Insurance & losses incurred as a result of a fire

Tennessee Reports

Unpublished

FERGUSON v. NATIONWIDE, M2005-02602-COA-R3-CV
(Tenn.Crim.App. 12-15-2006) KAREN E. FERGUSON v. NATIONWIDE
PROPERTY & CASUALTY INSURANCE COMPANY, ET AL. No.
M2005-02602-COA-R3-CV. Court of Appeals of Tennessee, at
Nashville, Assigned on Briefs August 17, 2006. Filed
December 15, 2006.

[EDITOR’S NOTE: This case is unpublished as indicated by the
issuing court.] Appeal from the Circuit Court for Cheatham
County No. 5658 Robert Burch, Judge.

Appeal as of Right; Judgment of the Circuit Court Affirmed

David L Cooper, Nashville, Tennessee, for the appellant,
Karen E. Ferguson.

Parks T. Chastain, David M. Hannah, Nashville, Tennessee,
for the appellee, Nationwide Property & Casualty Insurance
Company.

M. Bradley Gilmore, Frank M. Gallina, Nashville, Tennessee,
for the appellee, Edwin B. Raskin Company.

WILLIAM B. CAIN, J., delivered the opinion of the court, in
which PATRICIA J. COTTRELL and FRANK G. CLEMENT, JR., JJ.,
joined.

OPINION

WILLIAM B. CAIN, JUDGE.

Apartment manager filed an action against employer and
employer’s insurance carrier after they refused to
reimburse her for the losses she incurred as a result of a
fire that began in the apartment’s main office which was
connected to her personal apartment. We affirm the judgment
of the trial court granting summary judgment to the
defendants.

Ms. Karen E. Ferguson was employed by Edwin B. Raskin
Company (“Raskin”) as the on-site property manager of the
Royal Oaks Apartments (“Royal Oaks”) in Ashland City,
Tennessee. As a condition of employment, Ms. Ferguson
resided at Royal Oaks and a portion of her apartment was
used as Royal Oaks’ main office. In addition to monetary
compensation, Raskin paid Ms. Ferguson’s rental expenses
including rent, electricity, water, sewer, and phone
service.

On January 19, 2005, a fire broke out in Ms. Ferguson’s
apartment, destroying all of her personal property. The
fire marshal determined that the fire was caused by a
halogen floor lamp located within the main office portion
of Ms. Ferguson’s apartment. Evidently, Ms. Ferguson left
the lamp on for extended periods of time for safety
purposes. On the date at issue, the lamp which could reach
850 degrees Fahrenheit caused papers pinned to a nearby
wall to ignite. Although Ms. Ferguson believed that Raskin
owned the lamp since it was present when she moved into the
apartment, Raskin claimed that the lamp was in fact owned by
Royal Oaks.

On January 30, 2005, Ms. Ferguson notified Raskin by letter
that her personal property loss as a result of the fire
totaled $75,586.12 and that the loss needed to be paid
immediately. Ms. Ferguson also submitted a claim for the
loss to Nationwide Property & Casualty Insurance Company
(“Nationwide”) under the policy issued to Royal Oaks. By
letter dated February 3, 2005, Nationwide denied Ms.
Ferguson’s claim.

As a result, Ms. Ferguson filed a complaint against
Nationwide and Raskin on April 14, 2005. She alleged that
Nationwide and Raskin wrongfully and willfully denied her
claim, which constituted a breach of contract, a breach of
implied good faith and fair dealing, and a showing of bad
faith. Ms. Ferguson further alleged damages against
Nationwide under Tennessee Code Annotated section 56-7-105
and the Tennessee Consumer Protection Act.

On July 20, 2005, Raskin filed a motion for judgment on the
pleadings for failure to state a claim upon which relief
could be granted, claiming that Ms. Ferguson’s claims
against it should be dismissed as a matter of law. On
August 11, 2005, Nationwide filed a motion for summary
judgment, asserting that Ms. Ferguson was not a covered
insured under the policy, that there was no bad faith under
Tennessee Code Annotated section 56-7-105 or a violation of
the Tennessee Consumer Protection Act, and that Ms.
Ferguson could not maintain a direct action against it.

On September 23, 2005, Ms. Ferguson sought to amend her
complaint to allege that Raskin was negligent in placing an
unreasonably dangerous and/or defective lamp in her
apartment. The motions were heard before the trial court on
October 3, 2005. An order was entered by the court on
October 21, 2005, granting Defendants Nationwide and
Raskin’s motions, denying Ms. Ferguson’s motion to amend,
and dismissing Ms. Ferguson’s cause of action with
prejudice. Ms. Ferguson appeals claiming that the trial
court erred in (1) granting Raskin’s motion for summary
judgment; (2) granting Nationwide’s motion for summary
judgment; and (3) denying her motion to amend her complaint
to assert a cause of action against Raskin for negligence.

I.

As the trial court noted in its October 21, 2005, order
granting Defendants’ motion for summary judgment, the
original motion filed by Raskin was one for a judgment on
the pleadings while Nationwide’s motion was one for summary
judgment. As this Court duly noted in Pendleton v. Mills,
73 S.W.3d 115, 120 (Tenn.Ct.App. 2001), “[t]he difference
between a motion to dismiss and a motion for summary
judgment is more than academic when it comes to standard of
review.” However, it is well settled that “a Tenn. R. Civ.
P. 12.02(6) motion must be converted to a summary judgment
motion if `matters outside the pleadings are presented to
and not excluded by the court.'” Pendleton, 73 S.W.3d at 120
(quoting Pacific Eastern Corp. v. Gulf Life Holding Co.,
902 S.W.2d 946, 952 (Tenn.Ct.App. 1995)). In this case,
Raskin filed the affidavit of Bill Simons, regional manager
of Raskin, as well as a copy of Raskin’s standard lease
agreement in support of its motion. The affidavit and the
lease agreement were considered by the trial court in making
its determination, therefore we find that Raskin’s motion
to dismiss was properly converted to a motion for summary
judgment.

