Case Title: CORDERO MINING COMPANY v. UNITED STATES FIDELITY AND GUARANTEE INSURANCE COMPANY

Citation: 

Docket Number: 02-72

State: wyoming

Court: Wyoming Supreme Court

Date: 2003-04-15T00:00:00Z

Document:
CORDERO MINING COMPANY v. UNITED STATES FIDELITY AND GUARANTEE INSURANCE COMPANY2003 WY 4867 P.3d 616Case Number: 02-72Decided: 04/15/2003
APRIL TERM, A.D. 2003

 

                                                                                                            

 

CORDERO 
MINING COMPANY, a

Delaware 
corporation; TRANSCONTINENTAL

INSURANCE 
COMPANY, a New York

corporation; 
and CONTINENTAL CASUALTY

COMPANY, 
an Illinois corporation,

 

Appellants(Plaintiffs),

 

v.

 

UNITED 
STATES FIDELITY AND

GUARANTEE 
INSURANCE COMPANY,

a 
Minnesota company; and THE BARLOW

AGENCY, 
a Wyoming corporation,

 

Appellees(Defendants).

 

 

Appeal 
from the District Court of Campbell County

The 
Honorable John R. Perry, Judge

 

Representing 
Appellants:

Jeffrey 
S. Wittebort of Walberg, Dagner & Tucker, P.C., Centennial, Colorado; and 
Paul Kapp, Cheyenne, Wyoming 

 

Representing 
Appellee United States Fidelity and Guarantee Insurance Company:

            
Judith Studer of Schwartz, Bon, Walker & Studer, Casper, 
Wyoming

 

Representing 
Appellee The Barlow Agency: 

            
Timothy 
W. Miller of Reeves & Miller, Casper, Wyoming 

 

 

Before 
HILL, 
C.J., and GOLDEN, 
LEHMAN, 
KITE, 
and VOIGT, 
JJ.

 

            
KITE, Justice.

 

[¶1]      Cordero Mining 
Company (Cordero), a 
subsidiary of Kennecott Energy Company (Kennecott), contracted 
for work to be done at its mine in Campbell County.  The general contractor and subcontractor 
were required to procure insurance naming Cordero as an additional insured.  However, the subcontractor's policy 
failed to do so.  After settling 
claims made against Cordero by an injured worker, the general contractor's 
insurer, Transcontinental Insurance Company and Continental Casualty Company 
(together CNA), and Cordero filed claims against the subcontractor's insurer, 
United States Fidelity and Guarantee Insurance Company (USF&G), and its 
agent, The Barlow Agency (Barlow), including claims for reformation of the 
insurance policy, negligence in failing to name Cordero, and breach of contract 
on the basis that Cordero was an intended third-party beneficiary.  The district court granted summary 
judgment for USF&G and Barlow as to all claims.  We affirm the summary judgment but on 
different grounds than those relied upon by the district 
court.

 

 

ISSUES

 

[¶2]      From the parties' 
lengthy statements of the issues, we find the following issues determinative:

 

1.  Whether 
Cordero was an intended third-party beneficiary of, first, Barlow's promise to 
procure insurance for the subcontractor from USF&G and, second, the 
insurance policy issued to the subcontractor by USF&G 
and

 

2.  Whether 
the subcontractor's acceptance of the policy naming Kennecott as an additional 
insured defeats the third-party beneficiary and negligence claims.

 

 

FACTS

 

[¶3]      Cordero 
contracted with the general contractor, Production Industries Corporation 
(PICOR), in February of 1997 for construction of a coal loading system for the 
Rojo mine in Campbell County.  The 
Cordero-PICOR contract required PICOR to obtain insurance naming the "Company 
Group" as an additional insured.  The "Company Group" is defined in the 
contract as including Cordero, Kennecott, and each of their respective 
subsidiaries.  PICOR obtained 
insurance from CNA in April of 1997 naming Cordero as an additional 
insured.

