The Oklahoma Supreme Court reversed the trial court's grant of summary judgment to the insurer, finding that the purchaser may have third party beneficiary rights under the seller's property policy. Hensley v. State Farm Fire & Cas. Co., 2017 Okla. LEXIS 59 (June 20, 2017).
In May 2000, Hensley sold his property and a mobile home located thereon to Douglas using a contract for deed. The contract for deed required Douglas to keep the premises insured, and the monthly payments made by Douglas to Hensley included the premiums. Hensley had a policy with State Farm on the property. Hensley continued to make the premium payments and the policy continued to be renewed. Further, State Farm was informed of the change in the property's status.
In July 2008, Douglas reported to a county sheriff that a theft and vandalism occurred on the property. The vandalism included removal of appliances and kitchen cabinets and damage to structural items such as baseboards along the walls. Douglas was not living on the property because he was remodeling in order to sell.
During its investigation, State Farm requested a copy of the contract for deed and Hensley's bank statements. Hensley signed an affidavit stating Douglas had not missed a payment during their agreement. State Farm eventually sent a check to Hensley for $8,441.26 with a letter explaining that another $5,628.83, or the actual cost of repair, whichever was less, would be paid in a supplemental amount. A public adjuster estimated repairs would total $75,271.75.
Hensley and Douglas sued State Farm for breach of contract and failure to perform an implied-in-law duty of good faith. Hensley alleged he was "named insured" on the policy. Douglas alleged he possessed an insurable interest and was an additional insured.
State Farm filed a motion for summary judgment, arguing it had performed under the policy and that Douglas lacked standing to bring a bad faith claim because he was a stranger to the insurance policy. Plaintiffs, on the other hand, argued the policy language gave Douglas standing. The Loss Payment provision stated "We will pay you unless some other person is named in the policy or is legally entitled to receive payment."
The trial court granted summary judgment to State Farm and entered a final judgment against Douglas, finding he was a stranger to the policy and had no standing. The Court of Civil Appeals affirmed.
The Oklahoma Supreme Court noted that when a policy expressed an intent to cover a person's property or to make that person a loss payee under the terms of the policy, that person was considered as a co-insured or a third-party beneficiary. Therefore, the court considered the lien holder and loss payee clauses in the policy which Douglas relied upon.
The only lien holder expressly named in the policy was Mitchell Mortgage Company, LLC. There was nothing in the record to suggest the contract-for-deed agreement between Hensley and Douglas was endorsed to the policy, granting Douglas lien holder status.
The loss-payment clause stated that payment would be made to "you" the named insured, unless some other person was named in the policy or was legally entitled to receive payment. Douglas' equitable title to the property arising from the contract for deed was insufficient by itself to confer upon him a policy-created insurer's duty of good faith created by the policy when Douglas was not expressly named in the policy as a lien holder, insured, loss payee, or third party beneficiary, or when the contract for deed was not expressly referenced in a part of the policy.
But Douglas did present facts on the issue whether he was an intended third party beneficiary insured by the policy. State Farm treated him as an insured. The nature of the relationship involving State Farm, Douglas and Hensley showed an intent by the insurer to cover both interests. Douglas and Hensley indicated premiums were collected for, and the policy was intended to cover, an amount covering the entire value of the property. Therefore, whether Douglas was an intended beneficiary had to be decided by the trier of fact and not on summary judgment.
The opinion of the Court of Civil Appeals was vacated. The summary judgment granted to State Farm was reversed and the matter was remanded to the trial court for further proceedings.