American Chain & Cable Co., Inc. v. Brunson, 60892

• Decision Date: 10 March 1981
• Docket Number: No. 60892,60892
• Citation: 278 S.E.2d 719,157 Ga.App. 833
• Court: Georgia Court of Appeals
• Parties: AMERICAN CHAIN & CABLE COMPANY, INC. v. BRUNSON et al.

Page 719

278 S.E.2d 719

157 Ga.App. 833

AMERICAN CHAIN & CABLE COMPANY, INC. v. BRUNSON et al.

No. 60892.

Court of Appeals of Georgia.

March 10, 1981.

Certiorari Denied April 10, 1981.

Bruce H. Beerman, Warren C. Fortson, Atlanta, for appellant.

William C. Lanham, Clark H. McGehee, Atlanta, Thomas William Malone, Albany, Kevin B. Buice, Athens, N. Forrest Montet, Atlanta, Richard Hodge, Albany, for appellees.

SOGNIER, Judge.

Appellee Brunson was injured when an elevator in which he was a passenger fell from the upper floor of Maloof's Department Store to the lower floor. In three separate lawsuits, Brunson and his wife sued the owner, Maloof, the installer of the elevator, Divine, the builder of the department store, Prince, the manufacturer, American Chain and Cable, and the seller, Tull Equipment & Supply Co.

The Brunsons executed two settlement agreements. The first agreement provided for an interest free loan from Maloof and his insurance carrier to the Brunsons in the amount of $40,000 in exchange for a covenant not to sue. The second agreement was between the Brunsons and Divine and Prince (and their respective insurance carriers) and provided for an interest free loan of $25,000 to the Brunsons in exchange for a covenant not to sue. The agreements are similar in content, the agreement with Maloof being incorporated by reference in the agreement with Prince and Divine, which provides for (1) a covenant not to sue Maloof, Divine and Prince; (2) an agreement to repay the loans only out of the proceeds of any judgment or settlement obtained from appellants; (3) a pledge of these inchoate funds to Maloof, Divine and Prince as security; (4) an agreement to indemnify and hold harmless Maloof, Divine and Prince in the event that appellants attempt to obtain contribution or indemnity from them; and (5) an agreement to execute a full release following the end of litigation. The first $130,000 to be recovered from the manufacturer and seller would be divided equally between the Brunsons and Maloof, Prince and Divine. The Brunsons dismissed their suits against all the defendants and refiled their claim against American Chain and Tull. These defendants filed a motion for summary judgment which was denied. The trial judge granted appellants' motion for a certificate of immediate review, and this court granted their application for interlocutory appeal.

The use of a "loan receipt" executed by a plaintiff in favor of defendant joint tortfeasors in exchange for an agreement not to sue said joint tortfeasors on a personal injury claim presents a question of first impression in the appellate courts of Georgia.

Appellants contend that the agreements entered into by appellees and defendants Maloof, Divine and Prince operated as a release, thereby releasing appellants as joint tortfeasors. Appellee contends that the agreements are covenants not to sue and do not bar an action against other joint tortfeasors. While neither party has directly addressed the issues involved in the use of a "loan receipt" in the context of this case, we have not found that such agreements between plaintiffs and joint tortfeasor defendants have been approved by the Georgia courts. Therefore, a full discussion is necessary, as we cannot, by ignoring such issues, give tacit approval of the use of such a device under the circumstances of this case.

Historically, the loan receipt arose out of a commercial setting involving shippers and carriers. The purpose of the loan receipt agreement was to supply the shipper promptly with money from his insurer to the extent of compensation to which the insured was entitled as a result of property loss suffered, and to preserve to the insurer the claim against the carrier to which the insurer would become subrogated upon payment by them for the loss. The Supreme Court of the United States approved such an agreement as a means of obtaining "prompt settlement for loss (which is essential to actual indemnity and demanded in the interest of commerce)" Luckenbach v. McCahan Sugar Ref. Co., 248 U.S. 139, 146 (39 S.Ct. 53, 54, 63 L.Ed. 170) (1918).