 

[¶4]      The Cordero-PICOR 
contract also required PICOR to ensure that all subcontractors hired to perform 
work on the project obtained insurance coverage naming the Company Group as an 
additional insured.  By purchase order dated March 3, 1997, PICOR 
subcontracted with L&T Fabrication & Construction, Inc. (L&T) to 
construct platforms for the coal loading system.  The PICOR-L&T purchase order 
required L&T to obtain insurance naming PICOR and Cordero as additional 
insureds.  In an attempt to comply 
with the purchase order, L&T procured insurance from USF&G through 
Barlow.  The certificates issued by USF&G, dated March 19 and 21, 1997, 
respectively, named PICOR and Kennecottbut not Corderoas additional 
insureds.

 

[¶5]      L&T 
understood its contract with PICOR required it to procure insurance naming 
Cordero as an additional insured and knew the certificate it received from 
Barlow named Kennecott rather than Cordero as an additional insured.  Yet L&T accepted the certificate as 
written and transmitted it to PICOR.  
No one contacted L&T or Barlow at the time the certificate was issued 
concerning the failure to name Cordero as an additional insured.  It was not until L&T employee Shayne 
DeGaugh was seriously injured when a co-worker dropped a steel handrail on his 
head in August of 1997, approximately four months after the insurance 
certificate was issued, that Cordero contacted L&T concerning the failure to 
name it as an additional insured on the certificate.

 

[¶6]      After the 
accident, Mr. DeGaugh filed a negligence claim against Cordero and PICOR.  They tendered the defense to L&T's 
insurer, USF&G, which agreed to defend PICOR but declined to defend Cordero 
because it was not named as an additional insured on L&T's policy.  
USF&G ultimately settled the claims against PICOR for $100,000.  
Cordero also tendered the defense to PICOR's insurer, CNA, which after a number 
of months accepted the defense and, in May of 1999, settled the claims against 
Cordero for $3,700,000 plus $400,000 in costs and attorney fees.  As part of the settlement agreement, 
Cordero agreed to pay Mr. DeGaugh twenty percent of any amount recovered by it 
or CNA from USF&G or L&T.  
In order to effectuate the latter portion of the agreement, Cordero 
assigned its rights against USF&G to CNA.  

 

[¶7]      On October 2, 
2000, Cordero and CNA filed an amended complaint against USF&G and 
Barlow.  Cordero alleged claims 
against USF&G for breach of contract as an additional insured, bad faith, 
and reformation of contract.  CNA, 
by virtue of Cordero's assignment of its rights, alleged claims against Barlow 
for negligence in failing to name Cordero as an additional insured and for 
breach of contract on the theory that Cordero was an intended third-party 
beneficiary of the USF&G policy.  
Cordero and CNA sought to recover damages in the amount paid in 
settlement of Mr. DeGaugh's claim plus costs and attorney fees incurred as a 
result of the DeGaugh action and in pursuing their claims against USF&G and 
Barlow.  USF&G and Barlow filed 
motions for summary judgment on all the claims, which the district court 
granted.  On appeal, Cordero and CNA 
challenge the court's ruling on the breach of contract, reformation, and 
negligence claims.  They do not 
challenge dismissal of the bad faith claim.

 

 

 

STANDARD 
OF REVIEW

 

[¶8]      We review orders 
granting summary judgment according to the following standards: 

 

Summary 
judgment is appropriate when no genuine issue as to any material fact exists and 
the prevailing party is entitled to judgment as a matter of law.  
A genuine issue of material fact exists when a disputed fact, if it were 
proven, would have the effect of establishing or refuting an essential element 
of the cause of action or defense which the parties have asserted.  We examine the record from the vantage 
point most favorable to the party who opposed the motion, and we give that party 
the benefit of all favorable inferences which may fairly be drawn from the 
record.  We evaluate the propriety 
of a summary judgment using the same standards and materials as the lower court 
used.  We do not accord deference to 
the district court's decisions on issues of law.

 

T.M. 
Through Cox v. Executive Risk Indemnity Inc., 
2002 WY 179, ¶7, 59 P.3d 721, ¶7 (Wyo. 2002) (citations 
omitted).