The standards for reviewing summary judgments on appeal
are well-settled. Summary judgments are proper in
virtually any civil case that can be resolved on the basis
of legal issues alone. Fruge v. Doe, 952 S.W.2d 408, 410
(Tenn. 1997); Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn.
1993); Church v. Perales, 39 S.W.3d 149, 156
(Tenn.Ct.App. 2000). They are not, however, appropriate
when genuine disputes regarding material facts exist.
Tenn. R. Civ. P. 56.04. Thus, a summary judgment should be
granted only when the undisputed facts, and the
inferences reasonably drawn from the undisputed facts,
support one conclusion-that the party seeking the summary
judgment is entitled to a judgment as a matter of law.
Webber v. State Farm Mut. Auto. Ins. Co., 49 S.W.3d 265,
269 (Tenn. 2001); Brown v. Birman Managed Care, Inc., 42
S.W.3d 62, 66 (Tenn. 2001); Goodloe v. State, 36 S.W.3d
62, 65 (Tenn. 2001).

The party seeking a summary judgment bears the burden of
demonstrating that no genuine dispute of material fact
exists and that it is entitled to a judgment as a matter
of law. Shadrick v. Coker, 963 S.W.2d 726, 731 (Tenn.
1998); Belk v. Obion County, 7 S.W.3d 34, 36 (Tenn.Ct.App.
1999). In order to be entitled to a judgment as a matter
of law, the moving party must either affirmatively negate
an essential element of the non-moving party’s claim or
establish an affirmative defense that conclusively defeats
the non-moving party’s claim. Byrd v. Hall, 847 S.W.2d
at 215 n. 5; Cherry v. Williams, 36 S.W.3d 78, 82-83
(Tenn.Ct.App. 2000).

Once the moving party demonstrates that it has satisfied
Tenn. R. Civ. P. 56’s requirements, the non-moving party
must demonstrate how these requirements have not been
satisfied. Nelson v. Martin, 958 S.W.2d 643, 647 (Tenn.
1997). Mere conclusory generalizations will not suffice.
Cawood v. Davis, 680 S.W.2d 795, 796-97 (Tenn.Ct.App.
1984). The non-moving party must convince the trial court
that there are sufficient factual disputes to warrant a
trial (1) by pointing to evidence either overlooked or
ignored by the moving party that creates a factual
dispute, (2) by rehabilitating evidence challenged by the
moving party, (3) by producing additional evidence that
creates a material factual dispute, or (4) by submitting
an affidavit in accordance with Tenn. R. Civ. P. 56.07
requesting additional time for discovery. McCarley v. West
Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998); Byrd
v. Hall, 847 S.W.2d at 215 n. 6. A non-moving party who
fails to carry its burden faces summary dismissal of the
challenged claim because, as our courts have repeatedly
observed, the “failure of proof concerning an essential
element of a cause of action necessarily renders all other
facts immaterial.” Alexander v. Memphis Individual
Practice Ass’n, 870 S.W.2d 278, 280 (Tenn. 1993); Strauss
v. Wyatt, Tarrant, Combs, Gilbert & Milom, 911 S.W.2d 727,
729 (Tenn.Ct.App. 1995).

Summary judgments enjoy no presumption of correctness on
appeal. Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d
281, 285 (Tenn. 2001); Penley v. Honda Motor Co., 31
S.W.3d 181, 183 (Tenn. 2000). Accordingly, appellate
courts must make a fresh determination that the
requirements of Tenn. R. Civ. P. 56 have been satisfied.
Hunter v. Brown, 955 S.W.2d 49, 50-51 (Tenn. 1997); Mason
v. Seaton, 942 S.W.2d 470, 472 (Tenn. 1997). We must
consider the evidence in the light most favorable to the
non-moving party, and we must resolve all inferences in
the non-moving party’s favor. Doe v. HCA Health Servs.,
Inc., 46 S.W.3d 191, 196 (Tenn. 2001); Memphis Hous. Auth.
v. Thompson, 38 S.W.3d 504, 507 (Tenn. 2001). When
reviewing the evidence, we must determine first whether
factual disputes exist. If a factual dispute exists, we
must then determine whether the fact is material to the
claim or defense upon which the summary judgment is
predicated and whether the disputed fact creates a genuine
issue for trial. Byrd v. Hall, 847 S.W.2d at 214;
Rutherford v. Polar Tank Trailer, Inc., 978 S.W.2d 102,
104 (Tenn.Ct.App. 1998).

Pendleton, 73 S.W.3d at 121-22.

II.

Ms. Ferguson first contends that the trial court improperly
granted Raskin’s motion for summary judgment because there
was a genuine issue of material fact as to whether the
parties entered into an implied contract in which Raskin
was bound to insure or indemnify Ms. Ferguson from personal
property loss. According to Ms. Ferguson, Raskin’s
requirement that she live on the premises although she was
unable to obtain renter’s insurance as a result of Royal
Oaks maintaining an office within the confines of her
apartment, created an implied contract in which Raskin
would cover Ms. Ferguson’s personal property under its
insurance policy. However, we believe that Ms. Ferguson has
failed to present any evidence that such a contract existed
other than her own subjective belief.

“It is well established that a contract can be express,
implied, written, or oral, `but an enforceable contract
must result from a meeting of the minds in mutual assent to
terms, must be based upon sufficient consideration, must be
free from fraud or undue influence, not against public
policy and must be sufficiently definite to be enforced.'”
Thompson v. Hensley, 136 S.W.3d 925, 929-30 (Tenn.Ct.App.
2003) (quoting Klosterman Dev. Corp. v. Outlaw Aircraft
Sales, Inc., 102 S.W.3d 621, 635 (Tenn.Ct.App. 2002)). Ms.
Ferguson does not allege that there was any express
agreement between the parties. Therefore, we will limit our
analysis to whether there was any evidence of an implied
contract.

