Title: Levine v. Selective Insurance Co.
Citation: N/A
Docket Number: 941719
State: Virginia
Issuer: Virginia Supreme Court
Date: September 15, 1995

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 
                     
    
1Justice 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 
                     
    
2The 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 
not entitled to recover for this "new loss."
3  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 
                     
    
3We 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.