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FILED: April 20, 2011

IN THE COURT OF APPEALS OF THE STATE OF OREGON

SHERRIE SMITH,

Plaintiff-Appellant,

v.

TRUCK INSURANCE EXCHANGE, INC. (Farmers Insurance);
and PARHAM INSURANCE AGENCY, INC.,

Defendants-Respondents.

Marion County Circuit Court
09C13784
A142954

L. E. Ashcroft, Judge.

Argued and submitted on January 20, 2011.

Meagan A. Flynn argued the cause for appellant. With her on the briefs was Preston Bunnell & Flynn, LLP.

Beth Cupani argued the cause for respondents. With her on the brief were Francis J. Maloney, III, and Maloney Lauersdorf Reiner, PC.

Before Sercombe, Presiding Judge, and Brewer, Chief Judge, and Carson, Senior Judge.

BREWER, C. J.

Judgment dismissing breach of contract claim reversed and remanded; judgment dismissing declaratory judgment claim vacated and remanded to the trial court for dismissal unless MD&D Construction is joined within a time to be set by the court; otherwise affirmed.

BREWER, C. J.

Plaintiff, an alleged third-party beneficiary under a motor vehicle insurance policy, appeals from a judgment dismissing, for failure to state facts sufficient to constitute a claim for relief (ORCP 21 A(8)), and failure to prosecute the action by the real party in interest (ORCP 26 A), this action for breach of contract, negligence, and declaratory judgment. We conclude that the trial court lacked authority to adjudicate plaintiff's claim for declaratory judgment under ORS 28.110, because plaintiff failed to join the named insured as a party to that claim. In addition, we conclude that the trial court properly dismissed plaintiff's negligence claim for failure to state a claim. However, we conclude that the trial court erred in dismissing plaintiff's claim for breach of contract on the grounds that defendants urged before the trial court.

Because this action was dismissed at the pleading stage, we liberally construe the pleadings and consider as true the facts alleged in plaintiff's complaint and all reasonable inferences that may be drawn from those facts. ORCP 12 A; Simonsen v. Ford Motor Co., 196 Or App 460, 462, 102 P3d 710 (2004), rev den, 338 Or 681 (2005).

In her complaint, plaintiff alleged that she was injured in a motor vehicle collision and, as a result, incurred medical expenses and wage loss in excess of $100,000. The collision was the fault of a driver whose liability insurance provided only $25,000 in coverage. At the time of the collision, plaintiff was driving a 2004 Ford Ranger that had been loaned to her by Greer, the owner of MD&D Construction.

Plaintiff further alleged that MD&D maintained an insurance policy (the policy) with defendant Truck Insurance Exchange (Truck) that included substantial underinsured motorist (UIM) coverage benefits as well as personal injury protection (PIP) coverage for medical expenses and wage loss for injuries to occupants of an insured vehicle. Shortly before loaning the vehicle to plaintiff, Greer called defendant Parham Insurance Agency (Parham) and asked that the Ranger be added to the MD&D policy. Parham sold insurance as an agent of various insurers, including Truck. Based on the statements of Parham, Greer "reasonably believed that he had insurance which covered the vehicle and therefore, loaned the vehicle to plaintiff." However, Truck denied plaintiff's claim for PIP and UIM benefits under the MD&D policy.

In her claim for breach of contract, plaintiff alleged that she was a third- party beneficiary of the policy and that Truck had refused to pay the benefits that she claimed under the policy. In her declaratory judgment claim, plaintiff realleged those operative facts in support of her request for a judgment that the policy was in force and effect when she was injured and that she was covered under the PIP and UIM provisions of the policy. In her negligence claim, plaintiff alleged, in addition to the other facts alleged in the complaint, that Parham was negligent in failing to procure the insurance that Greer had requested before the collision.

Defendants filed a motion to dismiss the complaint. As noted, the sole grounds for the motion were defendants' assertions that the complaint failed to state facts sufficient to constitute claims for relief and that plaintiff was not the real party in interest in the action. Defendants argued that the complaint was insufficient under ORCP 21 A(8) because plaintiff was "a stranger" to the insurance policy who was, at most, an "indirect third party beneficiary" who had "no relationship whatsoever to Parham." Defendants argued that the only real party in interest under the policy was MD&D and that, because plaintiff had failed to join MD&D as a party, the action must be dismissed under ORCP 26 A. Defendants made no separate argument that the court lacked authority to adjudicate the declaratory judgment claim under ORS 28.110, nor did defendants argue that the action should be dismissed because MD&D was a necessary party under ORCP 29.

At the hearing on defendants' motion to dismiss, the trial court opined that the complaint was deficient because, in the absence of MD&D's joinder, plaintiff lacked "standing" to assert the breach of contract and negligence claims. In the ensuing order granting the motion to dismiss, the court afforded plaintiff "leave to re-plead and/or bring in any other necessary parties by" a date certain. After plaintiff failed to file an amended pleading, the court entered a judgment dismissing the action.