“Tennessee recognizes `two distinct types of implied
contracts; namely, contracts implied in fact and contracts
implied in law, commonly referred to as quasi contracts.'”
Thompson, 136 S.W.3d at 930 (quoting Angus v. City of
Jackson, 968 S.W.2d 804, 808 (Tenn.Ct.App. 1997)). “A
contract implied in fact is one that `arises under
circumstances which show mutual intent of assent to
contract.'” Thompson, 136 S.W.3d at 930 (quoting Angus, 968
S.W.2d at 808). “However, in order for a contract implied
in fact to be enforceable, it must be supported by mutual
assent, consideration, and lawful purpose.” Thompson, 136
S.W.3d at 930. Mutual assent may be shown by the conduct of
the parties and the surrounding circumstances. Thompson,
136 S.W.3d at 930.

We can find no evidence of Raskin’s assent to provide Ms.
Ferguson with renter’s insurance or to cover Ms. Ferguson’s
belongings under Royal Oaks’ own insurance policy. In
support of its motion for summary judgment, Raskin filed
the affidavit of Bill Simons, Raskin’s regional manager and
Ms. Ferguson’s immediate supervisor. Mr. Simons was charged
with the duty to discuss with Ms. Ferguson the terms and
conditions of her employment. According to Mr. Simons, he
and Ms. Ferguson never discussed the possibility that
Raskin would cover Ms. Ferguson’s personal property in the
event of a fire. His affidavit stated:

4. Prior to the fire, neither Karen Ferguson nor I had
ever mentioned or conversed about the Raskin’s bearing the
risk of loss of or damage to her personal property, or
about her personal property being covered under Raskin’s
insurance policy, or about Raskin agreeing to procure
insurance to cover her personal property. In short, there
was no discussion about this topic or these topics prior
to the fire on January 19, 2005.

Additionally, Ms. Ferguson admitted in a telephone
conversation with a claims handler at Nationwide that she
did not recall having a particular conversation with Mr.
Simons about Raskin obtaining coverage for her personalty.
Mr. Simons further stated in his affidavit that Ms.
Ferguson was required to sign a standard lease agreement
although she was permitted to live in Royal Oaks rent free
as a part of her compensation. A provision in the lease
agreement specifically advised Ms. Ferguson of the need to
obtain renter’s insurance. The lease stated:

13. PERSONAL PROPERTY. ALL PERSONAL PROPERTY IN THE
LEASED UNIT SHALL BE AT THE RISK OF LESSEE ONLY AND LESSOR
SHALL NOT BE LIABLE FOR ANY DAMAGES OR LOSSES TO PERSON OR
PROPERTY CAUSED BY OTHER RESIDENTS OR PERSONS[,] THEFT,
BURGLARY, ASSAULT, VANDALISM, OR OTHER CRIMES. LESSOR
shall not be liable for personal injury or for damage to
or loss of LESSEE’S personal property (furniture, jewelry,
clothing, automobiles, etc.) from whatever cause,
including fire, flood . . . LESSOR STRONGLY RECOMMENDS
THAT LESSEE SECURE LESSEE’S OWN INSURANCE TO PROTECT
AGAINST ALL OF THE ABOVE OCCURRENCES . . .

Based upon Ms. Ferguson’s failure to provide any evidence of
Raskin’s assent to provide her with insurance coverage, we
find that the trial court properly granted Raskin’s motion
for summary judgment as to Ms. Ferguson’s contract implied
in fact claim.

We must now determine whether the trial court properly
granted summary judgment as to Ms. Ferguson’s contract
implied in law claim. “Contracts implied in law are created
by law without the assent of the party bound, on the basis
that they are dictated by reason and justice.” Angus v.
City of Jackson, 968 S.W.2d 804, 808 (Tenn.Ct.App. 1997).
The Tennessee Supreme Court has established that a party
seeking to recover on an implied in law or quasi contract
theory must prove the following elements:

(1) There is no existing, enforceable contract between
the parties covering the same subject matter;(2) The party
seeking recovery proves that it provided valuable goods or
services;(3) The party to be charged received the goods
or services;(4) The circumstances indicate that the
parties to the transaction should have reasonably
understood that the person providing the goods or services
expected to be compensated; and(5) The circumstances
demonstrate that it would be unjust for a party to retain
the goods or services without payment.

Doe v. HCA Health Services of Tenn., Inc., 46 S.W.3d 191,
197-98 (Tenn. 2001).

It is undisputed that there was no express contract between
the parties and we have determined that there was no
contract implied in fact. In addition, Ms. Ferguson’s
agreement to reside at Royal Oaks in order to be available
to tenants twenty-four hours a day, undoubtedly conferred a
benefit upon Raskin. Furthermore, Raskin does not dispute
that Ms. Ferguson expected and deserved to be compensated
for residing at Royal Oaks in her capacity as the apartment
manager. However, the weakness in Ms. Ferguson’s argument
arises in the payment for her services.

As with all equitable contractual remedies, the plaintiff
must demonstrate that the defendant accepted a benefit
under the circumstances that would make it inequitable for
the defendant to retain the benefit without paying the
value of the benefit. Paschall’s, Inc. v. J.P. Dozier, 407
S.W.2d 150, 154 (Tenn. 1966). “The most significant
requirement for a recovery on quasi contract is that the
enrichment to the defendant must be unjust.” Paschall’s,
Inc., 407 S.W.2d at 155. We cannot make such a finding
here. In exchange for her services as the live-in apartment
manager of Royal Oaks, Ms. Ferguson received monetary
compensation as well as payment of her rental expenses which
included rent, electricity, water, sewer, and phone
service. Raskin was not contractually bound to provide Ms.
Ferguson with rental insurance simply because she had
difficulty obtaining a private policy as a result of Raskin
maintaining an office within the confines of her apartment.

