Weems v. Nanticoke Homes, Inc.

Moore, J., delivered the opinion of the Court. Two distinct areas of the law of contracts are involved in this appeal. We are first asked to determine the effect to be given to a contractual provision requiring the purchasers of a modular home to obtain fire insurance, effective as of the date the house was placed on the foundation, where the builder’s negligence may have been responsible for the destruction of the home by fire. Secondly, we examine the present state of the “third-party beneficiary” doctrine in Maryland, and whether a subcontractor, whose conduct may also have caused the property loss, may insulate itself from liability as an “intended” beneficiary of the insurance provision in the contract between purchasers and builder.

In an action brought in the Circuit Court for Talbot County by the home buyers, Stephen W. Weems and Beth M. Weems, his wife, to their own use and to the use of the Continental Insurance Co., summary judgment was entered ⁵⁴⁶ in favor of Nanticoke Homes, Inc., a manufacturer of modular homes, and Comfort Heating & Air Conditioning, Inc., an electrical subcontractor, on their respective motions. The individual and use plaintiffs appeal from these rulings. We will affirm as to Nanticoke, and reverse as to Comfort. I Appellants Stephen and Beth Weems were the owners of certain real property bordering Route 50, near Williamsburg, in Talbot County, Maryland.

By a contract dated April 23, 1974 and entitled “Proposal No. 1,” they agreed to pay the sum of $35,218 to Nanticoke Homes, Inc., a Delaware corporation, for the construction of a residence upon their land. The structure contemplated was a modular home, built at Nanticoke’s factory in Greenwood, Delaware. In addition to the standard “56' x 28' Nanticoke Home,” the one-page contract listed certain optional features to be included in the unit, as constructed. In two places, the contract made reference to property insurance.

Following the itemization of options was a typewritten statement: “Insurance in the proper amount to cover any and all losses shall be the responsibility of the Buyer, beginning on the day the house is placed on the foundation.” Later in the document, opposite the signature of Nanticoke’s representative, came a paragraph of typeset language presumably part of the form contract itself, which contained the following sentence: “Owner to carry fire, tornado and other necessary insurance.” A major portion of the electrical work on the appellants’ home was done by Comfort Heating & Air Conditioning, Inc. in Nanticoke’s Delaware factory. The remainder was completed on-site in Talbot County, after delivery of the home on September 11, 1974. Such work was performed in accordance with specifications set forth in a “Mechanical Contract” between Nanticoke and Comfort, effective March 1,1974. ⁵⁴⁷ The modular home was completed on the Weemses’ lot on October 1, 1974. Comfort had, by this time, installed the electrical system, and, on October 4th, Choptank Electric Cooperative, Inc., the local power supplier, connected the house to its electric transmission system.

On October 7th, prior to the time appellants were to take possession, the home was totally destroyed by fire. Investigators from the Fire Marshal’s office could not pinpoint the exact cause of the blaze, but did determine that it originated at or near the electrical panel in the house. Substantial expenses in replacing the house were incurred by the Weemses, all or most of which were covered and paid for by the proceeds of a fire insurance policy they had purchased from Continental Insurance Co. The Weemses and Continental then brought this action against Nanticoke and Comfort to recover their damages, alleging that the fire was caused by the negligence of one or both defendants. On this appeal, the basic issues for our determination are whether the trial court correctly held that the insurance provision in the contract between the Weemses and Nanticoke served to exculpate Nanticoke from liability for its own alleged negligence, and that Comfort was similarly relieved of liability for its alleged negligence, as a third-party creditor beneficiary of the contract.

II With respect to the first issue, the trial court concluded in a comprehensive written opinion that the provisions of the agreement between buyers and builder were susceptible of only one interpretation, namely, that it was the owners’ responsibility to insure the house against all perils once it was placed on its foundation; “and if the house was damaged or destroyed thereafter by the occurrence of fire or some other insurable peril, then the owners and Nanticoke must look to the insurer and not to each other to make them whole again, even though the fire might have been caused by the negligence of one or both parties to the contract.” We find this holding to be eminently correct. Appellants’ efforts to ⁵⁴⁸ distinguish or to avoid the impact of the leading cases on the subject are unavailing. In a recent decision of this Court, Brodsky v. Princemont Construction Co., 30 Md. App. 569 , 354 A. 2d 440 (1976), we discussed this identical issue. Plaintiffs in Brodsky , the owners of real property, entered into an agreement with defendant, a building contractor, for the construction of certain apartments in Frederick.