On appeal, plaintiff reiterates her arguments before the trial court that, as a third-party beneficiary of the policy and Parham's undertaking to obtain the requested insurance coverage for MD&D, she has stated claims for breach of contract and negligence as a real party in interest seeking PIP and UIM benefits or equivalent damages on the ground that those losses are personal to her. Defendants reply that,

"[a]lthough plaintiff argues that she is someone who will be benefitted from the judgment, there is no evidence that she falls into any class of persons who benefit from the terms of the insurance contract. Plaintiff argues only that she made a claim under the policy owned by MD&D Construction. However, she failed to allege any relationship to the vehicle, or to the insurance contract at issue. Plaintiff also fails to provide any of the policy provisions that would support her status as the real party in interest."

In addition, for the first time on appeal, defendants rely on ORCP 29 A, which provides:

"A person who is subject to service of process shall be joined as a party in the action if (1) in that person's absence complete relief cannot be accorded among those already parties, or (2) that person claims an interest relating to the subject of the action and is so situated that the disposition in that person's absence may (a) as a practical matter impair or impede the person's ability to protect that interest or (b) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of their claimed interest. If such person has not been so joined, the court shall order that such person be made a party. If a person should join as a plaintiff but refuses to do so, such person shall be made a defendant, the reason being stated in the complaint."

According to defendants:

"The trial court correctly determined that MD&D Construction, the policyholder, is a necessary party to any action on the insurance contract. In the absence of MD&D Construction, complete relief cannot be accorded amongst the parties to the lawsuit, and allowing the lawsuit to move forward without them would leave Truck and Parham at risk of incurring multiple and inconsistent obligations."

We begin with the sufficiency of plaintiffs' complaint to state a claim for breach of contract; in this case, that issue is inextricably entwined with defendants' argument that plaintiff is not a real party in interest with respect to that claim. ORCP 21 A(6) provides that a complaint may be dismissed on the ground that "the party asserting the claim is not the real party in interest." The rule flows from ORCP 26 A, which requires that

"[e]very action shall be prosecuted in the name of the real party in interest. An executor, administrator, guardian, conservator, bailee, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in that party's own name without joining the party for whose benefit the action is brought[.]"

Case law describes the rule as recognizing two classes of persons who may be regarded as "real parties in interest" under ORCP 26 A. First, there is the class of parties who will be "benefitted or injured by the judgment in the case." Association of Unit Owners v. Dunning, 187 Or App 595, 607, 69 P3d 788 (2003). Second, there is the class of persons who are "statutorily authorized to bring an action." Id.

To be sure, plaintiff's complaint in this case is not artfully framed. However, giving plaintiff the benefit of all reasonable inferences flowing from the facts alleged in the complaint, we conclude that she has adequately stated a claim for breach of contract as well as her real-party-in-interest status for purposes of that claim. From the allegations that Greer, MD&D's owner, asked Parham to add the 2004 Ranger to the existing insurance policy, which included particular PIP and UIM benefits for occupants of a covered vehicle, and that, based on Parham's statements, Greer reasonably believed that the Ranger was covered, the following inferences reasonably flow: (1) that Truck issued the policy; (2) that Parham was acting as Truck's agent; (3) that, as Truck's agent, Parham promised to add the Ranger to the policy; and (4) that plaintiff was claiming PIP and UIM benefits under the policy. In addition, the allegations that Greer loaned the Ranger to plaintiff because he believed from his conversation with Parham that the vehicle was covered under the policy and that plaintiff was injured in a collision and, therefore, was entitled to PIP and UIM benefits, are sufficient to permit inferences that plaintiff was covered under the policy because she was occupying the Ranger with permission at the time of her collision with an underinsured driver. In fact, at oral argument on the motion to dismiss, defendants' counsel acknowledged that plaintiff "alleges she was a permissive driver--a driver of a vehicle owned by MD&D Construction." Plaintiff was not required to plead more to state a claim for PIP and UIM benefits as a real party in interest.

For purposes of UIM coverage, "insured" means every person "occupying an insured vehicle" with permission. ORS 742.504(2). Oregon motor vehicle insurance policies must provide UIM coverage that is no less favorable to the insured than the terms required by ORS 742.504. ORS 742.502; Vega v. Farmers Ins. Co., 323 Or 291, 302, 918 P2d 95 (1996). Because the complaint permits the inference that plaintiff was a permissive occupant of the Ranger, plaintiff has sufficiently alleged that she is an intended third-party beneficiary of the insurance policy who will be "benefitted or injured by the judgment in this case." Dunning, 187 Or App at 607. Accordingly, the trial court erred in dismissing plaintiff's breach of contract claim on either of the grounds raised in defendants' motion to dismiss.