As a general rule employees have the right to negotiate
with the employer concerning wages and to make such demands
as to the amount of wages as to them seems right, and the
employer has the right to determine the wages he is willing
to pay employees. Ordinarily the employer is entitled to
accept or reject the terms of wages proposed by the
employees or their representatives, and, on rejection, to
decline to continue employment.

Where the terms of the employment contract fix the
compensation of an employee for his services, such
provisions determine the amount of his recovery,
irrespective of what the services are actually worth.
Accordingly, wherever work is done by one for another for
a price named by one and acquiesced in by the other, the
amount named is the amount recoverable.

30 C.J.S. Employer-Employee § 164 (1992).

It is well-settled that courts should not interfere with
the right of parties to contract. Guiliano v. Cleo, Inc.,
995 S.W.2d 88, 100 (Tenn. 1999). Instead, it is the duty of
the court to “carry out the intentions of the parties and
the terms bargained for in the contract, unless those terms
violate public policy” even if a party agrees to “terms
that may not seem desirable or pleasant to outside
observers.” Guiliano, 995 S.W.2d at 100. Therefore, it was
incumbent upon Ms. Ferguson to negotiate for renter’s
insurance as a term of her compensation if that is what she
desired. As a result, we find that the trial court properly
granted summary judgment as to Ms. Ferguson’s contract
implied in law claim.

III.

Ms. Ferguson next argues that the trial court erred in
granting summary judgment as to her breach of contract
claim against Nationwide because there was a genuine issue
of material fact as to whether her personal property was
excluded from coverage under Royal Oaks’ insurance policy.
On February 3, 2005, Nationwide sent Ms. Ferguson a letter
denying coverage for her loss. Nationwide explained that as
an employee of the insured policy holders, Raskin and Royal
Oaks, Ms. Ferguson was also classified as “an insured”
under the policy and therefore subject to the same policy
exclusions. Pursuant to section B(k)(1) of the policy, the
coverage did not apply to “‘[p]roperty damage’ to
[p]roperty you own, rent, or occupy.” Ms. Ferguson argues
that according to an exception to the section B(k)(1)
exclusion, she is not “an insured” and therefore her
personal property was covered under the policy.

It is clear that if Ms. Ferguson is “an insured” under the
policy, then coverage of her personal property is excluded
by section B(k)(1) of the policy. Ms. Ferguson claims that
because of section C(2)(a)(3) of the policy, she may not be
classified as “an insured.” This section of the policy
provides:

2. Each of the following is also an insured:

a. Your employees, other than your executive officers,
but only for acts within the scope of their employment by
you. However, no employee is an insured for:

(3) “Property damage” to property owned or occupied by or
rented or loaned to that employee, any of your other
employees, or any of your partners or members (if you are
a partnership or joint venture).

If Ms. Ferguson is not “an insured” under the policy, she
cannot maintain a direct action against Nationwide without
first establishing that the insured, Raskin, has become
“legally obligated” to pay the damages resulting from her
personal property loss which would trigger the obligation
of Nationwide to pay on behalf of Raskin under the
liability section of the policy since “Tennessee is not a
`direct action’ state where a plaintiff can sue the
liability insurance carrier of the defendant who allegedly
caused the harm.” Seymour v. Sierra, 98 S.W.3d 164, 165
(Tenn.Ct.App. 2002).

The reason for the common law rule in jurisdictions where
there is neither a statute nor a policy provision allowing
such direct action is well stated by the Superior Court of
Delaware in Delmar News, Inc. v. Jacobs Oil Co., 584 A.2d
531 (Del.Super.Ct. 1990):

In support of its argument that Delaware does not permit
direct actions against insurers in situations such as
this, MCC offers the case of Kaufmann v. McKeown,
Del.Supr., 193 A.2d 81 (1963). While Kaufmann dealt
primarily with the application of the Dead Man’s Act, the
Court briefly, but squarely, addressed the issue of
whether or not an injured party could maintain a direct
action against an insurer for the negligent acts of its
insured. The Court stated:

“A liability insurer may well be the real party in
interest, but this is not a State where a direct action is
permitted against it. Plaintiff is obliged to bring his
suit against the tortfeasor or in the event of her
demise, her estate.”

Id. at 83.

Aside from Kaufmann, the parties herein have not
identified and the Court has not uncovered any Delaware
case law which specifically addresses this issue. Other
jurisdictions, however, apply a similar rule. In Dept. of
General Serv. v. Celli-Flynn, 115 Pa.Cmwlth. 494, 540
A.2d 1365 (1988), the Court specifically faced this issue
and concluded that Pennsylvania law, in the absence of a
statutory or policy provision to the contrary, does not
permit an injured party to maintain a direct action
against the tortfeasor’s insurer. Id. 540 A.2d at 1367.
In fact, the holding in Kaufmann, supra and Department of
General Services, supra, appears to be the general rule
followed by most jurisdictions. See: Caster v. Board of
Education of Albuquerque, 86 N.M. 779, 527 P.2d 1217
(1974); Manukas v. America Ins. Co., 98 N.J.Super. 522,
237 A.2d 898 (1968); Gorman v. St. Paul Fire & Marine
Insurance Co., 210 Md. 1, 121 A.2d 812 (1956). See also 44
Am.Jr.2d, Insurance, § 1445 (1982); 8 Appleman,
Insurance Law and Practice, § 4861 (1981). The
rationale behind this rule appears to be simply that the
Courts feel that it would not be sound public policy to
permit an insurer to be joined as a defendant in an action
grounded upon the acts of the insured. See Appleman
§ 4861 at 565.