The contract provided that plaintiffs would insure the property against loss from fire and other perils. 1 Prior to the completion of construction, defendant’s superintendent caused a fire in one building while attempting to remove a skunk from an interior wall partition by injecting propane gas into the wall. Substantial losses occurred, all of which were paid by plaintiffs’ insurer, Public Service Mutual Insurance Co. In an action brought against the defendant construction company by the property owners and the insurer, as assignee or subrogee of the owners’ rights, the plaintiffs alleged that the insurance policy did not cover losses resulting from the negligence of the defendant. The trial court disagreed, entering summary judgment for the defendant, and we affirmed. Discussing first the insurer’s right of subrogation under such facts, this Court, in an opinion by Judge Powers, found that the insurer could have no greater right to recover than that possessed by the insured, quoting Packham v. German Fire Insurance Co., 91 Md. 515, 526 , 46 A. 1066 (1900): “The right of subrogation is derivative, and comes solely from the assured, and can only be enforced in ⁵⁴⁹ his right.

If the assured has no right which he can transfer to the insurer, then the insurer can have no subrogation and, cannot take the place of the assured for the purpose of enforcing liability of the wrongdoer for the loss.” 30 Md. App. at 574 , 354 A. 2d at 444 . (Citations omitted; emphasis added.) Having determined that the insurance company’s rights were dependent upon those of the insured, we discussed the case of General Cigar Co. v. Lancaster Leaf Tobacco Co., 323 F. Supp. 931 (D. Md. 1971), and held, on the strength of that case and authorities in other jurisdictions, that “the contract between [the property owner] and [the defendant] contemplated that the risk of damage to the property by fire would be covered by insurance, and not by either of the parties.” 30 Md. App. at 576 , 354 A. 2d at 445 . The lower court’s ruling was therefore affirmed. The General Cigar case, supra, was a case of first impression on this issue under Mayland law.

The insurance obtained by the plaintiff, General Cigar, pursuant to an agreement with the defendant, Lancaster Leaf, was designed to cover any loss from fire which occurred while the plaintiff’s tobacco was housed in storage facilities arranged for by the defendant. When fire did destroy some 7500 bales, General Cigar and its insurer brought suit against Lancaster, charging that its negligence was responsible for the loss, and that it should not be exculpated from liability by virtue of insurance purchased by General Cigar. The court found that the prior agreement to provide insurance was valid, and settled the question of who should bear the loss under the circumstances. Judge Harvey wrote: “It has been recognized by numerous authorities that where parties to a business transaction mutually agree that insurance will be provided as a part of the bargain, such agreement must be construed as providing mutual exculpation to the bargaining parties who must be deemed to have agreed to look solely to the insurance in the event of ⁵⁵⁰ loss and not to liability on the part of the opposing party.” 323 F. Supp. at 941 .

(Emphasis added.) The insurer, as well as the insured, was bound by the agreement to substitute insurance for liability, and no right of subrogation existed. Summary judgment for the defendant was therefore entered. 2 We see little to distinguish the General Cigar and Brodsky cases from the facts before us here. It appears to us that the provisions in the contract requiring the Weemses to insure the property against loss were a “bargained for” element of the agreement, and the parties were free to contract as they pleased. Appellants raise two basic arguments for the proposition that the General Cigar and Brodsky cases should not be followed.

First, relying on the case of Chesapeake & Potomac Telephone Co. v. Allegheny Construction Co., 340 F. Supp. 734 (D. Md. 1972), they contend that contracts will not be construed to indemnify a person against his own negligence unless such indemnification is expressed in clear and unequivocal language. Whether we would agree with the decision or not is irrelevant because the contract in the instant case is not a contract of indemnity, as the lower court clearly recognized, but rather an agreement whereby contracting parties shifted the risk of loss by fire to the insurer irrespective of negligence. Smith v. Ryan, 142 So. 2d 139, 141 (Fla. App. 1962).

Here one party has agreed to provide insurance against “any and all loss.” Obviously, there is no similarity between such a clause and “hold harmless” or indemnification provisions. Next, appellants seek to analogize the contract between the parties in this case with those purporting to “indemnify one party against liability for damages arising out of bodily injury or property damage caused by or resulting from the sole negligence of the promisee or indemnitee.. ..” Such agreements are void and unenforceable as contrary to public ⁵⁵¹ policy under Md. Cts. & Jud. Proc. Code Ann. § 5-305 (1974). 3 Even if this statute were susceptible of retrospective application, it would have no relevance here because, as already stated, the subject contract contains no covenants to indemnify.

As Judge Powers stated in Brodsky, supra: “Fire insurance covers the property bss sustained regardless, generally speaking, of its cause. Insurance against negligence indemnifies the negligent person as to his liability to another.” 30 Md. App. at 573 , 354 A. 2d at 443 . We will therefore affirm the trial court’s ruling that Nanticoke was entitled to summary judgment as a matter of law. Md. Rule 610; Hurt v. Stillman & Dolan, Inc., 35 Md. App. 644 , 371 A. 2d 1137 (1977). 4 Ill The remaining question for our consideration is whether the contractual provision allocating the responsibility for obtaining insurance to the buyers operated to the benefit of Comfort, as well as Nanticoke.

The trial court, in granting Comfort’s motion for summary judgment, found that Comfort was a third-party creditor beneficiary of the contract and was therefore exculpated from any liability for damages arising from its negligence, such losses being fully covered by