 

[¶9]      When third-party 
beneficiary claims are reviewed, the real question is whether the contracting 
parties intended the contract to be for the direct benefit of a third 
party.  Wyoming Machinery Company v. United States 
Fidelity and Guaranty Company, 614 P.2d 716, 720 (Wyo. 1980).  The intention of the parties is to be 
gleaned from the contract and the circumstances surrounding its execution.  Richardson Associates v. Lincoln-DeVore, 
Inc., 806 P.2d 790, 809 (Wyo. 1991).  
Questions relating to the parties' intent are usually factual, precluding 
summary judgment; however, where the parties' intent is clear such that 
reasonable minds could not differ, summary judgment may be appropriate.  
Examination Management Services, 
Inc. v. Kirschbaum, 927 P.2d 686 (Wyo. 1996); Detroit Institute of Arts Founders Society 
v. Rose, 127 F. Supp. 2d 117 (D. Conn. 2001).  

 

[¶10]   We have said summary judgment is 
not favored in negligence actions and is, therefore, subject to more exacting 
scrutiny in such cases.  Garnett v. Coyle, 2001 WY 94, ¶6, 33 P.3d 114, ¶6 (Wyo. 2001).  However, 
summary judgment may be affirmed in negligence cases where the record fails to 
establish the existence of a genuine issue of material fact.  Id.

 

 

DISCUSSION

 

A.        
Cordero as a third-party beneficiary of Barlow's promise to obtain 
insurance for L&T and of the USF&G policy 

 

[¶11]   In its decision letter, the 
district court found Cordero was not a third-party beneficiary of the 
transaction between L&T and Barlow.  
Rather, the district court concluded, citing Wyoming Machinery, 614 P.2d  at 720, 
Cordero was an incidental beneficiary and as such acquired no right of action 
against Barlow.  Cordero and CNA 
argue on appeal that the test for third-party beneficiary status contained in Wyoming Machinery was overruled in Richardson Associates, 806 P.2d 790, 
and, under the new test, Cordero was a third-party beneficiary to the contract 
between Barlow and L&T.

 

[¶12]   In Wyoming Machinery, the court 
said:

 

[A] 
promise may be made to one person for the benefit of another and a third-party 
beneficiary may enforce his rights under a contract, although not a party to nor specifically 
mentioned in the contract; but there is more to it than that.  An outsider claiming the right to sue 
must show that it was intended for his direct benefit.  Otherwise he may be only an incidental 
beneficiary because the compelling provisions of a contract require that his 
claims be satisfied in order to protect another.  However, an incidental beneficiary 
acquires no right of action against the promisor or 
promisee.

 

614 P.2d  at 720 (emphasis added).  On 
the basis of these principles, the court held that construction project 
subcontractors were not third-party beneficiaries to a surety bond obtained by 
the general contractor in compliance with its contract with the project owner 
guaranteeing the general contractor's 
performance free of liens from subcontractors.  The subcontractors argued they were 
intended third-party beneficiaries because the bond required them to be 
paid.  However, the court concluded 
that, simply because a party benefits from performance of a contract, it is not 
automatically a "third party beneficiary" with individual rights to enforce the 
contract.  The real question, the 
court said, is whether the parties to the contract intended a direct benefit to 
a third party; absent evidence of such intent, the party is an incidental 
beneficiary with no enforceable rights under the contract.  Id.  Applying this test, the court held 
the subcontractors were not intended third-party beneficiaries because the 
contracting parties' intent was to benefit the owner by assuring a lien free 
project.

 

[¶13]   Subsequently, in Richardson Associates, the court 
concluded a project architect and mechanical engineer were not third-party 
beneficiaries to a contract between the project contractor and the soil 
lab.  806 P.2d  at 807.  In reaching that result, the court 
applied Restatement (Second) of Contracts, which provides:

 

            
(1) Unless otherwise agreed between promisor and promisee, a beneficiary 
of a promise is an intended beneficiary if recognition of a right to performance 
in the beneficiary is appropriate to effectuate the intention of the parties and 
either (a) the performance of the promise will satisfy an obligation of the 
promisee to pay money to the beneficiary; or (b) the circumstances indicate that 
the promisee intends to give the beneficiary the benefit of the promised 
performance.

 

(2) 
An incidental beneficiary is a beneficiary who is not an intended 
beneficiary.