Therefore, on the authority of Kaufmann, supra, and in
light of the position taken by other jurisdictions on this
issue, the Court concludes that the law in Delaware is
that Delmar may not, at this time, maintain a direct
action against MCC grounded upon the alleged negligence
of Jacobs. Delmar’s personal injury action must first be
brought against the alleged tortfeasor — in this
case Jacobs. Even if Delmar were permitted to sue MCC
directly, it would obtain little advantage since Jacobs’
liability for negligence must still be proved in an
action against MCC. On this basis it cannot be said that
the Court’s conclusion results in unfairness to Delmar.

584 A.2d at 533-34.

Addressing the same long-standing rule at common law, the
Nebraska Court of Appeals held:

Therefore, in summary, this case seeks recovery from
Federated based on the negligence of its insured.

The Nebraska Supreme Court has stated: “[A]s a general
rule, there is no privity between an insured person and
the tort-feasor’s liability insurer. For this reason,
direct actions against liability insurance carriers based
on the negligence of the insured are not permitted in
Nebraska.” Medical Protective Co. v. Schrein, 255 Neb. 24,
30, 582 N.W.2d 286, 290 (1998). Accord, West Neb. Gen.
Hosp. v. Farmers Ins. Exch., 239 Neb. 281, 475 N.W.2d 901
(1991); State Auto. & Cas. Underwriters v. Farmers Ins.
Exchange, 204 Neb. 414, 282 N.W.2d 601 (1979). See Royal
Indem. Co. v. Aetna Cas. & Sur. Co., 193 Neb. 752, 229
N.W.2d 183 (1975). In our review of Nebraska
jurisprudence, we find no exceptions to the above general
rule.

The basis for the lawsuit in State Auto. & Cas.
Underwriters, supra, is similar to that before us. In
State Auto. & Cas. Underwriters, the car insured by State
Automobile and Casualty Underwriters (State Auto) was
struck by the car insured by Farmers Insurance Exchange
(Farmers). State Auto paid its insured’s claim and sought
subrogation from Farmers based on the negligence of
Farmers’ insured.

Nebraska jurisprudence is consistent with common law.
“Under ordinary principles of law, in the absence of
statutes or contractual agreements to the contrary, the
law did not historically recognize the right of the
injured party to seek recovery directly from the insurer,
with which the victim had no direct relationship.” 7
George J. Couch, Couch on Insurance 3d § 104:1 at
104-7 (rev. ed. 1997). See, also, 44 Am.Jur.2d Insurance
§ 1445 (1982). The above proposition applies to
claims by an injured party against an insurer under both
automobile liability insurance and under other forms of
liability insurance, “at least where the direct action is
on the basis of the insured’s negligence.” Couch, supra,
§ 104:2 at 104-11 to 104-12.

German Mut. Ins. Co. of Dodge County v. Federated Mut. Ins.
Co., 606 N.W.2d 856, 859-60 (Neb.Ct.App. 2000).

The Supreme Court of Idaho, another jurisdiction not
recognizing direct actions of a third party against a
tortfeasor insurance carrier, held:

Farmers’ argument is well taken. A third party may not
directly sue an insurance company in an attempt to obtain
the coverage allegedly due the insurer’s policyholder. In
Pocatello Indus. Park Co. v. Steel West, Inc., 101 Idaho
783, 621 P.2d 399 (1980), Pocatello Industrial Park and
its liability insurer sought indemnification from an
employer and its liability insurer for liability imposed
in a prior action brought by an employee against
Industrial Park. The Court stated as follows:

It is well established that absent a contractual or
statutory provision authorizing the action, an insurance
carrier cannot be sued directly and cannot be joined as a
party defendant. . . . We are aware of no direct action
statute in Idaho.

Id. at 791, 621 P.2d at 407, (citing Olokele Sugar Co. v.
McCabe, Hamilton & Renny Co., 53 Haw. 69, 487 P.2d 769
(1971)); see also, Hettwer v. Farmers Ins. Co. of Idaho,
118 Idaho 373, 797 P.2d 81 (1990).

In Downing v. Travelers Ins. Co., 107 Idaho 511, 691 P.2d
375 (1984), the plaintiff brought a direct action against
the insurer of her husband’s employer, claiming benefits
under a policy provided to her deceased husband as part of
his employment. The Court upheld summary judgment favoring
the insurance company, stating:

This is a direct action against an insurer, by a party
not a party to the insurance contract. The situation here
is similar to a case where A injures B, B has a liability
insurance policy with C, and A attempts to sue C directly
to recover benefits under the policy. This type of
direct action has never been recognized.

Id. at 514, 691 P.2d at 378.

Stonewall Surplus Lines Ins. Co. v. Farmers Ins. Co. of
Idaho, 971 P.2d 1142, 1146 (Idaho 1998).

The United States Seventh Circuit Court of Appeals, in a
diversity jurisdiction case, applying Indiana law held:

Indiana is not a “direct action” state, meaning that an
injured third party may not bring a direct action against
a wrongdoer’s liability insurer until he first obtains a
judgment against the insured. Rausch v. Reinhold, 716
N.E.2d 993, 1002 (Ind.Ct.App. 1999); Cromer v. Sefton,
471 N.E.2d 700, 703 (Ind.Ct.App. 1984); Donald v. Liberty
Mutual Ins. Co., 18 F.3d 474, 480-81 (7th Cir.1994). Once
a personal injury plaintiff succeeds in obtaining a
judgment against the insured, he can bring an action
against the liability carrier if it refused to honor the
terms of the insurance policy. Cromer, 471 N.E.2d at 703.
In other words, in Indiana an injured plaintiff “stands in
the legal shoes” of the insured, and his claim can be no
greater than the insured’s claim would be against his own
insurer under the insurance policy. See Araiza v.
Chrysler Ins. Co., 699 N.E.2d 1162, 1163 (Ind.Ct.App.
1998), rehearing granted in part and modified in, Araiza
v. Chrysler Ins. Co., 703 N.E.2d 661 (Ind.Ct.App. 1998);
see also Selleck v. Westfield Ins. Co., 617 N.E.2d 968,
970-71 (Ind.App. 1993) (accord); Redar v. Allstate Ins.
Co., 497 N.E.2d 566, 568 (Md.Ct.App. 1985)(accord);
Motorists Mut. Ins. Co. v. Johnson, 139 Ind.App. 622, 218
N.E.2d 712, 715 (1966).

