or privity with TIC.

The Wunschels have appealed the granting of summary judgment to TIC.

WAS SUMMARY JUDGMENT PROPER?

Rules which govern the propriety of the granting of a motion for summary judgment are well known and often stated:

"The burden on the party seeking summary judgment is a strict one. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. On appeal we apply the same rule, and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied. [Citation omitted.] The party opposing summary judgment, however, has the affirmative duty to come forward with facts to support its claim, although it is not required to prove its case. [Citations omitted.] If factual issues do exist, they must be material to the case to preclude summary judgment. [Citation omitted.]" Bacon v. Mercy Hosp. of Ft. Scott, 243 Kan. 303, 306-07, 756 P.2d 416 (1988).

See Jones v. Neuroscience Assocs., Inc., 250 Kan. 477, Syl. p 1, 827 P.2d 51 (1992); McGee v. Chalfant, 248 Kan. 434, 437, 806 P.2d 980 (1991); Hammig v. Ford, 246 Kan. 70, 72, 785 P.2d 977 (1990).

"Summary judgment is appropriate when 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' [Citation omitted.] To defeat a properly supported motion for summary judgment, the nonmovant must come forward with 'specific facts showing that there is a genuine issue for trial.' [Citation omitted.]" Mark Twain Kansas City Bank v. Kroh Bros. Dev. Co., 250 Kan. 754, 762, 829 P.2d 907 (1992).

We have reviewed the trial court's grant of summary judgment in accordance with the standards set forth above. Among other things, we hold that material questions of fact remained undetermined and that summary judgment was improper.

The trial court held that the management agreement on April 11, 1988, released Holmes from all obligations flowing from the lease agreement or the insurance recovery. It then concluded that a loss payee could not release the insured and then sue the insurance company. The decision was based on the trial court's belief that the release effectively destroyed any subrogation rights of TIC. The trial court reasoned that it would not be proper to allow the Wunschels to recover from TIC if TIC were barred from taking action against its insured.

To the extent that the so-called release is relevant to the Wunschels' right to sue TIC, the trial court erred in granting summary judgment. The Wunschels insist that they could not have released Holmes from his obligation to repair or apply the insurance proceeds to the repair....