 

Restatement 
(Second) of Contracts § 302 at 439-40 (1981).  Applying this test, the court upheld the 
dismissal of the third-party beneficiary claim on the ground that the architect 
and engineer failed to adequately allege the soil lab undertook testing for 
their benefit and, therefore, failed to state a claim that they were anything 
more than incidental beneficiaries to the contract between the soil lab and the 
contractor.  In reaching this 
result, the court noted the focus of § 302 is the intent of the contracting 
parties rather than reliance by the beneficiary.  Wyoming Machinery likewise focused on 
the contracting parties' intent.  
Thus, rather than overruling Wyoming Machinery, the court in Richardson Associates merely applied the 
Restatement's more recent expression of the basic rule applied earlier in Wyoming Machinery.  Thereafter, in Bear v. Volunteers of America, Wyoming, 
Inc., 964 P.2d 1245, 1252 (Wyo. 1998), the court cited both Wyoming Machinery and Richardson Associates in addressing a 
third-party beneficiary claim. 

 

[¶14]   Having clarified that Wyoming Machinery has not been 
overruled, we turn to application of § 302 to the first contract at issue: 
Barlow's alleged promise to obtain insurance for L&T covering Cordero as an 
additional insured.  To succeed on 
its claim, CNA1 was required to demonstrate that, 
(1) under paragraph (1) of § 302 of the Restatement, recognition of Cordero's 
alleged right to benefits as an additional insured was appropriate to effectuate 
the intent of L&T and Barlow; and, (2) under subparagraph (1)(b) of that 
section, the circumstances indicate L&T intended to give Cordero the direct 
benefit of being named as an additional insured on the policy.  On summary judgment, Barlow had the 
initial burden of showing no genuine issue of material fact existed on these 
issues.  The burden then shifted to 
CNA to demonstrate a material dispute as to the parties' intent.  In making the requisite showing of 
intent, the parties were entitled to rely on the language of the insurance 
policy and the circumstances surrounding the parties at the time of its 
execution for "each case must depend upon the intention of the parties as that 
intention is to be gleaned from a consideration of all of the contract and the 
circumstances surrounding the parties at the time of its execution.'"  Richardson Associates, 806 P.2d  at 809 
(quoting People ex rel. Resnik v. Curtis & Davis, Architects & 
Planners, Inc., 400 N.E.2d 918, 919 (Ill. 1980)); see also Kemmerer Bottling Group, Inc. v. Sentry 
Equipment Erectors, Inc., 1996 U.S. Dist. LEXIS 12642 (N.D. Ill. 1996) 
(third-party beneficiary status must be determined from the contract and the 
circumstances surrounding the parties at the time of its execution); Detroit Institute of Arts Founders 
Society, 127 F. Supp. 2d 117 (the intent of the parties is to be determined 
from the terms of the contract read in light of the circumstances attending the 
making of the contract, including the motives and the purposes of the parties). 

 

[¶15]   USF&G has argued strenuously 
throughout the case that the rules of contract construction apply, meaning that 
the court must look first at the four corners of the document and, if no 
ambiguity is found, look no further.  
USF&G is correct that, in construing or interpreting contracts, the 
intent of the parties is to be ascertained from the words used and, when a 
provision is clear and unambiguous, the court looks only to the four corners of 
the document in determining the parties' intent.  Newman v. RAG Wyoming Land Company, 2002 
WY 132, ¶11, 53 P.3d 540, ¶11 (Wyo. 2002).  
However, in interpreting unambiguous contracts, we have consistently 
looked to surrounding circumstances, facts showing the relations of the parties, 
the subject matter of the contract, and the apparent purpose of making the 
contract.  Id.; Central Wyoming Medical Laboratory, LLC v. 
Medical Testing Lab, Inc., 2002 WY 47, ¶16, 43 P.3d 121, ¶16 (Wyo. 
2002).  Moreover, a third-party 
beneficiary claim is distinct from other claims based in contract in that it 
creates a direct action by one not a party to the contract to enforce the 
contract for its benefit even though that party is not mentioned in the contract 
itself.  In some contracts, the 
third-party beneficiary is not identified in the contract, and we can and must 
look to the surrounding circumstances to determine intent.  Doing so is not an improper extension of 
the terms of the contract but rather is a necessary step in effectuating the 
intent of the parties.

