Annotate this Case

2006 OK 100
151 P.3d 132
Case Number: 101565
Decided: 12/19/2006


JUNE C. MAY, M.D., Plaintiff/Appellant,
MID-CENTURY INSURANCE COMPANY, a member of the Farmers Insurance Group of Companies, Defendant/Appellee,
RAY'S SEWER SERVICE, INC., and THE WATERFORD HOMEOWNERS ASSOCIATION, INC., an Oklahoma nonprofit corporation, Defendants,


¶0 A fire damaged the plaintiff's condominium unit as well as certain common elements of that property. The plaintiff brought a bad-faith tort action against the homeowners association's insurer. The District Court, Oklahoma County, Bryan C. Dixon, Judge, dismissed with prejudice the action against the insurer for failure to state a claim upon which relief may be granted. The Court of Civil Appeals affirmed the dismissal order. On certiorari granted upon the plaintiff's petition,


Derek K. Burch, James A. Scimeca, BURCH & GEORGE, P.C., Oklahoma City, Oklahoma, for Appellant
Eric S. Eissenstat, Lance E. Leffel, FELLERS, SNIDER, BLANKENSHIP, BAILEY & TIPPENS, Oklahoma City, Oklahoma, for Appellee
Rex Travis, Paul D. Kouri, Oklahoma City, Oklahoma, for Amicus Curiae, Oklahoma Trial Lawyers Association


¶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.



¶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 condominia. 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 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.

¶8 Every trial judge's decision comes to a court of review clothed with a presumption of correctness.

¶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.



¶10 In reviewing a nisi prius disposition by dismissal, this court examines the issues de novo.



¶11 Owner contends COCA erred in relying on Rednour v. JC&P Partnership

¶12 Owner points out that another factor distinguishes this case from those of Rednour and Anderson. Insurer here brought a subrogation claim against the party that caused the fire and in it asserted claims belonging to Owner.

¶13 Owner claims a policy endorsement known as E3418

¶14 Insurer counters that Association purchased a common condominium policy as the sole named insured, while Owner secured no insurance of her own.

¶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).

¶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.

¶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.



¶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.


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 E342239 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-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 promissor 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

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.

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.



¶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 plaintiff's petition the Court of Civil Appeals' opinion is vacated and the trial court's dismissal order affirmed.


¶36 COLBERT, J., concurs in part and dissents in part;

¶37 WATT, C.J., dissents;

¶38 KAUGER, J., not participating.


1 Identified herein are only those counsel for the parties whose names appear on the certiorari briefs.

2 Owner alleges Association's "organization documents" impose on its board of directors a duty to act in a fiduciary capacity for all the unit owners by procuring insurance coverage, overseeing the contract reconstruction and assuring the work is done according to certain standards. Owner asserts that Association breached its fiduciary duty to her. Owner relies on the Association's Articles of Incorporation, Bylaws, Declaration of Unit Ownership, and Administration Rules and Regulations.

3 The trial court's dismissal order, entered 22 November 2004, states in pertinent part:

Mid-Century's Motion to Dismiss is overruled with respect to the defense of the statute of limitations. Specifically, the Court finds that The Waterford Homeowners Association, Inc. is the sole insured and Plaintiff is neither an insured under the terms of the subject insurance policy nor is she a third-party beneficiary under that policy so as to bring a claim for the breach of the duty of good faith and fair dealing against Mid-Century.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the motion to dismiss for failure to state a claim upon which relief can be granted filed by Defendant Mid-Century Insurance Company is SUSTAINED, and Plaintiff's Amended Petition as against Mid-Century only is dismissed with prejudice.

THE COURT FURTHER FINDS pursuant to 12 O.S. § 994, that there is no just reason for delay and that the dismissal with prejudice shall constitute the filing of a final judgment, decree or final order for purposes of appeal.
(emphasis added).

4 Owner's appeal is prosecuted from the dismissal order certified under the terms of 12 O.S. 2001 § 994 for immediate review in advance of judgment upon all claims pressed in the action. The pertinent provisions of § 994(A) are:

A. When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are involved, the court may direct the preparation and filing of a final judgment, decree, or final order as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the filing of a final judgment, decree, or final order····

See in this connection

Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion:

* * *

6. Failure to state a claim upon which relief can be granted;

Conley v. Gibson,




Endorsement E3422


*** Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations.* * *
We will pay for direct physical loss of or damage to covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
Covered Property, as used in this policy, means the type of property as described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property. * * *


Endorsement E3418

(6) Any of the following types of property contained within a unit regardless of ownership are covered whether or not your Condominium Association Agreement requires you to insure it subject to the Limit of Insurance shown in the Declarations for Buildings:
(a) Fixtures, improvements and alterations that are a part of the building or structure; and
(b) Appliances, such as those used for refrigerating, ventilating, cooking, dishwashing, laundering, security or housekeeping. * * *
(emphasis in original)

Endorsement E3024

* * *

2. Fire and Extended Coverage Insurance. A blanket fire and hazard insurance policy shall be purchased by the Association and shall be maintained in force at all times, the premium thereon to be paid from the assessments levied against each of the Unit Owners in accordance with this Declaration. Such insurance ... shall insure all structures and improvements upon the Property and all personal property owned by the Association or jointly by all the Unit Owners as tenants in common for not less than one hundred percent (100%) of the full insurable replacement cost value thereof (as determined annually by the Board in conjunction with the insurance company issuing such policy). . . . Such policy shall name the Association as insured, as trustee for the benefit of all the Unit Owners. . . .

Owner claims that she was required by the declaration to pay her assessed share of the premium for the fire and extended coverage insurance

The unit owners may, upon resolution of a majority, insure the property against risks, without prejudice to the right of each unit owner to insure his unit on his own account and for his own benefit. . . . .
(emphasis added).

A contract must be so interpreted as to give effect to the mutual intention of the parties, as it existed at the time of contracting, so far as the same is ascertainable and lawful.

at ¶8, 912 P.2d at 865.

The language of a contract is to govern its interpretation, if the language is clear and explicit and does not involve an absurdity.

A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable and capable of being carried into effect, if it can be done without violating the intention of the parties.