Autumn Ridge v. Acordia of Virginia Ins.

Present: All the Justices

AUTUMN RIDGE, L.P., ET AL.

v. Record No. 041934 OPINION BY JUSTICE CYNTHIA D. KINSER
June 9, 2005
ACORDIA OF VIRGINIA INSURANCE AGENCY,
INC. T/A ACORDIA OF VIRGINIA

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
A. Joseph Canada, Jr., Judge

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

1
The names of the 12 limited partnerships are: Autumn
Ridge, L.P.; Bridgeport, L.P.; Culpepper Landing of SC,
L.P.; Hampton Ridge, L.P.; Madison Ridge, L.P.; Woodbridge
Partners, L.P.; Northwoods of SC, L.P.; Tierra Contenta II,
L.P.; Salem Ridge, Limited Partnership; Sunchase of GA,
L.P.; Tierra Contenta, Limited Partnership; and Woodburn,
L.P.
2
The limited partnerships also asserted a claim for
unjust enrichment but later nonsuited that claim.
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 multi-

family 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

3
Acordia also contracted to include in the builders
risk insurance policy two other entities that are not
parties to this action: Genito Glenn, L.P. and National
Housing Building Corporation. See Acordia of Virginia Ins.

2
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

Agency, Inc. v. Genito Glenn, L.P., 263 Va. 377, 380, 560
S.E.2d 246, 247 (2002) and National Hous. Bldg. Corp. v.
Acordia of Virginia Ins. Agency, Inc. 267 Va. 247, 249, 591
S.E.2d 88, 89 (2004).

3
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

4
When a housing project was completed, it was removed
from the builders risk insurance policy by an endorsement.
Because the premium was paid for an entire year in advance,
the endorsements sometimes resulted in premium refunds,
which Acordia credited to the account of the named insured,
NHC.

4
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. 277, 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

5
In a declaratory judgment action, a federal district
court held that Genito was not a named insured under the
builders risk insurance policy. Genito Glenn, L.P. v.
Security Ins. Co. of Hartford, No. 2:98cv1314 (E.D. Va.
Oct. 27, 1999).

5
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),

6
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. Co. v. Koegel, 104 Va. 619, 624, 52

S.E. 166, 168 (1905); accord Sims v. Commonwealth, 71 S.W.

929, 929 (Ky. 1903); Commonwealth v. Wetherbee, 105 Mass.

7
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., 71 S.W.2d

1059, 1062 (Tenn. 1934); Huntington Ins. Agency v. County

Court of Wyoming County, 127 S.E. 64, 65 (W. Va. 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., 110 A.2d 528, 531-32 (Md.

1955); Parsons, Rich & Co. v. Lane, 106 N.W. 485, 494

(Minn. 1906); Latta v. Farmers County Mut. Fire Ins. Co.,

313 S.E.2d 214, 215 (N.C. Ct. App. 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, 406 S.E.2d 628, 630 (N.C. Ct. App. 1991)

(the term “ ‘[n]amed insured’ has a common sense and

8
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 a defect in the coverage or terms

of the policy. It was tantamount to no coverage for the

limited partnerships, i.e., no contract of insurance. See

Acordia, 263 Va. at 390, 560 S.E.2d at 253 (Acordia could

not rely on the terms of the builders risk insurance policy

that did not include Genito as a named insured). Despite

the fact that the risk did not attach, the circuit court

concluded that the limited partnerships’ measure of damages

was the amount of any losses that would have been subject

to insurance and not a return of premiums. We do not

agree.

In Ingrams, this Court stated the following

principles:

[I]f through mistake, misinformation, or any
other innocent cause, an insurance be made
without any interest whatsoever in the thing

9
 insured, . . . the insurer shall return the whole
premium . . . . For the premium paid by the
insured, and the risk which the insurer takes
upon himself, are considerations each for the
other; they are correlatives, whose mutual
operation constitutes the essence of the contract
of insurance. The insurer shall not be exposed
to the risk without receiving the premium; nor
shall he retain the premium, which was the price
of the risk, if in fact he runs no risk at all,
though it be by the neglect, or even the fault of
the party insuring, that the risk be not run.

40 Va. at 668; see also Mutual Life Ins. Co. of New York v.

Brown, 137 Va. 278, 283-84, 293, 119 S.E. 142, 144, 147

(1923) (approving trial court’s decision to return premiums

to insured after insurance company cancelled policy).