 

[¶16]   Among the surrounding circumstances 
which must be considered in determining intent to benefit a third party are 
contracts executed in conjunction with the contract giving rise to the 
third-party beneficiary claim.  
Thus, in Wyoming Machinery, 
the court construed the surety contract from which the third-party beneficiary 
claim arose in conjunction with the construction contract pursuant to which it 
was executed. 614 P.2d  at 719-20.  
When we apply this standard in the present case, we conclude Barlow's 
promise to procure insurance for L&T must be considered in conjunction with 
the contracts giving rise to the request for insurancethe PICOR-L&T 
purchase order and the Cordero-PICOR contract.

 

[¶17]   Before considering those contracts, 
we note the general rule that an injured third party has an enforceable right 
against an insurer if a liability policy is so worded as to indicate it was 
executed for the protection of third persons; it is only where the policy makes 
it clear it is intended solely for the protection of the promisee that a third 
party has no enforceable right under the policy.  9 Arthur Linton Corbin, Corbin on 
Contracts § 807 at 188-89 (Interim Ed. 1979).  Where the words of the policy are not 
clearly to the contrary, a liability policy should be held to be for the 
protection of third parties as well as the beneficiary.  Id. at 192.  A number of courts have applied this 
general rule to conclude a party designated as an additional insured in a 
liability policy is a third-party beneficiary.  Binasco v. Break-Away Demolition Corp., 681 N.Y.S.2d 309 (N.Y. 
App. Div. 1998); Carvalho v. Toll 
Brothers and Developers, 651 A.2d 492 (N.J. Super. Ct. App. Div.), cert. 
granted, 658 A.2d 726 (1995), and aff'd and remanded, 675 A.2d 209 
(1996); Community Bank of Homestead v. 
American States Insurance Company, 524 So. 2d 1154 (Fla. Dist. Ct. App. 
1988) (per curiam). 

 

[¶18]   When we apply this general rule to 
Barlow's promise to obtain insurance for L&T, we conclude the parties Barlow 
and L&T intended to name as additional insureds are third-party 
beneficiaries.  The question here is 
whether they intended to designate Cordero rather than or in addition to 
Kennecott as an additional insured.  
From the record before us, we conclude the parties clearly intended 
Cordero as an additional insured and, therefore, recognition of Cordero as a 
third-party beneficiary is appropriate to effectuate the intent of L&T and 
Barlow, thus satisfying the first prong of § 302 of the Restatement (Second) of 
Contracts.  We further conclude the 
evidence demonstrates a clear intent on the part of L&T to give Cordero the 
direct benefit of being named an additional insured, thereby meeting the second 
prong of the Restatement test.

 

[¶19]   The PICOR-L&T purchase order 
required L&T to:

 

            
1.  Adhere to all provisions of the contract between PICOR and 
Cordero Mining Co.

 

a.  Furnish 
PICOR & Cordero with insurance certificates per Article 11 of the 
contract.

 

1.  Both 
PICOR & Cordero to be named as an additional insured.

 

Article 
11 of the Cordero-PICOR contract required PICOR and its subcontractors to 
maintain insurance naming the "Company Group" as an additional insured.  The Company Group was defined in the 
Cordero-PICOR contract to include Cordero, Kennecott, and each of their 
respective subsidiaries. When the two contracts are read together, it is clear 
the intent was for L&T to procure insurance naming Cordero as an additional 
insured.

 

[¶20]   Consistent with the written 
contracts, L&T president Loren Crain testified it was his intent that 
Cordero be named as an insured in compliance with the PICOR-L&T purchase 
order.  Additionally, Barlow 
representative Charles Parker testified he could not specifically recall whether 
L&T indicated Cordero, or Kennecott, was to be named as an additional 
insured but thought they were one and the same and, in any event, it was his 
intent in obtaining the insurance coverage from USF&G to name the owner of 
the mine as an additional insured and to comply with the terms of L&T's 
contractual obligations.  There 
simply is no question Cordero was the owner of the mine and the entity 
responsible for this project.  
Cordero contracted with PICOR to perform work on the project at Cordero's 
mine, and PICOR contracted in turn with L&T to perform work for 
Cordero.  There also is no question 
that the terms of L&T's purchase order required L&T to procure insurance 
naming Cordero as an additional insured.  
Under these circumstances, we hold that no genuine issue of material fact 
existed on the question of whether Cordero was an intended third-party 
beneficiary to L&T's promise to procure insurance and CNA was entitled to 
summary judgment on that issue.  In 
so holding, we note the following language of the federal district court for the 
District of Connecticut:

 

Although 
issues relating to intent are usually questions of fact for the jury, here the 
parties' intent to benefit the [third-party beneficiary] is clear as a matter of 
law.  In light of the circumstances 
attending the making of the contract and the parties' motives, "it is hard to 
see how the [third-party beneficiary] could not have been an intended 
beneficiary of the contract."

