Present: All the Justices
ACORDIA OF VIRGINIA INSURANCE
AGENCY, INC.
v. Record No. 011098 OPINION BY JUSTICE CYNTHIA D. KINSER
March 1, 2002
GENITO GLENN, L.P.
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
H. Thomas Padrick, Jr., Judge
This appeal arises from the alleged failure of the
appellant, Acordia of Virginia Insurance Agency, Inc.
(Acordia), to include the appellee, Genito Glenn, L.P.
(Genito), as a named insured on a builders risk insurance
policy. Because we conclude that another entity acted as
Genito’s agent in procuring that insurance policy through
Acordia, thereby establishing privity between Genito and
Acordia, we will affirm the circuit court’s judgment
allowing Genito to recover damages for economic losses
resulting from Acordia’s negligent performance of its
contractual obligations. However, we will reverse the
court’s judgment finding that funds received by Genito in
settlement of another case were a collateral source of
recovery and refusing to consider whether the verdict
rendered against Acordia in this case should be reduced by
the amount of consideration paid for that settlement.
FACTS AND MATERIAL PROCEEDINGS
Genito, a limited partnership, was the owner of a
proposed apartment complex project (the Genito project) to
be located in Chesterfield County. National Housing
Corporation (NHC) was responsible for procuring builders
risk insurance coverage for several apartment complex
projects, including the Genito project. 1 NHC, in turn,
contracted with Acordia, an insurance broker, to obtain a
builders risk insurance policy to cover Genito, among other
limited partnerships.
In construction of the Genito project, a substance
known as fly ash was used as ground fill. The fly ash was
defective for this intended purpose, resulting in cracks in
the buildings’ foundations. Consequently, the structural
integrity of the buildings was compromised, requiring that
they be demolished and rebuilt.
As a result of the damage to the buildings, Genito
filed an action in the Circuit Court of the City of
Virginia Beach, styled Genito Glenn, L.P. v. National Hous.
Bldg. Corp., Law No. CL98-2847 (the NHBC case), naming as
defendants the project’s various contractors,
1
The record lacks a specific description of NHC’s
business, but NHC had responsibilities for negotiating and
reviewing limited partnership agreements, negotiating
construction and permanent loans for projects such as the
Genito project, as well as procuring insurance for those
projects.
2
subcontractors, engineers, and material suppliers. In an
amended motion for judgment, Genito alleged theories
primarily based on tort, breach of contract, breach of
express and implied warranties, and fraud. The circuit
court sustained demurrers to all but one of the negligence
counts in the NHBC case. The case then settled, and the
terms of that settlement were filed under seal in the
present action.
Genito also filed a claim reporting its loss under the
builders risk insurance policy purportedly procured by NHC
through Acordia. Because coverage was denied, Genito filed
a declaratory judgment action in federal court to determine
whether Genito was a named insured under the policy. In an
unpublished decision, that court held that Genito’s loss
would have been covered by the policy had Genito been a
named insured, but that it was not. Genito Glenn, L.P. v.
Security Ins. Co. of Hartford, No. 2:98cv1314 (E.D. Va.
Oct. 27, 1999).
In November 1999, Genito filed the action at issue in
this appeal, alleging that Acordia had negligently failed
to name Genito as an insured on the builders risk insurance
policy. Genito sought damages for its losses under
theories of negligence and breach of contract.
3
Genito then filed a motion in limine to exclude
evidence of the amount it received in settlement of the
NHBC case. Genito argued that the collateral source rule
barred Acordia from introducing either the fact of the
settlement or the amount received by Genito into evidence
to reduce Acordia’s potential liability to Genito. The
trial court sustained the motion in limine with respect to
Genito’s negligence claim. In a letter opinion
incorporated into its order, the court concluded that the
collateral source rule prohibited use of the settlement
amount to reduce Acordia’s liability for its alleged
negligence. However, the court declined to address whether
the collateral source rule applied to Genito’s breach of
contract claim.
