FLATTERY v. GREGORY
397 Mass. 143, 489 N.E.
2d 1257 (1986)
O'CONNOR, JUSTICE. We consider for the first time whether an insurance agent owes to a traveler on the highway, injured by the negligent driving of another, a duty to fulfill the agent's pre-accident promise to the tortfeasor to obtain optional liability coverage on the tortfeasor's motor vehicle. The case reaches us as the result of an appeal from the allowance of a motion to dismiss claims against the insurance agent.
We summarize the relevant allegations in the amended complaint. On December 24, 1979, the plaintiff was the operator of a motor vehicle which collided with a 1975 Toyota automobile. The Toyota was operated by the defendant William C. Gregory, Sr., and was owned jointly by the defendants William C. Gregory, Sr., and Joalta Gregory. As a result of injuries sustained in the collision, the plaintiff recovered a judgment against William C. Gregory, Sr., in the sum of $118,181.99.
According to the amended complaint, at the time of the collision the Gregorys owned a 1973 Mercury automobile in addition to the 1975 Toyota. The defendant William F. Borhek, an insurance agent, had procured liability coverage on the 1973 Mercury for the year 1979 with bodily injury limits of $100,000 per person and $300,000 per accident. Before 1979, Borhek had arranged for the issuance to the Gregorys of motor vehicle liability policies on their vehicles containing $100,000/$300,000 bodily injury limits. "On or about July 2, 1979," the amended complaint states, "[Borhek] caused an insurance policy to be amended and issued" to the Gregorys on the 1975,: Toyota (the accident vehicle) with bodily injury limits of only $20,000 per, person and $40,000 per accident.
The amended complaint is in three counts, the first of which is against the defendant The Travelers Indemnity Company and is not involved in this appeal. Count 2 alleges Borhek's liability on a theory of tort. In substance, after making the assertions recited above, the plaintiff says that the Gregorys relied on Borhek to obtain $100,000/$300,000 liability coverage on the 1975 Toyota. The plaintiff further asserts that Borhek's failure to do so and his failure to advise them that the limits were only $20,000/$40,000 constituted negligence resulting in a loss to the plaintiff. Count 3 is based on contract. It reasserts the facts set forth in count 2 and, in addition, alleges that in return for valuable consideration Borhek promised the Gregorys that he would procure a liability policy covering the 1975 Toyota with limits of $100,000/$300,000 "for bodily injury to others, which class of individuals would have included the plaintiff," and that he failed to do so "[i]n breach of said contract. "
Borhek moved that the complaint as to him be dismissed, alleging as grounds that the complaint fails to state a claim for which relief can be granted and that the plaintiff's claims are barred by the applicable statutes of limitations. A judge of the Superior Court allowed the motion, and subsequently judgment in favor of Borhek was entered under Mass.R.Civ.P. 54 (b), 365 Mass. 820 (1974). The plaintiff appealed to the Appeals Court and we granted his application for direct appellate review. We now reverse the judgment below.
We must inquire whether the plaintiff was "an intended beneficiary" of the service promised by Borhek as that term is used in the Restatement (Second) of Contracts S 302, and whether the promised service was "for the benefit of " the plaintiff.
"Where performance [of a promise] will benefit a person other than the promisee, that person is a beneficiary." Restatement (Second) of Contracts S 2 (1981). "A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty" (emphasis added). Id. at S 304. "An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee" (emphasis added). Id. at S 315. "(1) 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." Id. at S 302.
The standard Massachusetts automobile liability insurance policy in 1979 contained the following language relative to optional bodily injury coverage: "Under this Part, we will pay damages to people injured or killed in accidents if you or a household member is legally responsible for the accident. .
. . The damages we will pay are the amounts the injured person is entitled to collect for bodily injury through a court judgment or settlement." It is clear that the plaintiff would have benefited from Borhek's performance of his alleged contractual obligation. In the ordinary course of events the plaintiff would have received $100,000 from the insurer. Thus, the plaintiff was a "beneficiary" as described in Restatement (Second) of Contracts S 2. We also think that the plaintiff was an "intended" beneficiary under S 302. If the allegations of the complaint are proved, recognition of the plaintiff's right to Borhek's performance is an appropriate way to effectuate the intent of Borhek and the Gregorys that the plaintiff receive the amount of his judgment against Gregory up to $100,000, thus discharging, to that extent, "an obligation of the promisee to
pay money to the beneficiary." Id. at S 302 (1)(a).
"It is not essential to the creation of a right in an intended beneficiary that he be identified when a contract containing the promise is made," Restatement (Second) of Contracts S 308, nor is it necessary that the promisee's obligation to pay the beneficiary be in existence when the contract is made. See Restatement (Second) of Contracts S 302, illustration 3 ("B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If the promise is interpreted as a promise that B will pay C, D and E, they are intended beneficiaries under Subsection [11[a]; if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries"); S 308, illustration 2 ("B promises A to pay anyone to whom A may become indebted for the purchase of an automobile. A buys an
automobile from C. B is under a duty to C").