 

Detroit 
Institute of Arts Founders Society, 
127 F. Supp. 2d  at 132 n.32 (quoting Delacroix v. Lublin Graphics, Inc., 993 F. Supp. 74, 83 (D. Conn. 1997)).

 

[¶21]   We turn next to the question of 
whether Cordero was an intended third-party beneficiary of the USF&G 
policy.  Resolution of this question 
under the facts presented turns on whether Barlow's knowledge and intent can be 
imputed to USF&G.  That is, 
since Barlow knew the intent was to name Cordero as an additional insured on 
L&T's policy, can that knowledge be imputed to 
USF&G?

 

[¶22]   The authority of an insurance agent 
to make a contract of insurance binding upon the insurer is determined by the 
law of agency.  8 Eric Mills Holmes, 
Holmes' Appleman on Insurance 2d, Law of Insurance Agents § 52.1 at 391 
(1998).  The underlying agency 
principle is that the insurer will be bound by the acts of its agent undertaken 
within the scope of that agency.  Id. at 392.  The courts lean toward a broad rather 
than a strict construction of an insurance agent's powers, an agent's written 
authority is to be broadly and fairly construed, and a narrow meaning is not to 
be given to it unless the language employed clearly indicates that such was the 
intention of the parties.  Id. at 394.  An "insurance agent," so far as the 
insurer is concerned, is a person with actual (including express or implied) 
authority to represent the insurer in dealing with third parties in matters 
relating to insurance.  Id. at 395.  In preparing and executing a policy, an 
insurance agent acts as the agent of the insurer.  Id. at 397.  Even where the person's functions 
consist merely of soliciting insurance, receiving applications, forwarding them, 
receiving in return the policy and delivering it, and collecting the premium, 
that person is an agent in the ordinary sense of that term.  Id.

 

[¶23]   On the basis of similar principles, 
this court held in Wyatt v. State Farm 
Fire and Casualty Company, 78 
Wyo. 228, 322 P.2d 137 (1958), that the knowledge of an agent is imputed to the 
insurer even when such knowledge is not in fact communicated to the insurer. In 
Wyatt, the insurer denied coverage 
after the insured's garage was destroyed by fire, claiming the policy covered 
the garage only if used for domestic purposes and the insured was using it for 
commercial purposes.  The court 
concluded the policy did not clearly exclude coverage for commercial purposes 
and imputed to the insurer the agent's knowledge at the time the policy was 
negotiated that the garage was being used commercially.  Although Wyatt involved a claim for estoppel 
against the insurer, we find the general principle enunciated there applicable 
to the claim presented here.

 

[¶24]   The USF&G agency agreement 
executed with Barlow provided in relevant part:

 

1.  [USF&G] 
hereby grants authority to [Barlow] in the designated territory, to solicit and 
submit applications for insurance . . . ; to issue and deliver policies, . . . 
certificates, endorsements and binders which [USF&G] may, from time to time, 
authorize to be issued and delivered; to collect and receipt for premiums 
thereon; to cancel such policies . . . at the discretion of [Barlow] where 
cancellation is legally possible; and to retain out of premiums collected and 
paid over to [USF&G] commissions at the rates set forth in the Commission 
Schedules.

 

Giving 
this provision a broad, fair construction, we conclude Barlow's knowledge that 
Cordero was to be named as an intended additional insured on L&T's policy 
may be imputed to USF&G.  Even 
absent the substantial authority supporting this conclusion under agency 
principles, we would be inclined to reach this result based upon equitable 
principles under the particular circumstances presented here, where it is so 
abundantly clear the intent was to name Corderothe contracting party, owner of 
the mine, and overseer of the projectas an additional insured.  As this court has previously said, 
"[t]here are some circumstances . . . where the plaintiff could 
rely upon an agent's representations even as against a contrary provision in the 
insurance policy, based upon not only principles of agency but considerations of 
equitable estoppel."  Hunter v. Farmers Insurance Group, 554 P.2d 1239, 1243 
(Wyo. 1976).  We hold that Cordero 
was an intended third-party beneficiary of the USF&G insurance 
policy.