These principles are still valid in Virginia and were

not altered by this Court’s decision in Wells. There, a

mortgage lender had contracted to procure credit life

insurance for a borrower. 224 Va. at 692, 299 S.E.2d at

370. The administratrix of the borrower’s estate sued the

lender for breach of that contract because the lender never

forwarded the borrower’s application to an insurance

company even though the lender collected premiums for the

insurance. Id. at 692-93, 299 S.E.2d at 370-71. On

appeal, the issue was whether the trial court erred by

placing on the lender the burden of proving that the

borrower was uninsurable at the time he applied for the

credit life insurance. Id. at 694, 299 S.E.2d at 371. The

10
parties agreed that the balance of the borrower’s loan

would be the measure of damages if the administratrix was

entitled to recover. Id. at 693-94, 299 S.E.2d at 371. It

was in that context that we stated, “where a contract to

procure insurance is breached, the measure of damages is

the amount of loss which would have been subject to

insurance, not the amount of insurance applied for.” Id.

at 695, 299 S.E.2d at 372. There was no issue in Wells as

to the measure of damages for breach of a contract to

procure insurance when the intended insured has not

suffered an actual loss that would have been covered by the

insurance.

Thus, we hold that, when the intended insured suffers

a loss, the measure of damages for failure to procure

insurance is the amount that would have been due under the

policy. However, when no loss has occurred, the measure of

damages is the amount paid by the intended insured as the

premium.6 Enyart v. Transamerica Ins. Co., 985 P.2d 556,

6
In support of its argument that the measure of
damages for failure to procure insurance is the amount the
insurer would have paid if the requested insurance had been
obtained, Acordia cited Wheaton Nat’l Bank v. Dudek, 376
N.E.2d 633, 636 (Ill. App. Ct. 1978); Kenyon v. Larsen, 286
N.W.2d 759, 764 (Neb. 1980); and Kobbeman v. Oleson, 574
N.W.2d 633, 635 (S.D. 1998). In each of those cases, the
insured had suffered an actual loss. Thus, we agree that
the proper measure of damages in those cases was the amount

11
560-61 (Ariz. Ct. App. 1998); Everett v. O’Leary, 95 N.W.

901, 902 (Minn. 1903); Simpson v. M-P Enters., Inc., 252

So.2d 202, 207 (Miss. 1971). “In case of a failure to

issue a policy, the right to recover is fully matured when

the agreement is violated, and the party to whom it was to

be issued is not obliged to wait until his property is

destroyed . . . before instituting an action for damages.”

Everett, 95 N.W. at 902.

We recognize that, in this case, the 12 limited

partnerships seek a return of paid premiums not from the

insurer, Security, but from Acordia. That distinction does

not change the applicable measure of damages. The cause of

action here arose out of a contract to procure insurance

and Acordia’s admitted negligence and/or breach of that

contract by failing to include the limited partnerships as

named insureds on the builders risk insurance policy.

The circuit court further erred in concluding that the

limited partnerships failed to prove that they had suffered

any damages for which they had not been compensated.

Because of the payments for losses at Autumn Ridge’s and

Sunchase’s respective housing projects, and the judgment

recovered by Genito against Acordia, the court mistakenly

that would have been due under the respective insurance
policies.

12
believed that the limited partnerships had been restored to

the condition in which they would have been if Acordia had

procured insurance listing the limited partnerships as

named insureds. Thus, the circuit court concluded that the

limited partnerships “should be deemed to have accepted the

benefits of the insurance contract to procure insurance by

their acceptance of, and successful action at law for,

amounts equal to benefits they would have received under a

valid policy.”

The court apparently reached this conclusion by

characterizing the limited partnerships as subsidiaries of

NHC. The limited partnerships, however, were not

subsidiaries of NHC; instead, they were separate,

independent entities, each owning a different housing

project. As acknowledged by the limited partnerships in

their pleadings and by Acordia at oral argument, NHC acted

as the limited partnerships’ agent for the purpose of

procuring the builders risk insurance policy.7 See Acordia,

7
Acordia argued on brief that the limited
partnerships cannot claim privity of contract with Acordia
and that each can assert a claim against Acordia only as a
third-party beneficiary of NHC’s contract with Acordia to
procure the builders risk insurance policy. Acordia,
however, acknowledged during oral argument that its
argument on this point was misplaced in light of this
Court’s decision in Acordia, 263 Va. at 386, 560 S.E.2d at
251, holding that, “when NHC, acting as Genito’s agent,
contracted with Acordia for insurance . . . , Genito then

