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CX Reinsurance Co. Ltd. v. Levitas

United States District Court, D. Maryland

September 14, 2016

CX REINSURANCE CO. LTD., Plaintiff
v.
STEWART J. LEVITAS et al., Defendants

          MEMORANDUM

          James K. Bredar United States District Judge

         Plaintiff CX Reinsurance Company Limited (“CX Re”) filed suit for declaratory judgment against Defendants Stewart J. Levitas and Brayon J. Loyal and asked the Court to declare the parties' rights and obligations under two commercial general liability insurance policies issued by CX Re to State Real Estate, Incorporated (“SRE”), in relation to rental properties owned by SRE. (Compl., ECF No. 1.) Levitas was sued individually and in his capacity as trustee of SRE's assets. Although Loyal filed an answer (ECF No. 4), Levitas did not file a response to CX Re's complaint, and the Clerk entered a default against him. (ECF No. 8.) CX Re filed a motion for summary judgment (ECF No. 11), Loyal filed a cross-motion for summary judgment (ECF No. 14), and both were fully briefed (ECF Nos. 15, 17). Besides those motions, CX Re has filed a motion for leave to file an amended complaint (ECF No. 16), which Loyal has not opposed, and a motion to dismiss pursuant to Federal Rule of Civil Procedure 41(a)(2) (ECF No. 20), which also has been briefed (ECF Nos. 21, 26).

         The Court has reviewed all of these filings and concludes CX Re's motion for summary judgment will be granted, Loyal's motion for summary judgment will be denied, the motion to amend the complaint will be granted, and the motion to dismiss will be denied.

         The basis for CX Re's motion to dismiss is its representation to the Court that the insurance policies, hereinafter referred to in the singular, were rescinded by agreement of the parties in the case of CX Reinsurance Company Limited v. Stewart J. Levitas, Individually and as the Trustee of the Assets of State Real Estate, Inc., et al., Civ. No. JFM-15-3326 (D. Md.). Thus, CX Re asserts the declaratory judgment action is moot. Loyal opposes the motion to dismiss, arguing she is a third-party beneficiary of the insurance policy and the policy cannot be rescinded without her consent. (Def. Loyal's Opp'n 3, ECF No. 21.) She also claims detrimental reliance, asserting a claim of promissory estoppel. (Id. 4.) She further accuses CX Re of fraud, and she states the rescission does not apply to her claim because it arose in 1996-98 when she was a young child living with her family in one of SRE's rental units, during which time she was diagnosed with elevated blood lead levels. (Id. 1, 7.) None of her arguments has legal merit. But for reasons to be stated later, the motion will be denied.

         Maryland law is quite restrictive on the issue of whether one may be considered a third-party beneficiary:

At common law, only a party to a contract could bring suit to enforce the terms of a contract. The common law rule has expanded to permit third-party beneficiaries to bring suit in order to enforce the terms of a contract. An individual is a third-party beneficiary to a contract if the contract was intended for his or her benefit and it clearly appears that the parties intended to recognize him or her as the primary party in interest and as privy to the promise. It is not enough that the contract merely operates to an individual's benefit: An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.

CR-RSC Tower I, LLC v. RSC Tower I, LLC, 56 A.3d 170, 212 (Md. 2012) (internal quotation marks and citations omitted). Section 302 of the Restatement (Second) of Contracts, cited with approval in Maryland case law, provides:

(1) [U]nless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Id.

         The Maryland courts have noted a decisive distinction between intended beneficiaries and incidental beneficiaries. Id. To determine on which side of that distinguishing line an individual or entity falls, courts “look to the intention of the parties to recognize a person or class as a primary party in interest as expressed in the language of the instrument and consideration of the surrounding circumstances as reflecting upon the parties' intention.” Id. at 213 (internal quotation marks omitted). Loyal unpersuasively claims she is an intended beneficiary of the policy “as the contract specifically identified her by address in listing her specific property in the policy.” (Def. Loyal's Opp'n 3.) She has cited no case that supports her overly generous reading of the policy. Those named as “insureds” of the policy are the following: SRE, Brick Three, Brick Four, Brick Five, Stewart RFeal [sic] Estate, Stewart J. Levitas, Leon Miller Trust, Muriel Miller, Rose Levitas, Freedent Properties, Sylvan Feldman, Bricks One Corp., and Brick Two Corp. (Policy, Schedule of Named Insureds, p. 3, Compl. Ex. B.) The long list of rental properties covered by the policy, id. at pp. 4-7, is not included in the Schedule of Named Insureds, and nowhere in the policy are the properties themselves or the tenants of those properties referred to as “insureds.” The basic insuring agreement was for CX Re to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies.” (Id. at p. 12.) It is plain that the policy was intended by the promisor and promisee to provide some financial protection to the insureds in the event the insureds became legally obligated to pay damages for bodily injury or property damage. Nowhere in the policy is any recognition by promisor and promisee of Loyal or any other tenant as a “primary party in interest.” The policy could conceivably have operated to Loyal's benefit, but that merely means Loyal was an incidental beneficiary of the policy. As such, she has no enforceable right by virtue of the policy against either CX Re, the promisor, or the insureds, the promisees. See CR-RSC Tower, 56 A.3d at 212. See also Weems v. Nanticoke Homes, Inc., 378 A.2d 190, 196 (Md. Ct. Spec. App. 1977) (“a party claiming third-party beneficiary status must ‘show that [the contract] was intended for his direct benefit' and that such intent stemmed from the promisee's status as a debtor of the third-party, or from donative motives”). Thus, Loyal has failed to show she is a third-party beneficiary of the policy.

         Even if Loyal could be considered a third-party beneficiary, she would still be “subject to the same defenses against the enforcement of the contract, as such, as exist between the original promisor and promisee.” Shillman v. Hobstetter, 241 A.2d 570, 577 (Md. 1968). Although it has been recognized that “[a] liability insurance policy is ‘generally issued for the benefit of third parties who are injured and have a claim against a tortfeasor, '” 7 Couch on Insurance § 104:8 (3d ed. 2003), quoted in Phillips v. Allstate Indem. Co., 848 A.2d 681, 691 (Md. Ct. Spec. App. 2004), it is nevertheless also true

that the right of the injured claimant to collect from the insurer of the one who harmed him derives from the contract right of the tortfeasor to have the insurer pay for him within the policy limit what otherwise he would be liable to pay. As the third party beneficiary of the insurance contract, the claimant stands in the shoes of the insured wrongdoer ...

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