Frank Briscoe Co., Inc. v. Georgia Sprinkler Co., Inc.

Decision Date06 September 1983
Docket NumberNo. 82-8479,82-8479
Citation713 F.2d 1500
PartiesFRANK BRISCOE COMPANY, INC., Plaintiff-Appellant, v. GEORGIA SPRINKLER COMPANY, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

Montet & Smith, Malcolm P. Smith, Atlanta, Ga., for plaintiff-appellant.

Long, Weinberg, Ansley & Wheeler, J. Kenneth Moorman, Marjorie M. Rogers, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before TJOFLAT and VANCE, Circuit Judges, and MORGAN, Senior Circuit Judge.

LEWIS R. MORGAN, Senior Circuit Judge:

Frank Briscoe Company, Inc. (Briscoe), appeals the granting of summary judgment by the United States District Court for the Northern District of Georgia in favor of Georgia Sprinkler Company, Inc. (Georgia Sprinkler), in this diversity action for damages that allegedly were caused by a leak in a sprinkler system in the Richard B. Russell Federal Building and United States Courthouse (Russell Building) in Atlanta, Georgia. Briscoe contends the district court erred in holding that this action was barred by the principle that an insurer may not bring a subrogation action against a co-insured. For the reasons set forth below, we affirm.

The material facts are not in dispute. In May 1976, Briscoe entered into a contract with the United States of America--General Services Administration for the construction of the Russell Building in Atlanta, Georgia. As part of the contract Briscoe agreed to procure and maintain during the life of the contract general public liability insurance covering "all duties, services and work to be performed under the contract." Pursuant to this agreement, Briscoe obtained builder's risk insurance through the Hartford Fire Insurance Company (Hartford) covering the value of materials and property on the site during the construction. The policy, in the declarations page, named the insureds as "Frank Briscoe Co., Inc., and All Sub and Sub-Contractors."

In August 1976, Briscoe entered into a subcontract with Georgia Sprinkler for the installation of a fire protection sprinkler system at the Russell Building. Pursuant to this contract, Georgia Sprinkler agreed to "indemnify and save harmless ... the Contractor [Briscoe] against any loss, cause of injury or damage to persons or property arising or resulting from the performance of this Sub-Contract." Georgia Sprinkler also agreed to procure and maintain public liability insurance and property damage liability insurance. Apparently in accordance with this provision, Georgia Sprinkler obtained a general liability insurance policy from Commercial Union Insurance Company naming Briscoe as certificate holder.

Georgia Sprinkler commenced work pursuant to the subcontract in December 1976. In October 1978, a leak occurred in the sprinkler system installed by Georgia Sprinkler which allegedly resulted in extensive property damage. Subsequent to the leak, Briscoe filed a claim with Hartford under its policy for the losses that allegedly resulted from the leak. In March 1979, Hartford forwarded Briscoe a draft in the amount of the losses, less the deductible, made payable to the order of "Frank Briscoe, Inc., and All Subcontractors." The subcontractors' contracts with Briscoe were thereupon amended to reflect the amounts of their losses. Briscoe also executed a loan receipt in the amount of the draft in favor of Hartford granting Hartford the right to prosecute, in Briscoe's name, legal proceedings necessary to enforce any claim arising from the leakage.

Following Hartford's payment of the loss and the execution of the loan receipt, this action was brought in the name of Frank Briscoe, Inc., against Georgia Sprinkler asserting liability under the indemnity agreement and on the grounds of negligence. The district court granted summary judgment in favor of Georgia Sprinkler holding that, under Georgia law, an insurer may not maintain, directly or indirectly, a subrogation action against a co-insured.

The parties agreed below, and did not dispute here, that although this case is prosecuted in Briscoe's name it is in actuality an action by Hartford as subrogee of Briscoe under the builder's risk policy. 1 R. 538-39.