13
263 Va. at 386, 560 S.E.2d at 251. Even if the limited

partnerships were subsidiaries of NHC, that status alone

would not warrant the circuit court’s conclusion that the

limited partnerships had been restored to the position in

which they would have been if Acordia had fulfilled the

contract to procure a builders risk insurance policy as

promised. See Richfood, Inc. v. Jennings, 255 Va. 588,

592-93, 499 S.E.2d 272, 276 (1998) (a subsidiary is a

separate corporate entity and that status alone is not a

justification for a court to disregard the separate

corporate structure).

The situation here is not analogous to that in Link

Associates, a case relied on by the circuit court. There,

the controversy involved the financing of a shopping-center

development and a lender’s commitment for a permanent loan

in an amount less than what the borrower had requested.

223 Va. at 481, 291 S.E.2d at 213. Asserting mutual

mistake and constructive fraud, the borrower sought to

reform the contract by rescinding certain portions of

became a contracting party with Acordia, thereby
establishing privity between those two entities.” Thus, we
do not address Acordia’s argument regarding third-party
beneficiaries.
Acordia also argued that NHC had an insurable interest
in the various housing projects owned by the limited
partnerships and that Security undertook a risk as to NHC.
That issue is not before us in this appeal, and we will
therefore not address it.

14
ground leases executed by the borrower as security for the

permanent financing. Id. The issue decided on appeal was

whether the trial court had erred in finding that the

borrower had waived and ratified certain misrepresentations

made by the lender. Id. at 484, 291 S.E.2d at 215.

Finding that there was sufficient evidence to prove that

the borrower had waived and ratified any actionable

misrepresentations of the lender, we stated with approval

the principle that a party cannot accept the benefits of a

contract and then seek to be relieved of its obligations.

Id. at 488-89, 291 S.E.2d at 218 (citing United States v.

Idlewild Pharmacy, Inc., 308 F. Supp. 19, 23 (E.D. Va.

1969)).

In the present case, there was no contract of

insurance that provided coverage to the limited

partnerships; thus, there was no contract from which they

could accept benefits. Cf. Jones v. New York Life Ins.

Co., 253 P. 200, 203 (Utah 1926) (the theory of waiver of

the terms of a contract presupposes the existence of a

valid contract). Furthermore, if Acordia had fulfilled its

contractual obligation to procure a builders risk insurance

policy naming the 12 limited partnerships as insureds, each

limited partnership would have its own claim for any loss

sustained at its respective housing project. Any recovery

15
by a particular limited partnership would not have affected

the right of another limited partnership to recover fully

for a loss at a different housing project. In other words,

the circuit court had no basis to foreclose the limited

partnerships from pursuing damages by attributing the

recoveries by Genito, Autumn Ridge, and Sunchase to the

other limited partnerships.

The final issue is whether Autumn Ridge and Sunchase

are entitled to a return of premiums since Security paid

for losses sustained at their respective housing projects.

Acordia argued that these two limited partnerships accepted

the benefit that would have been afforded if they had been

listed as named insureds on the builders risk insurance

policy and cannot now recover premiums on the basis that

the risk never attached. We disagree.

As we previously stated, there was no contract of

insurance as to any of these limited partnerships. Thus,

Autumn Ridge and Sunchase cannot be deemed to have accepted

the benefit of insurance or to have waived the failure of

Acordia to include them as named insureds on the builders

risk insurance policy. See Silva v. National Am. Life Ins.

Co. of California, 58 Cal. App. 3d 609, 618 (Cal. Ct. App.

1976) (waiver presupposes the existence of a valid

16
contract); Hodge v. National Fid. Ins. Co., 68 S.E.2d 636,

640 (S.C. 1952) (same); Jones, 253 P. at 203 (same).

However, Autumn Ridge and Sunchase acknowledged on

brief that the amount paid by Security for their respective

losses should be deducted from the amount of premium each

paid. Thus, they should recover only the net amount from

Acordia as damages.

CONCLUSION

For these reasons, we will reverse the judgment of the

circuit court and remand this case for a determination of

the amount of damages which may be due the limited

partnerships.

Reversed and remanded.

17