There remains to be considered defendants' argument that ORCP 29 requires dismissal of plaintiff's breach of contract claim in the absence of MD&D's joinder as a party, because defendants otherwise would be left "subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of" MD&D's interest in the policy. Even though, in its order granting defendants' motion to dismiss, the trial court referred to the joinder of "necessary" parties, defendants did not rely on ORCP 29, and the trial court did not address the standards for making a determination under that provision. We may not consider that argument for the first time on appeal. ORCP 21 G(3) (defense of failure to join indispensable party may be raised by pleading, motion, or at trial); Waddill v. Anchor Hocking, Inc., 330 Or 376, 384, 8 P3d 200 (2000), adh'd to on recons, 331 Or 595 (2001) (defense enumerated in ORCP 21 G may not be raised for the first time on appeal).

We next consider plaintiff's argument that the trial court erred in dismissing her claim against Parham for negligent failure to procure coverage for the Ranger and its permissive occupants, including plaintiff. We begin with the issue whether plaintiff alleged facts sufficient to constitute a claim for negligence under ORCP 21 A(8). In Hale v. Groce, 304 Or 281, 744 P2d 1289 (1987), the defendant lawyer had promised a testator that he would include in the testator's will a specific bequest to the plaintiff. The lawyer then failed to carry out that promise. After unsuccessfully attempting to reform the will, the plaintiff brought an action against the lawyer for breach of contract and negligence. The Supreme Court held that the plaintiff's complaint stated claims both for breach of contract and for negligence.

The court began by observing,

"The two claims are related, but they differ in important respects. Standing alone, without a duty to plaintiff derived from defendant's contractual undertaking, plaintiff's tort claim would confront the rule that one ordinarily is not liable for negligently causing a stranger's purely economic loss without injuring his person or property. * * * It does not suffice that the harm is a foreseeable consequence of negligent conduct that may make one liable to someone else, for instance to a client. Some source of a duty outside the common law of negligence is required. * * * A contract claim, on the other hand, does not necessarily depend on showing negligence."

304 Or at 283-84 (citations omitted). The court then turned to the question whether the allegations in the plaintiff's complaint were sufficient to permit him to assert "third-party beneficiary" status. The court stated:

"We agree that the beneficiary in these cases is not only a plausible but a classic 'intended' third-party beneficiary of the lawyer's promise to his client within the rule of [the] Restatement [(Second) of Contracts] section 302(1)(b) and may enforce the duty so created[.]"

Id. at 286. The court went on to hold that,

"[b]ecause under third-party analysis the contract creates a 'duty' not only to the promisee, the client, but also to the intended beneficiary, negligent nonperformance may give rise to a negligence action as well."

Id.

The court in Hale considered the beneficiary of a will to be a classic "intended" third-party beneficiary when the facts satisfy the standards in the Restatement (Second) of Contracts, section 302 (1981), which provides:

"Unless 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."

In Caba v. Barker, 341 Or 534, 145 P3d 174 (2006), the court distinguished Hale. In that case, two residual legatees of a will brought an action against the lawyer who drafted it. The plaintiffs asserted that, in addition to their status as residual legatees, they were the intended third-party beneficiaries of what they characterized as an "implied" promise that they alleged that the defendant made to the testator in connection with that will. The plaintiffs further alleged that the defendant failed to carry out the terms of his implied promise to the testator, that they suffered damages as a result of that failure, and that they had either a viable breach of contract claim or a viable negligence claim (or both) against the defendant as a result.

The plaintiffs invoked Hale (and the Restatement), alleging that the defendant's promise to the testator to draft a will that included a specific bequest to them (to make them residual legatees) "included an implied promise to make the will invulnerable to a will contest so as to achieve [the testator's] plan to maximize gifts to residuary beneficiaries." The Supreme Court rejected the plaintiffs' argument:

"The difficulty with that second part of plaintiffs' allegation, however, is that, because (as plaintiffs themselves have pleaded) that part of defendant's promise was only 'implied,' the complaint must allege some basis for the implication.

"Two sources of such an implication are possible: the facts and the law. The complaint alleges no facts that would permit the implication. Plaintiffs, while entitled to all the inferences that fairly may be drawn from their allegations, also are deemed, in standing on their third amended complaint, to have alleged the facts in the best light possible. See Harding v. Bell, 265 Or 202, 209, 508 P2d 216 (1973) (stating principle). That leaves the question whether the law itself will draw the implication on which plaintiffs rely.

"We perceive no basis for doing so. A promise implied in law needs some basis in policies associated with contracts in general, or with contracts of the specific kind involved in this case, in order to achieve judicial recognition. That is, promises implied in law are 'created by the law for reasons of justice.' See Joseph M. Perillo, 1 Corbin on Contracts