Acordia filed a motion for reconsideration, contending
that the collateral source rule does not apply to
settlements of disputed litigation. It also asserted that
the provisions of Code § 8.01-35.1 required the trial court
to reduce any verdict entered in favor of Genito by the
amount Genito had already received in settlement of the
NHBC case. Finally, Acordia argued that if Genito had been
afforded coverage under the builders risk insurance policy,
it would have been bound by the policy’s terms, which
included specific provisions for subrogation and offset for
4
any part of a loss paid by others. The trial court denied
Acordia’s motion for reconsideration on the application of
the collateral source rule to Genito’s negligence claim,
but again deferred ruling on that issue with respect to the
contract claim.
At the close of Genito’s case-in-chief during the
trial, Acordia moved to strike the evidence. As pertinent
to this appeal, Acordia argued that Genito had failed to
adduce any evidence that Genito and Acordia were in
privity. Acordia asserted the necessity of such proof as a
predicate for recovery of economic loss damages resulting
from negligent performance of a contractual commitment.
The court denied Acordia’s motion, finding sufficient
evidence to establish privity between Genito and Acordia.
After the close of all the evidence, Genito elected to
nonsuit its breach of contract claim; thus, the court
submitted only the negligence claim to a jury. The jury
returned a general verdict in favor of Genito in the amount
of $1,825,136.54, plus pre-judgment interest. Citing Code
§ 8.01-35.1, Acordia then moved for a reduction of the
verdict by the amount received by Genito in settlement of
the NHBC case. Acordia also moved to set aside the verdict
on the basis, previously asserted, that Genito had failed
to prove privity between itself and Acordia. At a
5
subsequent hearing, the trial court denied both of
Acordia’s post-trial motions. The court then entered final
judgment in favor of Genito.
Acordia now appeals from that judgment. It assigns
the following errors: (1) that the trial court erred in
allowing Genito to recover economic losses in a tort action
because Genito failed to establish privity between itself
and Acordia; (2) that the trial court erred in refusing to
give Acordia a credit in this action for the amount
received by Genito in settlement of the NHBC case; and (3)
that the court erred by finding that the settlement amount
received by Genito was from a collateral source and in
refusing to permit Acordia to introduce evidence regarding
that settlement amount in light of the provisions of the
builders risk insurance policy reducing any benefits
payable under the policy by sums paid by others. We turn
now to these issues. 2
ANALYSIS
I. PRIVITY
At trial, Genito elected to nonsuit its breach of
contract claim, and the case proceeded to the jury only on
Genito’s negligence claim against Acordia. Genito does not
2
We will present additional facts as pertinent to the
specific issues.
6
dispute that, in the tort claim, it sought only economic
loss damages for Acordia’s alleged negligent performance of
its contractual obligation. In order to recover such
losses, Genito was required to establish privity of
contract between itself and Acordia. See Sensenbrenner v.
Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 422-
23, 374 S.E.2d 55, 56-57 (1988); Blake Const. Co. v. Alley,
233 Va. 31, 33-36, 353 S.E.2d 724, 725-27 (1987). “[I]n
the absence of privity, a person cannot be held liable for
economic loss damages caused by [the] negligent performance
of a contract.” Gerald M. Moore & Son, Inc. v. Drewry, 251
Va. 277, 280, 467 S.E.2d 811, 813 (1996).
Genito asserts that when NHC contracted with Acordia
to procure a builders risk insurance policy to cover
Genito, as well as other limited partnerships, NHC was
acting as Genito’s agent, thus creating privity between
Genito and Acordia. Acordia disputes this assertion and
argues that Genito failed to carry its burden of proof as
the party alleging an agency relationship. See State Farm
Mut. Auto. Ins. Co. v. Weisman, 247 Va. 199, 203, 441
S.E.2d 16, 19 (1994) (party alleging agency relationship
bears burden of proving it). Continuing, Acordia argues
that evidence of an element necessary to establish a
principal-agent relationship, specifically, the right to
7
control, is absent in this case, and that Genito simply
assumed that the mere procurement of an insurance policy by
NCH for Genito’s benefit created an agency relationship.