 

B.        
L&T's acceptance of the policy naming Kennecott as an additional 
insured as defeating the third-party beneficiary and negligence 
claims

 

[¶25]   In the complaint, CNA, as assignee 
of Cordero's rights, alleged Barlow knew the intent of the policy was to benefit 
Cordero; it was foreseeable, therefore, that Cordero would sustain injury if 
Barlow failed to designate it as an additional insured; and Cordero in fact 
sustained injury as a result of Barlow's negligent failure to designate it.  The district court dismissed the 
negligence claim on the grounds that L&T had a duty to review the insurance 
policy and reject it if it did not comply with the coverage requested; L&T 
knew, or should have known, Cordero was not named as an additional insured; and 
Cordero did nothing to ensure proper insurance coverage was in place prior to 
allowing PICOR and L&T to begin work at the mine.

 

[¶26]   In support of the district court's 
ruling, Barlow cites Small v. King, 
915 P.2d 1192, 1194 (Wyo. 1996), and Feather v. State Farm Fire and Casualty, 
872 P.2d 1177, 1181-82 (Wyo. 1994), for the principle that an insured has a duty 
under Wyoming law to read its insurance policy and reject it if it is 
unacceptable.  Barlow claims the 
evidence clearly establishes L&T knew the certificate listed Kennecott and 
did nothing about it, thereby relieving Barlow of responsibility for any 
resulting injury.  Barlow claims the 
insured's duty to read and reject applies in contract and in tort and applies to 
Cordero as a third-party beneficiary as well as L&T because the former 
should stand in no better position than the latteri.e., if a claim by L&T 
would fail for its failure to read and reject, Cordero is barred as well.  McWilliams v. Wilhelm By and Through 
Wilhelm, 893 P.2d 1147, 1149 (Wyo. 1995) (tort and contract); Farmers' State Bank of Worland v. 
Nicholson, 36 Wyo. 221, 254 P. 134 (1927) (third-party beneficiary stands in 
same position as original party).

 

[¶27]   Barlow is correct that Wyoming 
recognizes an insured's duty to read his insurance policy and reject or 
renegotiate if it fails to conform to the coverage requested.  Small, 915 P.2d  at 1194; Feather, 872 P.2d  at 1181.  Barlow is also correct that the duty to 
read applies in cases where an insured claims the insurer failed to exercise 
reasonable care in providing the insurance requested.  Id.  These principles are also applicable to 
third-party beneficiary claims.

 

[¶28]   In Wyoming, a duty of reasonable 
care arising from a contract may extend to third-party beneficiaries of the 
contract in proper circumstances.  
Tidwell v. HOM, Inc., 896 P.2d 1322, 1325 (Wyo. 1995).  However, 
third-party beneficiary claims arising out of an alleged failure to exercise 
ordinary care are subject to the same defenses as would be available in an 
action between the actual parties to the contract.  John D. Calamari & Joseph M. 
Perillo, The Law of Contracts § 17.10 (4th ed. 
1998).

 

[¶29]   Applying this rule to the present 
facts leads to the conclusion that Barlow may assert the defense against Cordero 
that L&T failed to read and reject the policy just as it could assert that 
defense against L&T.  There is 
no dispute that L&T knew Kennecott, rather than Cordero, was designated as 
an additional insured and did nothing to correct it.  Under these circumstances, USF&G was 
entitled to summary judgment on the third-party beneficiary 
claim.

 

[¶30]   The same analysis applies to CNA's 
negligence claim against Barlow.  
The duty to mitigate unquestionably applies in tort just as it applies in 
contract.  McWilliams, 893 P.2d 1147.  Although the question of whether a party 
injured due to the negligence of another is generally a question of fact, 
summary judgment is appropriate where reasonable minds could not differ that the 
plaintiff had ample right and opportunity to avoid the loss and yet took no 
action.  Garnett, 2001 WY 94, ¶6; Moore v. Continental Insurance Company, 
813 P.2d 1296, 1300-01 (Wyo. 1991).  
Here, the evidence is undisputed that L&T knew four months before the 
accident that the policy named Kennecott and did nothing about it.  Under these particular circumstances, 
summary judgment was appropriate on the negligence claim.

