May v. Mid-Century Insurance Co.

¶ 1 The dispositive issue on certiorari is whether the plaintiff (condominium unit owner) has a claim against the condominium association’s insurer whose policy was issued to the (condominium owners’) association. We answer in the negative and hold that the trial court’s dismissal of the claim is error-free.

I

THE ANATOMY OF LITIGATION

¶ 2 The plaintiff, Dr. June C. May (Owner), brought a claim against the Waterford Homeowners Association (condominium owners’ association hereafter called Association), Ray’s Sewer Service, Inc., and Mid-Century Insurance Company (Insurer) for acts or omissions arising out of a 12 November 2001 fire at the Waterford condominio,. Owner alleges she owns an individual condominium unit that was substantially damaged by the fire. She initially sued the Association on 15 November 2002 for breach of its fiduciary duty to assure the timely repair and replacement of her damaged property. 2 In an amended petition filed 16 March 2004 she also sued (a) Ray’s Sewer Service for negligently causing the fire that damaged her unit and (b) Insurer for its tortious bad-faith refusal to pay her the benefits due under Insurer’s policy issued to Association.

¶ 3 According to Owner’s petition, the insurance policy covered her individual unit (and all improvements to it), including property loss and damage caused by the fire. Owner claims Insurer breached its duty to deal fairly and act in good faith (a) by wrongly failing to pay benefits to which she is entitled under the policy and (b) by seeking recovery of expended indemnity (under the policy) through a subrogation action and settling that case without her knowledge and consent, thereby destroying her right of recovery for damages sustained in the fire directly against the negligent party.

¶ 4 Insurer moved to dismiss the action on the ground that the petition failed to state a claim upon which relief may be granted as well as because it was barred by the statute of limitations. According to Insurer, Owner *135 is neither a named insured under the policy nor is identified therein as an additional insured. She stands as a stranger to the insurance contract and has no standing to bring a bad-faith tort claim. Insurer asserts that by the terms of the policy all benefits must be paid (and were paid) to the Association.

¶ 5 Owner countered that she is a third-party beneficiary of the coverage provided for her condominium unit. She rests her claim for relief on three factors — she paid a portion of the premiums used to maintain the policy in force; the policy was intended to insure against damage to (or loss of) property owned solely by her; and the policy allows Insurer to adjust her loss and to pay policy benefits directly to her. She also argued that Insurer utterly failed to show how her claim stood barred by the statute of limitations.

¶ 6 The trial court dismissed with prejudice Owner’s action against Insurer for failure to state a claim upon which relief may be granted. It rejected Insurer’s statute-of-limitations defense and concluded that (a) Association is the sole insured under the terms of the insurance policy and (b) under the policy’s provisions Owner is neither an insured nor a third-party beneficiary with standing to bring a claim against Insurer for breach of the duty of good faith and fair dealing. 3 Owner brought an appeal from the trial court’s dismissal order. 4

¶ 7 The Court of Civil Appeals (COCA) affirmed the trial court’s dismissal of Owner’s tort claim against Insurer for breach of its duty to deal fairly and act in good faith. According to COCA, Owner is precluded as a matter of law from recovering against Insurer on her bad-faith claim because she has not shown that any statutory or contractual relationship was in existence between her and Insurer which could give rise to tort liability. 5

¶ 8 Every trial judge’s decision comes to a court of review clothed with a presumption of correctness. 6 Today we affirm the trial court’s dismissal order on a theory different from that on which it was rested by the courts below. Although we let the nisi prius dismissal stand, we need not re-examine that decision here by applying exactly the same analysis as that which was used by the trial court. When supported by the record, a *136 legally correct trial-court decision must be affirmed although it was anchored to a theory different from that on which it comes to be tested in appellate review. 7

¶ 9 Although the conclusion we reach today is the same as that drawn by COCA, we granted certiorari to settle the law applicable to the case by crafting a precedential pronouncement.

II

STANDARD OF REVIEW

¶ 10 In reviewing a nisi prius disposition by dismissal, this court examines the issues de novo. 8 Motions to dismiss are generally viewed with disfavor. 9 The purpose of a motion to dismiss is to test the law that governs the claim (in litigation), not the underlying facts. 10 A motion to dismiss for failure to state a claim upon which relief may be granted will not be sustained unless it should appear without doubt that the plaintiff can prove no set of facts in support of the claim for relief. 11 The court, when considering a defendant’s quest for dismissal, must take as true all of the challenged pleading’s allegations together with all reasonable inferences that may be drawn from them. 12 A plaintiff is required neither to identify a specific theory of recovery nor to set out the correct remedy or relief to which he may be entitled. 13 If relief is possible under any set of facts which can be established and is consistent with the allegations, a motion to dismiss should be denied. 14 A petition can generally be dismissed only for lack of any cognizable legal theory to support the claim or for insufficient facts under a cognizable legal theory. 15 Our recapitulation of the appellate standards for reviewing dismissals of claims will (and must) guide our decision in this ease.