We disagree with Acordia.
We have defined the term “agency” as “a fiduciary
relationship resulting from one person’s manifestation of
consent to another person that the other shall act on his
behalf and subject to his control, and the other person’s
manifestation of consent so to act.” Reistroffer v.
Person, 247 Va. 45, 48, 439 S.E.2d 376, 378 (1994); accord
Weisman, 247 Va. at 203, 441 S.E.2d at 19; Allen v.
Lindstrom, 237 Va. 489, 496, 379 S.E.2d 450, 454, cert.
denied, 493 U.S. 849 (1989).
While the power of control is an important factor to
consider in determining whether an agency relationship
exists, see Reistroffer, 247 Va. at 48, 439 S.E.2d at 378;
Allen, 237 Va. at 496, 379 S.E.2d at 454 (citing Texas Co.
v. Zeigler, 177 Va. 557, 564, 14 S.E.2d 704, 706 (1941)),
“[a]gency may be inferred from the conduct of the parties
and from the surrounding facts and circumstances.” Drake
v. Livesay, 231 Va. 117, 121, 341 S.E.2d 186, 189 (1986)
(citing Royal Indem. Co. v. Hook, 155 Va. 956, 970, 157
S.E. 414, 419 (1931)).
8
“[W]hether an agency relationship exists is a question
to be resolved by the fact finder unless the existence of
the relationship is shown by undisputed facts or by
unambiguous written documents.” Weisman, 247 Va. at 203,
441 S.E.2d at 19. Accord Reistroffer, 247 Va. at 48, 439
S.E.2d at 378; Drake, 231 Va. at 121, 341 S.E.2d at 189.
We will not reverse the trial court’s judgment refusing to
set aside the jury verdict “unless it appears from the
evidence that such judgment is plainly wrong or without
evidence to support it.” Code § 8.01-680. On appeal,
Genito, as the party armed with a jury verdict that has
been approved by the trial court, “occupies the most
favored position known to the law.” Pugsley v. Privette,
220 Va. 892, 901, 263 S.E.2d 69, 76 (1980) (citing Tri-
State Coach Corp. v. Walsh, 188 Va. 299, 303-04, 49 S.E.2d
363, 365 (1948)). Consequently, the evidence and all
reasonable inferences fairly deducible therefrom with
regard to the issue of agency must be viewed in the light
most favorable to Genito. Evaluation Research Corp. v.
Alequin, 247 Va. 143, 147, 439 S.E.2d 387, 390 (1994).
Applying these principles, we conclude that the facts
and circumstances in this case, as well as the parties’
conduct, demonstrate that an agency relationship existed
between Genito and NHC. Russell W. Johnson, who previously
9
worked as a financial manager at NHC, stated that he
contacted Acordia for the purpose of obtaining insurance
coverage for several limited partnerships and their
respective apartment complex building projects, including
the Genito project. Continuing, Johnson testified that he
told J. Scott Eckmann, a property casualty insurance broker
who was formerly a senior vice president at Acordia, about
the various limited partnerships, explained that these
partnerships would own the projects, and stressed the
necessity that every partnership be protected under the
insurance policy. Johnson also stated that he discussed
with Eckmann the calculation of premiums to be charged to
each project, and in doing so, provided a list of completed
values for the projects, including that of the Genito
project. Another former employee of NHC testified that,
when projects were “coming on to be constructed,” she
contacted Acordia for the purpose of having certificates of
insurance issued and sent to NHC.
Eckmann acknowledged that he knew that NHC was acting
on behalf of all of the limited partnerships to procure
insurance coverage and that Johnson had a portfolio of
properties for which insurance was needed, both at the
builders risk stage and at the completed value stage.