 

[¶31]   Barlow also claims summary judgment 
was appropriate because, contrary to the terms of the Cordero-PICOR contract, 
Cordero allowed work to begin on the project without making sure PICOR and 
L&T had the required insurance.  
Citing Moore, Barlow contends 
any damages sustained by Cordero could not be charged against Barlow because 
Cordero could have avoided them by ensuring the proper insurance coverage was in 
place before work began.  In Moore, after repeatedly receiving late 
premium payments from the insured, the insurer cancelled the homeowner's policy 
and refunded the last payment.  Upon 
receipt of the refund, the insured contacted the local agent and was told the 
policy had been cancelled.  Beyond 
asking the local agent to see if another company would pick up the insurance, 
the insured did nothing to obtain replacement coverage until after his home was 
seriously damaged by fire.  We 
affirmed summary judgment for the insurer based upon the insured's failure to 
act to mitigate his damages.  We 
said:

 

A 
party may, in certain instances, be required to mitigate his damages, and 
whether an injured party has exercised reasonable diligence and care in 
mitigating damages is for the trier of fact to decide.  [However,] where reasonable minds could 
not differ with respect to efforts to mitigate, as here, summary judgment is 
appropriate.

 

Moore, 
813 P.2d  at 1300-01 (citation omitted).  
In reaching this result in Moore, we quoted Restatement (Second) of 
Contracts § 350 (1981):

 

"(1) 
Except as stated in Subsection (2), damages are not recoverable for loss that 
the injured party could have avoided without undue risk, burden or 
humiliation.  

 

"(2) 
The injured party is not precluded from recovery by the rule stated in 
Subsection (1) to the extent that he has made reasonable but unsuccessful 
efforts to avoid loss."

 

813 P.2d  at 1301.  Explaining § 350, we 
said:

 

The 
rationale of this principle, which differentiates it from mitigation in a more 
general sense, is that damages which the plaintiff might have avoided with 
reasonable effort and without undue risk, expense, or humiliation are either not 
caused by the defendant's wrong or need not have been, and, therefore, are not 
to be charged against him.  11 
Williston on Contracts § 1353 (3rd ed. 1968); 5 Corbin on Contracts § 1039 
(1964).

 

Id.

 

[¶32]   Application of these principles in 
the present case provides further support for summary judgment.  USF&G issued the certificate naming 
Kennecott as an additional insured on March 21, 1997, approximately four months 
before Mr. DeGaugh was injured.  
Although Cordero's contract with PICOR required all insurance coverage to 
be in place before work on the project began, Cordero did not inspect the 
certificate or make any inquiry whatsoever to ensure the required insurance 
coverage was in place.  Had Cordero 
requested proof of the required insurance, as was its right under the PICOR 
contract, before allowing work to begin or at any time in the four months 
between issuance of the certificate and the accident, it seems likely a 
corrected certificate could have been issued.  Here, however, Cordero took no action to 
avoid the loss for which recovery is sought from USF&G.  The damages CNA now seeks to recover, as 
assignee of Cordero's rights, could have been avoided with reasonable effort and 
without undue risk, expense, or humiliation.  Any such damages, therefore, either were 
not or need not have been caused by the acts of USF&G or Barlow and cannot 
be charged against them.

 

 

CONCLUSION

 

[¶33]   Cordero was an intended third-party 
beneficiary of Barlow's promise to procure insurance for L&T.  However, the undisputed evidence that 
L&T accepted the certificate as written and Cordero failed to take any 
reasonable action to avoid the loss for which recovery is sought defeats both 
the third-party beneficiary and the negligence claims.

 

[¶34]   Affirmed.  

 

FOOTNOTES

  1As previously noted in this opinion, 
Cordero assigned its rights against USF&G to CNA in the settlement agreement 
entered into with Mr. DeGaugh.  
Thus, although the third-party claim actually belongs to Cordero, it was 
brought in CNA's name by virtue of the assignment of rights.