Levine v. Selective Insurance Co. of America

Present: Carrico, C.J., Compton, Stephenson, Whiting, 1 Lacy,
Hassell, and Keenan, JJ.

BARRY WM. LEVINE, ET AL.

v. Record No. 941719 OPINION BY JUSTICE LEROY R. HASSELL
September 15, 1995
SELECTIVE INSURANCE COMPANY
OF AMERICA

FROM THE CIRCUIT COURT OF RAPPAHANNOCK COUNTY
William Shore Robertson, Judge

In this appeal, we consider whether property owners, who are

not parties to an insurance contract, have pled a cause of action

as third-party beneficiaries against an insurer for breach of an

implied covenant of good faith and fair dealing.
I.

This case was decided on the defendant's motion for summary

judgment; therefore, we must adopt the facts and inferences from

those facts that are most favorable to the non-moving party,

unless those inferences are strained, forced, or contrary to

reason. Renner v. Stafford, 245 Va. 351, 353, 429 S.E.2d 218,

220 (1993).

Plaintiffs, Barry W. Levine and Patricia Levine, executed a

contract with Henry Elmore to construct a house upon their

property in Rappahannock County. The construction contract

required that Elmore obtain construction hazard insurance, which

would provide coverage for loss of materials and personal

injuries on the job site, with the plaintiffs named as loss

payees.

Elmore procured construction hazard insurance from Selective

1
Justice Whiting participated in the hearing and decision
of this case prior to the effective date of his retirement on
August 12, 1995.
Insurance Company of America through its agent, Hughes Insurance

Company. Although the Levines were not shown as loss payees on

the policy, "all parties expressly understood that the

beneficiaries of such Policy were the Levines. Elmore has never

had and asserts no right or title to the proceeds from the Policy

except as trustee for the Levines."

During construction of the house, strong winds caused the

partially completed house to collapse. The house's foundation,

floor joists, and sub-floor were damaged, but not destroyed, by

the windstorm. Hughes Insurance Company was notified of the

damage on the same day, and a formal claim was timely submitted

to Selective, which dispatched a claim adjuster to evaluate the

loss. Selective's claim adjuster was advised of the urgency of

prompt processing and payment of the claim so that the plaintiffs

and Elmore could use the funds to preserve the foundation, floor

joists, and sub-flooring.
Selective "dallied in reviewing and paying the claim," and

it asked "the Levines and Elmore to provide certain information

regarding the loss that Selective Insurance already possessed,

and it otherwise delayed paying the claim." Selective refused to

pay the claim despite "repeated requests by the Levines and

Elmore and repeated warnings that Selective was exposing the

remaining structure to additional collapse." Elmore ceased

construction of the house and, subsequently, a substantial

portion of the remaining foundation collapsed.

The plaintiffs filed a second claim with Selective for the

additional damage. After protracted negotiations, Selective

acknowledged coverage of the subject risk and made a partial
payment of $25,000 for the first damage claim only. A draft of

$25,000 was made payable to Elmore and Mr. Levine. 2 Three months

later, Selective issued a second draft in the amount of $87,000,

payable to Elmore and Mr. Levine as full payment for the first

damage claim only. Selective has refused to pay for any damages

associated with the second collapse and has failed to provide any

legal basis for its decision.

II.
The plaintiffs argue that the trial court erred in granting

summary judgment. The plaintiffs contend that they are third-

party beneficiaries to the contract between Selective and Elmore.

Selective argues that the plaintiffs are not third-party

beneficiaries to the insurance contract, and, therefore,

Selective owes no contractual duty to them. We disagree with

Selective.

It is well established in this Commonwealth that under

certain circumstances, a party may sue to enforce the terms of a

contract even though he is not a party to the contract. "[I]n

contracts not under seal, it has been held, for two centuries or
more, that any one for whose benefit the contract was made may

sue upon it." Thacker v. Hubard, 122 Va. 379, 387, 94 S.E. 929,

931 (1918). This rule was codified in the 1849 Code of Virginia,

ch. 116, § 2. Thacker, 122 Va. at 390, 94 S.E. at 931-32. The

current successor to that statute, Code § 55-22, states:
An immediate estate or interest in or the benefit
of a condition respecting any estate may be taken by a
person under an instrument, although he be not a party
thereto; and if a covenant or promise be made for the
benefit, in whole or in part, of a person with whom it
2
The motion for judgment does not state why Mrs. Levine
was not a payee on the draft.
 is not made, or with whom it is made jointly with
others, such person, whether named in the instrument or
not, may maintain in his own name any action thereon
which he might maintain in case it had been made with
him only and the consideration had moved from him to
the party making such covenant or promise. In such
action the covenantor or promisor shall be permitted to
make all defenses he may have, not only against the
covenantee or promisee, but against such beneficiary as
well.

"The essence of a third-party beneficiary's claim is that

others have agreed between themselves to bestow a benefit upon

the third party but one of the parties to the agreement fails to

uphold his portion of the bargain." Copenhaver v. Rogers, 238

Va. 361, 367, 384 S.E.2d 593, 596 (1989); accord, Cobert v. Home

Owners Warranty Corp., 239 Va. 460, 466, 391 S.E.2d 263, 266

(1990); Forbes v. Schaefer, 226 Va. 391, 401, 310 S.E.2d 457, 463

(1983); Richmond Center v. Jackson Co., 220 Va. 135, 142, 255

S.E.2d 518, 523 (1979); Valley Landscape Co. v. Rolland, 218 Va.