Eckmann also stated that he delivered the builders risk
10
insurance policy purportedly issued to cover Genito and its
apartment complex project to Johnson at NHC. NHC’s
responsibility for procuring insurance, the manner in which
it set about to do so, and the information disclosed by
Johnson to Eckmann were consistent with the existence of an
agency relationship between NHC and Genito. An agent
commonly represents the principal in the creation and
performance of contracts with third parties. Virginia
Iron, Coal & Coke Co. v. Odle’s Adm’r, 128 Va. 280, 287,
105 S.E. 107, 109 (1920); see also Dimos v. Stowe, 193 Va.
831, 839, 71 S.E.2d 186, 190-91 (1952).
Despite Acordia’s argument that there is no direct
evidence regarding Genito’s right to control NHC, “[d]irect
evidence is not indispensable – indeed frequently is not
available – but instead circumstances may be relied on,
such as the relation of the parties to each other and their
conduct with reference to the subject matter of the
contract.” Bloxom v. Rose, 151 Va. 590, 598-99, 144 S.E.
642, 644 (1928). “[W]hat evidence shall be sufficient to
establish agency in any given case . . . must be determined
in view of the facts in each particular case.” Id. at 595,
144 S.E. at 643 (quotation marks and citation omitted). In
Bloxom, a father took over the management of his son’s farm
when the son went overseas for military service. In light
11
of the father’s activities in operating the farm, including
his statement that he was acting on behalf of his son, we
found an agency relationship between the father and son
even though each of them testified that the son had turned
over the farm to his father for the father’s own benefit
until the son returned and resumed control. Id. at 593-99,
144 S.E. at 643-44. Likewise, we conclude that the
evidence in this case is sufficient to establish that NHC
was acting as Genito’s agent in procuring insurance.
“[W]hen an agent, acting within the scope of [the]
apparent agency, enters into a contract with a third
person[,] ‘the principal becomes immediately a contracting
party, with both rights and liabilities to the third
person.’ Equitable Variable Life Ins. Co. v. Wood, 234
Va. 535, 539, 362 S.E.2d 741, 744 (1987) (emphasis added)
(quoting Restatement (Second) of Agency § 8 cmt. d (1957)).
Thus, as Genito asserts, when NHC, acting as Genito’s
agent, contracted with Acordia for insurance to cover
Genito, Genito then became a contracting party with
Acordia, thereby establishing privity between those two
entities. 3 See Harris v. McKay, 138 Va. 448, 457, 122 S.E.
3
Because privity existed between Genito and Acordia,
we do not need to decide whether Genito was a third party
beneficiary of the contract between NHC and Acordia, and if
so, whether Genito could recover damages for economic
12
137, 140 (1924). Accordingly, the trial court did not err
in upholding the jury verdict awarding economic loss
damages to Genito for Acordia’s negligent performance of
its contractual obligations.
II. COLLATERAL SOURCE RULE AND CREDIT
FOR SETTLEMENT OF NHBC CASE
Acordia claims that it was entitled to a reduction of
the verdict entered against it because the amount received
by Genito in settlement of the NHBC case was not from a
collateral source. Acordia contends that the collateral
source rule was, therefore, not implicated in this case and
should not have been used by the trial court to prevent
Acordia from introducing evidence regarding the fact and
amount of that settlement in order to reduce its potential
liability to Genito. We agree that the funds received by
Genito when it settled the NHBC case are not a collateral
source recovery.
We have applied the collateral source rule in tort
cases for more than a century. Acuar v. Letourneau, 260
Va. 180, 188, 531 S.E.2d 316, 320 (2000). Under that rule,
“compensation or indemnity received by a tort victim from a
source collateral to the tortfeasor may not be applied as a
credit against the quantum of damages the tortfeasor owes.”
______________________________
losses in a tort claim on that theory, argued in the
13
Schickling v. Aspinall, 235 Va. 472, 474, 369 S.E.2d 172,
174 (1988); accord Acuar, 260 Va. at 188-89, 531 S.E.2d at
320. However, only certain types of payments have been
deemed to constitute collateral source recovery:
Originally, the [collateral source] rule applied
exclusively to claims ex delicto. In the early cases,
the collateral compensation involved was money paid
the plaintiff by his own insurer. Later cases have
applied the rule to social security benefits, public
and private pension payments, unemployment and
workers’ compensation benefits, vacation and sick
leave allowances, and other payments made by employers
to injured employees, both contractual and gratuitous.