In Georgia, the usual circumstances under which a loan receipt is executed involve a loan to an insured by his insurer for property damages resulting from a tortious act by a third party. McCann v. Dixie Lake & Co., 44 Ga.App. 700, 162 S.E. 869 (1931); Service Fire Ins. Co. v. Powell, 70 Ga.App. 213, 27 S.E.2d 896 (1943); Green v. Johns, 86 Ga.App. 646, 72 S.E.2d 78 (1952); Clark v. American Cas. Co., 96 Ga.App. 328, 99 S.E.2d 897 (1957); Lowance v. Dempsey, 99 Ga.App. 592, 109 S.E.2d 318 (1959); Coleman v. State Farm, etc., Ins. Co., 104 Ga.App 328, 121 S.E.2d 833 (1961); Kirkendohl v. State Farm Mutual, etc., Co., 104 Ga.App. 834, 122 S.E.2d 922 (1961); State Farm Mut. etc. v. Barnard, 115 Ga.App. 857, 156 S.E.2d 148 (1967); Pharo v. Travelers Ins. Co., 119 Ga.App. 344, 167 S.E.2d 226 (1969); Hall v. Helms, 150 Ga.App. 257, 257 S.E.2d 349 (1979). The loan receipt in such cases arises out of a policy of insurance which provides the insured with protection against damage to his property. It permits the insured to recover for the property loss, and sue the tortfeasor in his own name. Thus, the loan receipt is a valid method of keeping the insurance company out of the litigation as a party. In such a case the insured is the proper plaintiff. United States Fire Ins. Co. v. Farris, 146 Ga.App. 177, 178, 245 S.E.2d 868 (1978).

One must remember in such cases that a contractual relationship exists between the insurer and the insured which would pre-date any tort committed against the insured. In addition, the cases involve property damage as opposed to personal injury claims. As cited above, our courts have upheld the loan receipt in the context of an insured and his own insurer, and have held that such a loan receipt does not constitute an assignment of the insured's cause of action, McCann v. Dixie Lake & Co., supra; Southeast Transport v. Hogan Livestock, 133 Ga.App. 825, 827, 212 S.E.2d 638 (1975).

The loan receipt agreement between an insured and insurer creates a legal fiction where, for the convenience of the insured, the insurer advances money which, if the insured were not successful in his claim against the tortfeasor, the insurer would be liable to pay under the insurance policy. Our courts have approved this legal fiction and permitted the insured to prosecute his claim in his own name, to the advantage of both the insured and insurer. (See citations above.) However, this court has recognized that "the action would proceed in the name of the plaintiff, but would be in effect for the use of its insured." Executive Dev. Prop. v. Andrews Plumbing Co., 134 Ga.App. 618, 620, 215 S.E.2d 318 (1975). Judge (now Justice) Marshall, in Southeast Transport v. Hogan Livestock, supra at 827, 212 S.E.2d 638, reluctantly held that a loan receipt was not an assignment and that an insurer advancing money to cover a loss under an insurance policy is not required as a party in a suit between the insured and a third party tortfeasor.

The instant case presents an entirely different situation. Here, the parties to the agreement have no prior contractual relationship. The loan receipt is a device whereby some of the defendant joint tortfeasors agree to advance money to the plaintiff in exchange for a covenant not to sue, and at the same time such defendants retain an interest in the plaintiff's cause of action against the remaining defendant joint tortfeasors. Under these circumstances we must determine whether recognition of the legal fiction should permit the loan receipt to be validated.

In Georgia, assignment of a personal injury claim is not permitted. Code Ann. § 85-1805; James v. Emmco Ins. Co., 71 Ga.App. 196, 200, 30 S.E.2d 361 (1944). While we do not view the instant loan receipt to be an assignment per se of plaintiff's personal injury claim to Maloof, Divine and Prince, we think that such a device is an attempt to do indirectly what the law will not permit directly.

Under the usual circumstances involving a loan receipt, commercial necessity permits the insurance company to promptly pay an insured's claim and at the same time, protect its interest in the subrogated claim. The cases cited, supra, involve claims for property damage. Code Ann. § 85-1805 provides that a "right of action is assignable if it involves, directly or indirectly, a right of property ..." In the instant case, we find no compelling reason to permit contravention of the statutory prohibition against assignment of a personal injury claim. The situation is not analogous to the subrogation involved...