257, 259-60, 237 S.E.2d 120, 122 (1977). We have enforced third-

party beneficiary contracts when "[t]he third party . . . show[s]

that the parties to the contract clearly and definitely intended

it to confer a benefit upon him." Ward v. Ernst & Young, 246 Va.

317, 330, 435 S.E.2d 628, 634 (1993) (quoting Professional Realty

v. Bender, 216 Va. 737, 739, 222 S.E.2d 810, 812 (1976)).

We hold that the plaintiffs pled sufficient facts in their

motion for judgment to support their claim that they are third-

party beneficiaries to the contract between Elmore and Selective.

The contract insures the plaintiffs' property, and they alleged

in their motion that: "all parties expressly understood that the

beneficiaries of such [insurance contract] were the Levines;"

"Selective Insurance, at all relevant times, has had actual

notice of the Levines' status as a third party beneficiary and
ultimate payee under the Policy;" and "Elmore was the named payee

and the Levines were a third party beneficiary of the insurance

contract that Selective Insurance issued to Elmore."

Additionally, when Selective finally made payment for a portion

of the plaintiffs' claims, it issued checks payable to the order

of Elmore and Mr. Levine. These facts, if proven at trial, would

support a finding that the contracting parties, in this instance,

Elmore and Selective, intended the contract to confer a benefit

upon the plaintiffs.
III.

The plaintiffs assert that they pled sufficient facts to

create a jury issue whether Selective breached its contractual

duty of good faith and fair dealing in failing to pay their

original loss claim within a reasonable time. Selective argues

that the trial court did not err in granting its motion for

summary judgment on this claim. We disagree with Selective.

Selective does not dispute the existence of this contractual

obligation of good faith and fair dealing. Also, Selective does

not dispute that it owes a duty of good faith and fair dealing to

the plaintiffs as third-party beneficiaries. Indeed, our

precedent recognizes that a third-party beneficiary to a contract

is entitled to enforce the terms of the contract and is subject

to defenses arising out of the contract. Code § 55-22; Sydnor &

Hundley, Inc. v. Wilson Trucking Corp., 213 Va. 704, 707, 194

S.E.2d 733, 736 (1973).

We hold that the plaintiffs pled sufficient facts to support

their action for breach of contract based on Selective's alleged

breach of its covenant of good faith and fair dealing. As we
have already observed, the plaintiffs promptly notified Selective

of the initial loss. After Selective's claim adjuster conducted

an on-site inspection, Selective "dallied in reviewing and

paying" their claim. Selective asked the plaintiffs and Elmore

to provide certain information regarding the loss that Selective

already possessed, and it delayed paying the claim. Selective

refused to pay the claim despite repeated requests by the

plaintiffs and Elmore and repeated warnings that Selective was

exposing the remaining structure to additional damage.
We also note that Selective admitted, in its grounds of

defense to the plaintiffs' motion for judgment, that "Selective

Insurance has refused to pay the Levines for the claim stemming

from the [second loss] to their house . . . and has refused to

provide any basis for its action." Therefore, we hold that the

trial court erred by granting Selective's motion for summary

judgment on this claim.

IV.

The plaintiffs argue that the trial court erred by granting

the motion for summary judgment because a factual issue exists

whether the second loss to their house constitutes a separate

loss for which Selective would be liable under the insurance

contract. Selective argues that it has no further contractual

obligation to the plaintiffs because it has already paid them

$112,000, the purported amount of its coverage. We disagree with

Selective.

Paragraph 25 of the conditions portion of the insurance

contract states, "[a]ny loss paid shall not reduce the amount of

this insurance." Obviously, this language was inserted in the
insurance contract to provide coverage, not to exceed $112,000,

for each separate loss that occurred during the effective period

of the insurance coverage. Therefore, if the jury finds that the

second collapse constitutes a second loss, then Selective would

be required to pay for any loss that the plaintiff sustained for

an amount not to exceed $112,000.

Next, Selective argues that as a matter of law, the second

loss was caused by the plaintiffs' failure to protect their

property damaged in the first loss, and, thus, the plaintiffs are
3
not entitled to recover for this "new loss." We disagree.

The insurance contract states in part:
PERILS INSURED AGAINST

We insure for direct loss to the property covered
caused by:

. . . .
2. Windstorm or hail.

. . . .
13. Collapse of buildings or any part of a
building.

Another provision of the contract, entitled "OTHER COVERAGES,"

states in relevant part:
6. Reasonable Repairs -- We will pay the
reasonable cost incurred by you for necessary
repairs made solely to protect the property
covered by this policy from further damage if
there is coverage for the peril causing the
loss. Use of this coverage is included in
the limit of liability that applies to the
property being repaired.

The general exclusions of the contract provide in part:
We do not cover loss resulting directly or indirectly

3
We find no merit in Selective's argument that the
plaintiffs failed to raise this issue in the trial court.
 from:

. . . .

5. Neglect, meaning your neglect to use all
reasonable means to save and preserve
property at and after the time of a loss, or
when property is endangered by a Peril
Insured Against.

The conditions of the contract state, in relevant part:
4. [The Insured's] Duties After Loss. In
case of a loss to which this insurance may
apply, you shall see that the following
duties are performed:

. . . .

b. protect the property from further damage,
make reasonable and necessary repairs
required to protect the property, and keep an
accurate record of repair expenditures.

It is true, as Selective points out, that some of these

provisions may require that the plaintiffs take certain action to

protect their property. However, the issue whether plaintiffs

violated these provisions is a factual question to be determined

by the finder of fact. Therefore, we hold that the trial court's

grant of summary judgment was inappropriate.
V.

Accordingly, we will reverse the judgment of the trial court

and remand this case for a trial on the merits.

Reversed and remanded.