Wolverine Mut. Ins. v. Vance ex rel. Tinsley, 325 F.3d 939,
944 (7th Cir.2003).

The Third Circuit Court of Appeals, applying Pennsylvania
law, has held:

Under Pennsylvania law, “in the absence of a statute or a
policy provision on which such right may be predicated, a
person may not maintain a suit directly against [an]
insurer to recover on a judgment rendered against the
insured.” Philadelphia Forrest Hills Corp. v. Bituminous
Cas. Corp., 208 Pa.Super. 461, 222 A.2d 493, 494 (1966);
see also Apalucci v. Agora Syndicate, Inc., 145 F.3d 630,
632 (3d Cir.1998) (“It is well-settled that under
Pennsylvania law, an injured party has no right to
directly sue the insurer of an alleged tortfeasor unless
a provision of the policy or a statute create such a
right.”); Strutz v. State Farm Mut. Ins. Co., 415
Pa.Super. 371, 609 A.2d 569, 570 (1992) (rejecting an
argument that persons injured in a car accident are
third-party beneficiaries of the other driver’s insurance
policy and therefore could bring an action directly
against the other driver’s insurance company).

Kollar v. Miller, 176 F.3d 175, 181 (3rd Cir.1999). See also
Olokele Sugar Co. v. McCabe, Hamilton & Renny Co., 487 P.2d
769 (Haw. 1971); Richards v. State Farm Mut. Auto. Ins.
Co., 555 S.E.2d 506 (Ga.Ct.App. 2001).

Ms. Ferguson argues however that she is an intended
third-party beneficiary to Raskins’ insurance contract with
Nationwide and, therefore, has an independent right to
enforce the contract. It is undisputed that Raskin and
Nationwide have a valid contract, which provides in part
that Nationwide “will pay those sums that the insured
becomes legally obligated to pay as damages because of . . .
`property damage’ . . . to which this insurance applies.”

As a general rule, contracts are presumed to be “executed
for the benefit of the parties thereto and not third
persons.” Oman Constr. Co. v. Tennessee Central Rlwy. Co.,
370 S.W.2d 563, 572 (Tenn. 1963). The law in Tennessee
relative to “intended third-party beneficiaries” as opposed
to “incidental third-party beneficiaries” is explained in
detail in First Tenn. Bank Nat’l Ass’n v. Thoroughbred
Motor Cars, Inc., 932 S.W.2d 928 (Tenn.Ct.App. 1996) and in
Owner-Operator Indep. Drivers Ass’n, Inc. v. Concord EFS,
Inc., 59 S.W.3d 63 (Tenn. 2001).

At the outset of this discussion, it is necessary to
observe that Ms. Ferguson has no judgment against Raskin,
which might support a third-party beneficiary action
against Nationwide such as occurred in Franklin v. St. Paul
Fire & Marine Ins. Co., 534 S.W.2d 661 (Tenn.Ct.App. 1975).
The rights of any third-party to the insurance contract are
derivative rights and can rise to no greater dignity than
the rights of the insured under the contract. Jamison v. New
Amsterdam Cas. Co., 254 S.W.2d 353, 355 (Tenn.Ct.App.
1953). This Court has held:

In 1967, our supreme court first announced the test to be
used to determine whether a person claiming to be a third
party beneficiary should also be permitted to enforce a
contract. Willard v. Claborn, 220 Tenn. 501, 419 S.W.2d
168, 170 (1967). The court stated

In contracts there are essentially three types of third
party beneficiaries. First, where the performance of the
promise will constitute a gift to the beneficiary; the
beneficiary is a donee beneficiary. Second, if no purpose
to make a gift appears from the terms of the contract and
the performance of it will satisfy an actual or supposed
asserted duty of the promisee to the beneficiary; the
beneficiary is a creditor beneficiary. Third, in all other
cases the beneficiary is deemed to be an incidental
beneficiary.

Id. Under this formulation, a donee or creditor
beneficiary has the right to enforce contracts made by
others for her benefit. However, incidental beneficiaries
do not have that right. Id.

Today, Tennessee recognizes two categories of third party
beneficiaries, intended and incidental. Only if a party is
an intended beneficiary may it maintain an action to
enforce the contract. Moore Construction Co. v.
Clarksville Department of Electricity, 707 S.W.2d 1, 9
(Tenn.App. 1985). In order to establish that plaintiff is
an intended beneficiary to the sales agreement in this
case, it must establish (1) a valid contract made upon
sufficient consideration between the principal parties and
(2) the clear intent to have the contract operate for the
benefit of a third party. United American Bank of Memphis
v. Gardner, 706 S.W.2d 639, 641 (Tenn.App. 1985). Intent
to benefit may be shown if “there is either an expression
in the contract that the contracting parties intended to
benefit the third party (the `intent to benefit’ test) or
proof that the promisor’s performance would otherwise
discharge a duty owed to a third party beneficiary by the
promisee (the `duty owed’ test).” Moore Construction, 707
S.W.2d at 9 (citing Restatement (Second) of Contracts
§ 302 (1979)).