Ill

THE PARTIES’ ARGUMENTS ON CERTIORARI

¶ 11 Owner contends COCA erred in rely *137 ing on Rednour v. JC & P Partnership 16 and Anderson v. American Intern. Specialty Lines Ins. Co. 17 for its analysis that she is not a third-party beneficiary of the condominium policy. 18 She claims these cases are distinguishable in that they both deal with premises liability policies and the benefits thereunder were claimed by injured persons who might be able to assert liability claims-against the insured 19 Owner asserts Association purchased a property damage policy (rather than one for protection from liability) which insures the property of both the Association and the individual condominium owners. She claims the primary purpose of Association’s policy is to protect all of the condominium property units regardless of *138 ownership. According to Owner, Association holds the insurance policy as trustee for the benefit of all the unit owners. 20

¶ 12 Owner points out that another factor distinguishes this case from those of Redn-our and Anderson. Insurer here brought a subrogation claim against the party that caused the fire and in it asserted claims belonging to Owner. 21 Owner informs us that Insurer settled its subrogation claims without ever giving her notice of the lawsuit and obtaining her consent. 22 According to Owner, if the policy does allow Insurer to pursue a lawsuit in her name she has standing in law as an express third-party beneficiary of the insurance policy to bring a bad-faith tort claim against the Insurer. 23

¶ 13 Owner claims a policy endorsement known as E3418 24 covered her property and allowed (if not required) the Insurer to make payment to her for the losses she sustained. According to Owner, this endorsement not only provides coverage for damage to various fixtures, improvements and alterations which were a part of the building structure within her condominium unit, but she was also an intended third-party beneficiary of that coverage. She claims that because the demonstrated indicia of her status qua third-party beneficiary of the policy are clear, COCA erroneously affirmed her claim’s dismissal.

¶ 14 Insurer counters that Association purchased a common condominium policy as the sole named insured, while Owner secured no insurance of her own. 25 According to Insurer the insured structure in controversy here is part of the common structure for which Association is responsible. In contrast, Insurer claims Owner’s sole responsibility is the airspace and personal property within her unit. Insurer asserts Owner is seeking to extend the breadth of Association’s insurance policy’s coverage to coincide with that of a unit policy she chose not to purchase.

¶ 15 Insurer claims the plain language of the policy, viewed in its totality, shows the contracting parties’ primary purpose was to protect the interests and property of the named insured (Association). 26 According to *139 Insurer, endorsement E3418 27 does not alter or widen that object. The intent of E3418, Insurer asserts, is to extend the Association’s coverage to property where a certain fixture or appliance is a part of the common structure and is therefore the Association’s responsibility.

¶ 16 Insurer claims that rather than expressly conferring a benefit, E3418 merely recognizes that property covered thereunder may be owned by individual unit owners rather than Association. According to Insurer, any benefit to Owner which may be conferred by the endorsement is incidental to the policy’s primary purpose and hence is insufficient to confer standing upon her to sue Insurer for breach of the implied duty of good faith and fair dealing.

¶ 17 Insurer argues that to confer standing to sue an insurer in tort for breach of an implied duty of good faith and fair dealing there must be either a statutory or contractual basis. One’s mere entitlement to benefits paid to the insured, Insurer claims, is not sufficient to confer standing. 28 Insurer asserts COCA applied the correct analytical framework for determining Owner’s lack of standing to bring a bad-faith claim.

¶ 18 In response to Owner’s argument that Insurer had pursued a subrogation claim on her behalf against the tortfeasor, Insurer informs us that no such claim was in fact made. Insurer assures us that it pursued a subrogation action solely in the name of the named insured (Association).

¶ 19 Although neither the insurance policy here in suit nor the declaration of ownership was affixed to the second amended petition below, the insurance policy was submitted as part of the Insurer’s dismissal quest and the pertinent declaration provisions were affixed to Owner’s response. They stand hence tendered for our consideration here. 29 The parties must be deemed to have adopted these documents as fit and proper for our analysis in entertaining this cause. 30

IV

UNIT OWNER’S CLAIM

¶20 Owner’s bad-faith tort claim against Insurer rests on her asserted status as an intended third-party beneficiary for losses defined by the condominium policy. The motion to dismiss was brought to test whether Owner had a legal claim based on Insurer’s breach of any duty owed her under the policy.

¶21 In this appeal our concern is solely with the Insurer’s liability to the condominium unit owner. We make no reference to Owner’s claim against Association. The rights and duties, if any, owed by Association to unit owners are clearly not at issue before us. Today’s opinion stands confined solely to the rights between Owner and Insurer inter se.

*140 A.

