Hamman-McFarland Lumber Co. v. Arizona Equipment Rental Co., HAMMAN-M

• Decision Date: 10 January 1972
• Docket Number: CA-CIV,No. 1,HAMMAN-M,1
• Citation: 492 P.2d 437,16 Ariz.App. 188
• Parties: cFARLAND LUMBER COMPANY, an Arizona corporation, Appellant, v. ARIZONA EQUIPMENT RENTAL COMPANY, an Arizona corporation, Appellee. 1727.
• Court: Arizona Court of Appeals

Page 437

492 P.2d 437

16 Ariz.App. 188

HAMMAN-McFARLAND LUMBER COMPANY, an Arizona corporation, Appellant, v. ARIZONA EQUIPMENT RENTAL COMPANY, an Arizona corporation, Appellee.

No. 1 CA-CIV 1727.

Court of Appeals of Arizona, Division 1.

Jan. 10, 1972.

Rehearing Denied Feb. 9, 1972.

Philip T. Goldstein by Eric J. Bistrow, Phoenix, for appellant.

Andrews, Marenda & Moseley, P.A. by Dale E. Marenda, Phoenix, for appellee.

HOWARD, Judge.

Appellant Hamman-McFarland Lumber Co., defendant below, appeals from a judgment by the Superior Court of Maricopa County whereby appellee Arizona Equipment Rental Co., plaintiff below, was awarded $4,250 for damage to plaintiff's forklift occurring while in possession of defendant.

The undisputed facts are as follows: Hamman-McFarland, on March 24, 1969, entered into a rental agreement with Arizona Equipment Rental whereby Hamman-McFarland rented a 7,000 pound Yale forklift at the rate of $45 per day. The agreement provided Inter alia, that:

'Lessee does hereby rent and accept the above listed equipment and acknowledges that it is in good working condition and agrees to pay on demand, in cash, the rent for said property at the rate herein stated; Lessee further agrees to take care of said equipment and to use it in a proper manner and agrees that in the event any of the rented equipment is lost or destroyed before it is returned, to promptly pay the full value of said rented property or if it is damaged or injured in any way, including tire damage of any kind, to pay an amount equal to the reasonable cost of repairing the same.'

The following day, while in defendant's possession, the forklift was totally destroyed by fire with its sole remaining value being that of scrap. Plaintiff, through its duly authorized agent, Mr. Keith Webb, submitted a proof of loss statement to its insurer, The Home Ins. Co., which was approved on May 12, 1969. On May 13, Arizona Equipment Rental, again through Mr. Webb, upon receipt of payment of $5,000, executed a loan receipt agreement which is set forth below:

Arizona Equipment Rental subsequently instituted this action against Hamman-McFarland in accordance with the terms of the loan agreement. After trial to the court sitting without a jury, defendant moved to dismiss pursuant to Rule 41(b), Ariz.Rules of Civ.Proc., 16 A.R.S., for the reason that plaintiff had been paid for his loss by insurance, that the 'loan receipt agreement' between plaintiff and insurer was invalid, and that recovery from defendant would result in a double recovery for plaintiff which is not allowable. See Warren Co. v. Hanson, 17 Ariz. 252, 150 P. 238 (1915). Defendant's motion to dismiss was denied and plaintiff was awarded a judgment in the amount of $4,250. ¹

Appellant Hamman-McFarland presents only one question on appeal:

'Whether a loan receipt agreement between an insurer and its insured following a loss constitutes payment of the insurer's liability so as to preclude the insured from instituting an action against a third party allegedly responsible for the loss.'

Loan receipt agreements have been used by insurance companies for many years in order to avoid the possible prejudice which juries frequently apply against insurance companies suing in their own name under subrogation agreements. See Luckenback v. W. J. McCahan Sugar Ref. Co., 248 U.S. 139, 39 S.Ct. 53, 63 L.Ed. 170 (1918); Aetna Freight Lines, Inc. v. R. C. Tway Co., 298 S.W.2d i93 (Ky.1956); Sullivan v. Naiman, 130 N.J.L. 278, 32 A.2d 589 (1943); Houston Transit Co. v. Goldston, 217 S.W.2d 435 (Tex.Civ.App.1949). Where, as in the instant case, the insured has been satisfied in full by the insurer and therefore has no interest in the recovery, the courts have split in their determination as to the validity of such 'loan agreements' with some recognizing the fiction of the purported loan as a valid attempt to avoid possible jury prejudice against the insurance company and others disallowing the fiction and forcing the insurer, as the real party in interest, to sue in its own behalf.

Thus the question before this court is not whether the 'loan receipt agreement' constitutes a valid loan, but rather, whether the insurer, as the real party in interest, can circumvent Rule 17(a), Ariz.Rules of Civ.Proc., 16 A.R.S., by such an agreement.

Rule 17(a) provides in part:

'Every action shall be prosecuted in the name of the real party in interest. . . .'

In Tucson Gas, Elec. Light & Power Co. v. Board of Supervisors, 7 Ariz.App. 164, 436 P.2d 942 (1968), this court held that an insurer which has paid the full amount of a loss suffered by the insured becomes subrogated to the full extent of the insured's claim against the one primarily liable for the loss, and that in any suit to enforce the claim the insurer is the only real party...