First Tenn. Bank Nat’l Ass’n, 932 S.W.2d at 930.

The extensive discussion of third-party beneficiary rights
contained in Owner-Operator Indep. Drivers Ass’n, Inc.,
does not change the distinction between intended
beneficiaries and incidental beneficiaries, which remains
the ultimate test.

Nationwide has not become “legally obligated to pay as
damages” any amount owed by Raskin because such an
obligation has never been established. While Tennessee has
not directly addressed the question of the rights of one
claiming to be a third-party beneficiary to an insurance
contract who has never been granted a judgment against the
insured, cases from sister jurisdictions make it clear that
in the absence of a policy provision or a statute, such a
third party is at most an “incidental beneficiary” of the
insurance contract and cannot maintain an action against
the insurance company.

Applying both Texas and Mississippi law, the United Stated
District Court for the Southern District of Mississippi in
Cowley v. Texas Snubbing Control, Inc., 812 F.Supp. 1437
(S.D.Miss.1992) held:

There is no question but that Stapleton is not a
third-party beneficiary of the insurance contract between
Underwriters and Texas Snubbing. Stapleton has cited the
court to no statute or provision in the insuring agreement
granting him rights in the policy prior to securing a
judgment or granting him the right to file suit against
Underwriters for recovery under the policy prior to his
obtaining a judgment against the insured. In other words,
the insurance coverage provided by Texas Snubbing’s policy
was not mandated by law, and the court has not been
directed to any provision of the policy which suggests
that the insurance contract was secured for the benefit
of any third party to the contract. Rather, it appears
that the policy of insurance was purchased for Texas
Snubbing’s own benefit, as well as for the benefit and
protection of Tomlinson. Though Stapleton has filed suit
against Texas Snubbing in state court alleging that it was
negligent, he has not recovered a judgment against Texas
Snubbing, and indeed, may never do so. There has been no
determination that Texas Snubbing was negligent, or that
if it was, any such negligence caused or contributed to
any injuries these persons may have sustained. Under
these circumstances, it must be concluded that Stapleton
is not a third-party beneficiary of the insurance contract
and therefore lacks standing to maintain any claim against
the insurance policy. Thus, only if Stapleton were to
secure a judgment against Texas Snubbing would he be in a
position to maintain a direct action against Underwriters
on the insurance contract.

812 F.Supp. at 1446.

The Supreme Court of Wyoming observed:

Appellants argue secondly that they are third-party
beneficiaries of the insurance contract who should be able
to bring an action directly against Farmers Insurance for
a violation of the duty of good faith and fair dealing
with Angela. . . . The third-party-beneficiary argument
has been rejected by virtually every court to address the
issue, and we join those courts today. See, e.g., Page v.
Allstate Insurance Company, 126 Ariz. 258, 614 P.2d 339
(Ct.App. 1980); Scroggins v. Allstate Insurance Company,
74 Ill.App.3d 1027, 30 Ill.Dec. 682, 393 N.E.2d 718
(1979); and Murphy v. Allstate Insurance Company, 17
Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584 (1976).

We hold that the duty of good faith and fair dealing runs
only from the insurer to the insured. As Appellants are
third-party claimants in the context of this suit, they
have no direct cause of action against Farmers Insurance
for bad faith, either in contract or in tort.

Herrig v. Herrig, 844 P.2d 487, 492 (Wyo. 1992).

The reasoning of the Superior Court of Pennsylvania in
Brown v. Candelora, 708 A.2d 104 (Pa.Super.Ct. 1998) is
persuasive.

Under settled Pennsylvania law, appellants cannot maintain
a direct action against Nationwide since:

(a) Appellants are strangers to the contract of
insurance. See: Commonwealth, Department of General
Services v. Celli-Flynn, 115 Pa.Cmwlth. 494, 498, 540 A.2d
1365, 1368 (1988); Aetna Insurance Co. v. Pennsylvania
Manufacturers Association Insurance Co., 456 F.Supp. 627,
634 (E.D.Pa.1978). See also: General Accident Insurance
Co. v. Federal Kemper Insurance Co., 452 Pa.Super. 581,
589, 682 A.2d 819, 822 (1996); Kranzush v. Badger State
Mutual Casualty Co., 103 Wis.2d 56, 72, 307 N.W.2d 256,
265 (1981).

(b) Appellants are not third party beneficiaries of the
contract of insurance between Mr. Yiambilis and
Nationwide. See: Hicks v. Metropolitan Edison Co., 665
A.2d 529, 535 (Pa.Cmwlth.1995), allo. denied, 544 Pa.
638, 675 A.2d 1253 (1996); Hughes v. Prudential Lines,
425 Pa.Super. 262, 268, 624 A.2d 1063, 1067 (1993), allo.
denied, 535 Pa. 647, 633 A.2d 152 (1993); Strutz v. State
Farm Mutual Insurance Co., 415 Pa.Super. 371, 373-376, 609
A.2d 569, 570-571 (1992), allo. denied, 532 Pa. 657, 615
A.2d 1313 (1992); Rowe v. U.S. Fidelity and Guaranty Co.,
421 F.2d 937, 939-940 (4th Cir.1970). Accord: Herrig v.
Herrig, 844 P.2d 487, 492 (Wyo. 1992) (“The
third-party-beneficiary argument has been rejected by
virtually every court to address the issue, and we join
those courts today. See, e.g., Page v. Allstate
Insurance Company, 126 Ariz. 258, 614 P.2d 339 (Ct.App.
1980); Scroggins v. Allstate Insurance Company, 74
Ill.App.3d 1027, 30 Ill. Dec. 682, 393 N.E.2d 718 (1st
Dist.1979); and Murphy v. Allstate Insurance Company, 17
Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584 (1976).”)