Schickling, 235 Va. at 474, 369 S.E.2d at 174. Comment b
to the Restatement (Second) of Torts § 920A (1979) explains
benefits from collateral sources in this way:
If the plaintiff was himself responsible for the
benefit, as by maintaining his own insurance or by
making advantageous employment arrangements, the law
allows him to keep it for himself. If the benefit was
a gift to the plaintiff from a third party or
established for him by law, he should not be deprived
of the advantage that it confers.
However, this rationale is inapposite in a settlement
of litigation from one of multiple tortfeasors.
[T]he collateral source rule and the joint tort-
feasor rule are capable of compatible coexistence
only if their differing fields of operation are
recognized and respected. The collateral source
rule purports to place upon the defendant-tort-
feasor the full burden of his wrongdoing. If,
however, the plaintiff’s injury is the product of
the combined wrongdoings of the defendant and a
settling joint tort-feasor, the credit rule
______________________________
alternative by Genito.
14
intercedes to ensure that the defendant will not
be burdened with full restitution for an injury
which . . . by settlement of a tort claim, the
plaintiff implicitly attributes in part to the
settling party.
Sweep v. Lear Jet Corp., 412 F.2d 457, 461 (5th Cir. 1969).
Hence, the collateral source rule traditionally does not
apply to settlement proceeds. See, e.g., Villarini-Garcia
v. Hospital Del Maestro, 112 F.3d 5, 9 (1st Cir. 1997);
FDIC v. United Pac. Ins. Co., 20 F.3d 1070, 1083 (10th Cir.
1994); Kassman v. American Univ., 546 F.2d 1029, 1034-35
(D.C. Cir. 1976); Riexinger v. Ashton Co., 453 P.2d 235,
237 (Ariz. Ct. App. 1969). See also Restatement (Second)
of Torts § 920A (distinguishing between payments made by
one who believes he is subject to tort liability and
payments or benefits from collateral sources). Thus, we
conclude that the circuit court erred in holding that the
amount received by Genito in settlement of the NHBC case
was a collateral source recovery.
Relying on Code § 8.01-35.1(A), Acordia next argues
that the verdict obtained by Genito in this case must be
reduced by the amount received by Genito in settlement of
the NHBC case. 4 On brief, Acordia acknowledged that a
4
Code § 8.01-35.1 provides, in relevant part:
A. When a release or a covenant not to sue is
given in good faith to one of two or more persons
15
factor to be considered in determining the applicability of
this statutory provision is whether the release or covenant
not to sue given in the NHBC case was for the “same injury,
or the same property damage” as that represented by the
jury award in this case. Code § 8.01-35.1(A). We agree
that such inquiry is required by the terms of Code § 8.01-
35.1(A).
Acordia also acknowledged on brief that, in this case,
Genito claimed not only the same damages that were claimed
in the NHBC case (damages arising from the tearing down and
reconstructing of the apartment complex buildings), but
also its losses due to interest charges, attorneys’ fees,
lost tax credits, additional license fees, and a premium
for insurance that it never received. Indeed, the jury was
instructed that Genito could recover these items as
elements of damage if the jury believed that such damages
______________________________
liable in tort for the same injury, or the same
property damage or the same wrongful death:
1. It shall not discharge any of the other tort-
feasors from liability for the injury, property damage
or wrongful death unless its terms so provide; but any
amount recovered against the other tort-feasors or any
one of them shall be reduced by any amount stipulated
by the covenant or the release, or in the amount of
the consideration paid for it, whichever is the
greater. . . . A release or covenant not to sue given
pursuant to this section shall not be admitted into
evidence in the trial of the matter but shall be
16
were proximately caused by Acordia’s alleged negligence.
