## Facts

- Ernest and Abbielena Holscher agreed to sell a cabin and five acres to Curtis and Brenda James for $50,000, with $500 earnest money and a May 1, 1989 closing date.
- The purchase agreement provided that if the premises were materially damaged by fire before closing, the agreement was voidable at the buyer’s option.
- Before closing, the Jameses obtained an insurance binder from State Farm covering the cabin ($50,000) and contents ($35,000) and took possession.
- The binder listed Ernest Holscher in an “other interests” section identifying persons with a beneficial interest.
- Before closing, the cabin was destroyed by fire.
- The Jameses exercised their contractual option to void the purchase agreement.
- The Holschers sued the Jameses and State Farm seeking compensation for the destroyed cabin, asserting (i) the buyers bore the risk of loss and (ii) the Holschers could recover as third-party beneficiaries of the binder.
- The trial court declined to apply equitable conversion but ordered State Farm to pay under the binder and required the Jameses, on equitable rescission principles, to pay the Holschers the cabin’s value from the proceeds.

## Issues

1. Whether buyers who validly void a purchase agreement under a pre-closing fire clause can nevertheless be held liable for the loss of the destroyed improvements through equitable remedies.
2. Whether sellers listed under “other interests” in a buyer’s insurance binder are intended third-party beneficiaries entitled to recover directly from the insurer.

## Decision

- The court reversed the judgment imposing liability on the Jameses for the cabin’s loss after they exercised their contractual right to void.
- The court affirmed judgment against State Farm, but on different grounds, holding the Holschers could recover directly as intended third-party beneficiaries of the insurance binder.
- The contract’s express risk-of-loss allocation (buyer’s option to void after material fire damage) controlled and could not be overridden by equitable doctrines to recreate buyer liability.
- The inclusion of Ernest Holscher in the binder’s “other interests” evidenced intent to benefit the sellers, supporting direct recovery against the insurer.

## Legal Principles

- When a real estate contract expressly allocates risk of pre-closing casualty loss by giving the buyer an option to void, that allocation governs once the option is properly exercised.
- Courts may not impose equitable relief that conflicts with the parties’ written allocation of risk and remedies for pre-closing damage.
- A nonparty may enforce an insurance contract as an intended third-party beneficiary when the contract’s terms and surrounding indicia show the insurer and insured intended to benefit that nonparty.
- Listing a seller in an insurance binder’s “other interests” section can support intended-beneficiary status and permit direct recovery from the insurer for covered loss.

## Conclusion

The buyers were not responsible for the pre-closing fire loss after voiding the contract under its express casualty clause, but the sellers could recover directly from the buyer’s insurer because the binder showed an intent to benefit the sellers as third-party beneficiaries.


Holscher v. James, 860 P.2d 646 (Idaho 1993)