The Provisions of the Policy Give Owner No Enforceable Contractual Rights To Any Indemnity That May Be Due for A Covered Property Loss

¶22 To ascertain the nature of Insurer’s contractual obligations to Owner, if any, we must examine the provisions of the policy. An insurance policy is a contract. 31 The rules of construction and analysis applicable to contracts govern equally insurance policies. 32 The primary goal of contract interpretation is to determine and give effect to the intention of the parties at the time the contract was made. 33 In arriving at the parties’ intent, the terms of the instrument are to be given their plain and ordinary meaning. 34 Where the language of a contract is clear and unambiguous on its face, that which stands expressed within its four corners must be given effect. 35 A contract should receive a construction that makes it reasonable, lawful, definite and capable of being carried into effect if it can be done without violating the intent of the parties. 36 We review the meaning assigned by the trial court to a contract as a legal question. 37 Questions of law are reviewed by a de novo standard.

¶ 23 Association is the sole named insured upon the condominium insurance policy issued by Insurer. The terms of the endorsement known as E3418 provide coverage for certain types of property that may belong to third-party unit owners — i.e., fixtures, improvements, and alterations that are a part of the building or structure as well as appliances. 38 The loss payment provisions of endorsement E3422 39 give Insurer the exclusive choice to settle covered losses directly with the unit owners or with Association “for the account” of the unit owners.

¶ 24 The contract’s expressed intent to confer solely on Insurer the power to regard all contractual obligations due under the policy as extending to the named insured specifically negates the existence of any enforceable obligation in favor of unit owners qua third-party beneficiaries. No obligation may be imposed upon a promissor in favor of a third party if the contract expressly relieves that promissor of such liability to that third party. 40 It is crystal- *141 clear by the terms of the policy in suit that the parties to the policy — Insurer and Association — -did not intend to confer on any third-party unit owner a legally enforceable right of recovery against Insurer.

Third-Party Beneficiary Status

¶25 A third-party beneficiary’s rights depend upon, and are measured by, the terms of the contract between the prom-issor and promisee. 41 One to whom, by the express terms of a contract, no obligation is due from its promissor, cannot qualify for the status of an intended or implied third-party beneficiary. The express contractual negation of the promissor’s duty to the third-party status seeker operates to exclude that third party from legal recognition as third-party promisee. 42

¶ 26 Evident as it is that under the express terms of the policy in suit Insurer is not obligated to pay directly to Owner any part of the indemnity that may be due for the loss she claims to have sustained, it would be indeed utterly pointless to search further for support or abnegation of her third-party beneficiary status. That status, even if found, would be of no help to her recovery quest. We hence refuse to engage in a vain and useless analytical effort.

¶27 In sum, the policy in suit expressly withholds from Owner any claim to an enforceable obligation against Insurer. The policy’s exclusionary provisions specifically bar unit owners from any direct contractual benefit from Insurer. Owner was hence contractually deprived of any right to assert a bad-faith tort claim against the insurer.

¶ 28 In the trial court Owner laid no claim to reformation 43 or invalidation 44 of any exclusionary clauses of the policy which are pertinent to our inquiry. Nor does she here refer to a demand for that relief. We must hence accept the policy’s exclusionary clauses as valid. Owner is bound by those policy provisions. They prevent her from laying a direct claim against Insurer.

Owner’s Lack of Financial-Interest Theory

¶29 Owner contends Association has no financial interest in her separate property and is hence not entitled to indemnity for the loss of covered property owned by her. She directs us to policy language which states that Insurer will not pay Association more than its “financial interest” in the insured property. 45 We find no conflict between this provision and the policy clause that allows Insurer to pay Association directly for the covered loss of a unit owner’s property. In the latter case, Association would receive those funds for the benefit of the unit *142 owner rather than as indemnity for some covered losses of its own.

Owner’s Subrogation Theory

¶ 30 Owner contends that if the policy allows Insurer to bring a subrogation claim in her name, she has standing as an express third-party beneficiary of the policy to bring a bad-faith claim against Insurer.

¶ 31 This argument is of no avail here. Under the policy in suit Insurer owes no duty of any kind to Owner. Insurer’s claim against a third-party tortfeasor would neither create a contractual duty in favor of Owner nor invest her with a right to claim against Insurer.

V

SUMMARY

¶ 32 The condominium policy in suit gives only to the Insurer the power to choose whether to settle for covered losses with the insured or with the third-party unit owner. Because the policy’s exclusionary provisions expressly negate the existence of an insurer’s contractual duty to pay directly to Owner, Insurer is not contractually obligated to indemnify her directly for any losses to her condominium unit.

¶ 33 Owner’s status as a third-party beneficiary, even if found, would not be helpful to her recovery in a bad-faith tort claim. This is so because under the policy in suit she has no right to recover against Insurer. In the trial court Owner has not challenged any of the key exclusionary clauses by asserting her own claim for policy reformation or for invalidation of the key offending provisions. She is hence bound by those policy clauses which operate today to defeat her claim for recovery directly from Insurer.

¶ 34 On certiorari granted upon the plaintiffs petition the Court of Civil Appeals’ opinion is vacated and the trial court’s dismissal order affirmed.

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¶ 36

¶WATT, C.J.,

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