708 A.2d at 108.

Since it has never been established that Nationwide is
obligated to pay anything to anyone on behalf of its
insured, Raskin, for any losses under the policy, and Ms.
Ferguson by her own assertion before the court is not “an
insured” but in fact a stranger to the contract of
insurance, she would at most be a remote “incidental
beneficiary” and not an “intended beneficiary” of the
insurance contract. Therefore, we find that the trial court
properly granted summary judgment as to Ms. Ferguson’s
breach of contract claim against Nationwide.

IV.

In her proposed amended complaint, Ms. Ferguson alleges
that Raskin owed her a non-delegable duty of care to
provide a reasonably safe work environment and that the
duty was breached when Raskin provided Ms. Ferguson with
the unreasonably dangerous and/or defective halogen floor
lamp which was the cause of the fire on January 19, 2005. In
order to establish a claim for negligence, one must prove:
“(1) a duty of care owed by defendant to plaintiff; (2)
conduct falling below the applicable standard of care that
amounts to a breach of that duty; (3) an injury or loss;
(4) cause in fact; and (5) proximate, or legal, cause.”
McClung v. Delta Square Ltd. Partnership, 937 S.W.2d 891,
894 (Tenn. 1996). In this case, Raskin argues that although
it had a duty to provide a reasonably safe work
environment, that duty was not absolute and under the
circumstances, that duty was not breached. We agree.

The question of the duty which a defendant owes to a
plaintiff is a question of law to be determined by the
court. Pittman v. Upjohn Co., 890 S.W.2d 425, 428 (Tenn.
1994). Duty of care is defined as “the legal obligation
owed by defendant to plaintiff to conform to a reasonable
person standard of care for protection against unreasonable
risks of harm.” McClung, 937 S.W.2d at 894. Assuming that a
duty is owed to the plaintiff, the defendant breaches that
duty when he or she fails to exercise reasonable care under
the circumstances. McCall v. Wilder, 913 S.W.2d 150, 153-54
(Tenn. 1995). Reasonable care “is to be estimated by the
risk entailed through probable dangers attending the
particular situation and is to be commensurate with the risk
of injury.” Doe v. Linder Const. Co., Inc., 845 S.W.2d 173,
178 (Tenn. 1992).

The risk involved is that which is foreseeable; a risk is
foreseeable if a reasonable person could foresee the
probability of its occurrence or if the person was on
notice that the likelihood of danger to the party to whom
is owed a duty is probable. Foreseeability is the test of
negligence. If the injury which occurred could not have
been reasonably foreseen, the duty of care does not arise,
and even though the act of the defendant in fact caused
the injury, there is no negligence and no liability. See
Spivey v. St. Thomas Hospital, 31 Tenn.App. 12, 211 S.W.2d
450, 456 (1948). “[T]he plaintiff must show that the
injury was a reasonably foreseeable probability, not just
a remote possibility, and that some action within the
[defendant’s] power more probably than not would have
prevented the injury.” Tedder, 728 S.W.2d at 348.
Foreseeability must be determined as of the time of the
acts or omissions claimed to be negligent.

Linder Const. Co., Inc., 845 S.W.2d at 178.

There is no proof in the record that the halogen lamp
located within the office of Ms. Ferguson was dangerous or
defective nor any proof that the lamp was in fact the
property of Raskin. There is no proof that Raskin placed
loose papers on the wall in close proximity to the halogen
lamp, but, in fact, all of the proof shows that such papers
were attached to the wall by Ms. Ferguson. The report of Al
Spencer of Donan Engineering Co., Inc. Fire and Explosion
Investigation provides no evidence of a dangerous or
defective condition existing in the halogen floor lamp or
of any action or non-action of Raskin which would
constitute negligence. The report provides in relevant part:

A study of the electrical breaker panel shows two 20
Ampere breakers in the tripped setting. The legend shows
these breakers protect receptacles but it is not specific
to which receptacles in the apartment (Photograph 33).

A study of the halogen floor lamp and its associated
electrical wiring fail to provide evidence of shoring,
arcing or fire initiating failure. The lamp was removed
from the fire scene and is currently stored at the Donan
Engineering Co. Inc. facility in Nashville, Tennessee. If
needed a more comprehensive examination of the light can
be conducted at a later date (Photographs 34 through 36).

CONCLUSIONS

The origin of the fire is on the north center section of
the wall of the office, at the approximate point where the
top section of the lamp intersects the wall. The cause of
the fire is papers attached to the wall were allowed to
come into contact with the hot halogen bulb of the floor
lamp.

Research reveals that a 300-watt halogen tube can reach
temperatures in access [sic] of 850 degrees Fahrenheit.
The remains of the halogen tube could not [be] found in
the debris to determine the exact wattage and Ms Ferguson
did not know the size. A smaller wattage tube would
still produce sufficient heat to ignite paper that was
allowed to come into contact with it.

Applying the test under Pittman, McClung and Doe v.
Linder, the amended complaint cites no factual basis for
its conclusions relative to negligence on the part of
Raskin. The trial court did not err in refusing to allow
the amendment to the complaint.

CONCLUSIONS

1. If Ms. Ferguson is “an insured” under the Nationwide
policy, she has no coverage of her personal property
because of the exclusion provided in section B(k)(1).

2. If Section C(2)(a)(3) is applicable, she is not “an
insured” under the terms of the policy.

3. If she is not “an insured” under the policy, she cannot
maintain a direct action against Nationwide.

4. She is not a “intended third-party beneficiary” to the
policy of insurance between Nationwide and Raskin.

5. There is neither factual allegation nor proof of
negligence on the part of Raskin.

The judgment of the trial court is in all respects affirmed
and costs of the cause are assessed to Appellant, Ms.
Ferguson.