Genito was thus able to present to the jury and have it
consider evidence regarding some elements of damages not
claimed in the NHBC case. However, to the extent that
Genito has been compensated for losses it claimed in both
this case and the NHBC case, Acordia asserts that it is
entitled to a credit for that sum.
It may be difficult to ascertain which elements of
Genito’s claimed damages were included by the jury in its
verdict or the amount awarded for any particular element of
damage. Nevertheless, if Acordia is correct in its
assertion that the release in the NHBC settlement was given
“to one of two or more persons liable in tort for the same
injury, or the same property damage[,]” Code § 8.01-
35.1(A), then Acordia is entitled to have the opportunity
to show that it was due a credit for any sums included in
the NHBC settlement that are duplicative of the damages
awarded by the jury in this case. Code § 8.01-35.1(A)(1)
specifies that “any amount recovered against the other
tort-feasors or any one of them shall be reduced by any
amount stipulated by the covenant or the release, or in the
______________________________
considered by the court in determining the amount for
which judgment shall be entered[.]
17
amount of the consideration paid for it, whichever is the
greater.”
However, Code § 8.01-35.1(A)(1) also provides that
such a release “shall not be admitted into evidence in the
trial of the matter but shall be considered by the court in
determining the amount for which judgment shall be
entered[.]” Thus, Acordia would not have been entitled to
have the jury consider evidence regarding the settlement of
the NHBC case. Instead, the fact and amount of the
settlement were a matter for the trial court to consider
when determining the amount of judgment to be entered
against Acordia. See Tazewell Oil Co. v. United Virginia
Bank, 243 Va. 94, 115, 413 S.E.2d 611, 622-23 (1992).
Accordingly, we conclude that the circuit court erred in
failing to consider the application of Code § 8.01-35.1 and
will remand for further proceedings consistent with this
opinion.
In determining the amount of consideration paid by a
tortfeasor for a release, the trial court “must look at the
injury or damage covered by the release and, if more than a
single injury, allocate, if possible, the appropriate
amount of compensation for each injury.” Id., 413 S.E.2d
at 622. The court must also ascertain whether any of the
consideration paid for the release and settlement of the
18
NHBC case covered injuries suffered by other parties. Id.,
413 S.E.2d at 623. In short, the court must decide whether
the release in the NHBC case was “given . . . to one of two
or more persons liable in tort for the same injury, or the
same property damage,” thereby duplicating any element of
damage awarded to Genito in this case. 5 Code § 8.01-
35.1(A).
Finally, Acordia argues that, pursuant to the terms of
the builders risk insurance policy under which Genito
sought coverage, any recovery by Genito from other sources,
e.g., the amount received in settlement of the NHBC case,
would have reduced the amount payable under the policy.
Acordia claims that it is entitled to the benefit of that
policy provision in determining the amount of its liability
and that the trial court, therefore, erred in not allowing
it to present evidence to the jury regarding the settlement
of the NHBC case. We do not agree.
In this tort claim, Acordia cannot rely on the terms
of an insurance policy that, because of Acordia’s
negligence, did not include Genito as a named insured.
Furthermore, Acordia has not assigned error to a jury
5
In making the determinations required by Code § 8.01-
35.1, the trial court must also consider Genito’s argument
that none of the parties contributing to the settlement of
the NHBC case were liable in tort to Genito.
19
instruction granted by the trial court that stated, in
relevant part, that Genito’s damages were not “limited to
what Genito may have recovered under the [builders] risk
policy had it been a named insured thereunder” because “the
suit is based upon the broker’s negligence in failing to
procure the insurance, not upon the contract of insurance
itself.” 6
CONCLUSION
For these reasons, we will affirm in part and reverse
in part the judgment of the circuit court, and remand for
further proceedings consistent with this opinion.
Affirmed in part;
reversed in part;
and remanded.
6
Acordia also did not assign error to the trial
court’s refusal to grant two instructions that would have
told the jury that, to the extent that Genito received sums
of money from other persons for its losses, such sums would
be deducted from any insurance benefits payable to Genito.
20