The issue presented in this appeal is whether a right of subrogation exists in favor of Hartford. Generally, subrogation is allowed in favor of an insurer who pays a loss suffered by its insured which was occasioned by the negligence of a third party. Liberty Mutual Insurance Company v. Alsco Construction Company, Inc., 144 Ga.App. 307, 240 S.E.2d 899 (1977); Turner Construction Company v. John B. Kelly Company, 442 F.Supp. 551 (E.D.Pa.1976); 6A Appleman, Insurance Law and Practice § 4054 (1972). The principle of subrogation has been described as being "of equitable origin and benevolence ... founded upon the dictates of refined justice, and its basis the doing of complete, essential, and perfect justice between the parties ... [with] its object [being] the prevention of injustice." Southern R. Co. v. Overnight Transport, Co., 223 Ga. 825, 830, 158 S.E.2d 387 (1967); Liberty Mutual Insurance Company, supra, 144 Ga.App. at 308, 240 S.E.2d 899. Subrogation does not arise, however, in favor of the insurer against its insured since by definition subrogation arises only with respect to the rights of the insured against third persons to whom the insurer owes no duty. E.C. Long, Inc., v. Brennan's of Atlanta, Inc., 148 Ga.App. 796, 252 S.E.2d 642 (1979); Turner Construction Company, supra; Transamerica Insurance Company v. Gage Plumbing and Heating Company, 433 F.2d 1051 (10th Cir.1970); 6A Appleman, supra, § 4055. Similarly, it has been held that where there are two co-insureds and the insurer pays one insured under the policy, no right of subrogation arises against the additional insured. Id. But see McBroome-Bennett Plumbing, Inc., v. Villa-France, Inc., 515 S.W.2d 32 (Tex.Civ.App.1974); Paul Tishman Co. v. Carney and Del Guidice, Inc., 36 A.D.2d 273, 320 N.Y.S.2d 396 (1971), aff'd 34 N.Y.2d 941, 359 N.Y.S.2d 561 (1974).

The district court, after reaffirming the above principles, concluded that the issue in the instant case was controlled by the recent Georgia Court of Appeals decision in E.C. Long, Inc., v. Brennan's of Atlanta, Inc., supra. In Brennan's, the owner of a mansion contracted with a general contractor for the purpose of converting the mansion into a restaurant. The owner procured builder's risk insurance on the property, naming the owner and contractor as co-insured under the policy. After the property was destroyed by fire, the insurance companies insuring the property paid the owner and contractor jointly for the losses. After the drafts for the losses were issued and endorsed, the insurance companies obtained a loan receipt and instituted a suit against the contractor in the name of the property owner contending the contractor negligently caused the loss. The court concluded the action was barred on two grounds. First, the court concluded the owner and contractor had waived claims against each other by express agreement to the extent covered by insurance and therefore there were no derivative rights held by the insurance companies against the contractor. Second, the court held the contractor was a co-insured and insurers could not "take subrogation" and sue a co-insured even though the co-insured caused the loss. Id. 148 Ga.App. at 803-04, 252 S.E.2d 642. This principle applied, according to the court, whether the insurer sues directly in its own name or indirectly in the name of the co-insured through the use of a loan receipt. Id.

Briscoe seeks to avoid the application of Brennan's to the case before us on four grounds. Briscoe first asserts that the district court erred in its application of Georgia law to this case rather than New Jersey law. Briscoe argues that because the insurance policy was issued and delivered in New Jersey, New Jersey law is applicable under the Georgia choice of law rule that an insurance contract is interpreted in accordance with the law of the place of delivery. Canal Insurance Company v. Aldridge, 489 F.Supp. 157 (S.D.Ga.1980); Pink v. AAA Highway Express, 191 Ga. 502, 13 S.E.2d 337 (1941). Because there appears to be no New Jersey case law or statutes dispositive of this appeal, Briscoe urges us to adopt the "reasonable rule" followed in various jurisdictions that would not preclude a subrogation action under similar facts as this case. We decline to do so. A federal court faced with the choice of law issue must look for its resolution to the choice of law rules of the forum state. Klaxon Company v. Stenton Electric Manufacturing Company, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Notwithstanding certain confusion concerning the current choice of law rule followed in the Georgia courts, see Brown v. Inter-Ocean Insurance Company, 438 F.Supp. 951 (N.D.Ga.1977); Allen v. Smith and Medford, Inc., 129 Ga.App. 538, 199 S.E.2d 876 (1973); Robinson v. Ravenel Company, 411 F.Supp. 294 (N.D.Ga.1976), it is clear that the application of another jurisdiction's laws is limited to statutes and decisions construing those statutes. White v. Borders, 104 Ga.App. 746, 123 S.E.2d 170 (1961); Budget Rent-A-Car Corp. v. Fein, 342 F.2d 509 (5th Cir.1965). When no statute is involved, Georgia courts apply the common law as developed in Georgia rather than foreign case law. Id.; Motz v. Alropa Corp., 192 Ga. 176, 15 S.E.2d 237 (1941); Rees, "Choice of Law in Georgia: Time to Consider a Change?", 34 Mer.L.Rev. 787-789 (1983). Briscoe admittedly cannot cite an applicable New Jersey statute or case controlling the issues in this case. Therefore, under the current choice of law jurisprudence extant in Georgia, Georgia law must control.

Second, Briscoe asserts that unlike the situation in Brennan's, the parties did not waive all claims against each...

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