Insurance Co. of North America v. Gulf Oil Corp., s. 39419

• Decision Date: 22 June 1962
• Docket Number: Nos. 39419,39420,No. 1,s. 39419,1
• Citation: 106 Ga.App. 382,127 S.E.2d 43
• Parties: INSURANCE COMPANY OF NORTH AMERICA v. GULF OIL CORPORATION. GULF OIL CORPORATION v. INSURANCE COMPANY OF NORTH AMERICA
• Court: Georgia Court of Appeals

Page 43

127 S.E.2d 43

106 Ga.App. 382

INSURANCE COMPANY OF NORTH AMERICA v. GULF OIL CORPORATION.

GULF OIL CORPORATION v. INSURANCE COMPANY OF NORTH AMERICA.

Nos. 39419, 39420.

Court of Appeals of Georgia, Division No. 1.

June 22, 1962.

Rehearing Denied July 26, 1962.

Syllabus by the Court

1, 3, 4. The insurer can be subrogated to a claim of the insured for the loss of insured property allegedly caused by the negligence of the mortgagee, who is a loss payee and has received proceeds of the fire insurance policy under an 'open' loss payable clause, providing that loss, if any, shall be payable to the insured and the mortgagee as their respective interests may appear.

2. The exculpatory clause in a lease relieved the lessor from liability for damages caused by breach of its legal duties as landlord, but did not relieve the lessor of liability for negligence with repsect to other legal duties owed the tenant not arising out of the lease relationship.

5. Whether certain conduct amounts to wantonness is a jury question if reasonable minds might disagree as to whether or not it is so reckless or so charged with indifference to the consequences as to be the equivalent in spirit of actual intent.

6. When testimony of the same witness, substantially the same as that excluded, goes before the jury, the exclusion is not reversible error.

This litigation involves an insurance policy issued by the plaintiff (plaintiff in error) to J. B. Harper which included an endorsement making loss payable to Harper and the defendant (defendant in error). The defendant hereinafter will be called Gulf. Gulf sold products to Harper and held a mortgage thereon. Harper leased from Gulf a part of a warehouse building located on premises where Gulf operated a bulk plant, and his goods, upon which Gulf held a mortgage, were located in the warehouse. A fire originating in the bulk plant destroyed the warehouse and Harper's goods. The plaintiff, as subrogee of J. B. Harper, sued Gulf for damages for the loss of Harper's property, for which it had paid under the insurance policy, alleging that the loss was caused by Gulf's negligence with respect to a leak in a valve at the bulk plant. By amendment to its petition the plaintiff added a second count alleging that certain acts of gross negligence of Gulf caused plaintiff's damage, and a third count alleging that certain acts of wilful and wanton negligence caused its damage.

Gulf's answer pleaded three defenses which it contended barred plaintiff's recovery as a matter of law; these will be discussed in the opinion.

The trial resulted in a verdict and judgment for Gulf, the defendant.

The plaintiff assigns error on the overruling of the general and special grounds of its motion for new trial, and on the overruling of its special demurrers to the answer and its general demurrer to the second defense pleaded in defendant's answer. (The special demurrers have not been argued, and the assignment of error thereon is treated as abandoned. Plaintiff has expressly abandoned special ground 4 of its motion for new trial.) The defendant by cross-bill of exceptions assigns error on the overruling of its general demurrers to the first and second counts of plaintiff's petition and of its general and special demurrers to the third count of plaintiff's petition, and on the sustaining of plaintiff's general and special demurrers to the first and third defenses pleaded by defendant.

Roberts & Thornton, Clyde L. Armour, Jr., L. B. Kent, Jack M. Thornton, Columbus, for plaintiff in error.

Kelly, Champion & Henson, S. E. Kelly, Jr., Forrest L. Chapman, Jr., Columbus, for defendant in error.

HALL, Judge.

1. By its first defense Gulf contended that the plaintiff could not become subrogated to any claim against it because it was an insured under the policy by virtue of the loss payable clause, which was included in the policy in accordance with an agreement requiring that Harper carry insurance acceptable to Gulf, and under which plaintiff paid the proceeds of the policy to J. B. Harper, Jr. and Gulf.

The policy shows that it was 'issued to J. B. Harper, Jr. d/b/a Harper Tire & Supply Company.' It provides: 'It is hereby understood and agreed that loss, if any, hereunder shall be payable to the insured and Gulf Oil Corporation, 131 Ponce de Leon Avenue, A. E., Atlanta, georgia, as their respective interests may appear.'

The above is an 'open' mortgage or loss payable clause. Southern States Fire & Casualty Ins. Co. v. Napier, 22 Ga.App. 361, 96 S.E. 15. It makes the mortgagee merely 'an appointee to collect the insurance money due to the insured in case of loss, and such mortgagee must claim in the right of the insured, and not in his own.' Northwestern National Insurance Co. v. Southern States Phosphate & Fertilizer Co., 20 Ga.App. 506, 93 S.E. 157; Hartford Fire Ins. Co. v. Lidell Co., 130 Ga. 8, 12, 13, 14, 60 S.E. 104, 14 L.R.A., N.S., 168; 5 Couch on Insurance (2d ed.) 350, § 29.65. A clause which makes loss payable to the mortgagee as his interest may appear does not insure the mortgagee's interest in the property, 'but the interest which he has in the indebtedness.' 5 Appleman Insurance Law and Practice, 556, § 3401. Under a New York standard, or union mortgage clause, on the other hand, it is considered that the insurer has entered into a separate contract with the mortgagee, and the mortgagee cannot be affected by any act or default of the mortgagor. Mechanics' Ins. Co. v. Goodwin, 48 Ga.App. 823, 826, 174 S.E. 160; Northwestern Fire & Marine Ins. Co. v. Waycross Building & Loan Ass'n, 51 Ga.App. 857, 859-860, 181 S.E. 509; 5 Appleman, 557, 559, § 3401; 124 A.L.R. 1034. There is, therefore an important distinction between the 'standard' form and the 'open' loss payable clause, in that the latter does not 'operate as a separate contract between the mortgagee and the company; but the policy remains one between the company and the owner, with a right of collection vested in the mortgagee by appointment.' 5 Appleman, op. cit. 552, 556, § 3401; 29 Am.Jur. 986, § 728 et seq.

The mere fact that the insured and Gulf were protected 'as their respective interests may appear', does not change the nature of the present loss payable clause. Harper was designated in the policy as the insured and the fact that the loss payable clause refers to 'the insured' and Gulf indicates that Gulf was not an insured.

We have found no decision as to whether an insurer can be subrogated to rights of the insured against a loss payee under an open loss payable clause. In Federal Insurance Co. v. Tamiami Trail Tours, Inc., 117 F.2d 794 (5th Cir. 1941), the court stated that the insurer could not be subrogated to the claim of one of the loss payees against another of the three loss payees named in a standard mortgage clause, for the reason that the clause created a separate and independent contractual status between the insurer and the defendant loss payee, making the loss payee an insured under the policy.

The cases cited by the defendant for its argument that Gulf is an insured or a beneficiary under the policy against whom the plaintiff cannot be subrogated are not in point. In Miller v. Kujak, 4 Wis.2d 80, 90 N.W.2d 137, the 'insured' against whom it was held the insurer could not be subrogated was an additional insured under a liability insurance policy by virtue of being the operator of the insured vehicle. Builders & Manufacturers Mutual Casualty Co. v. Preferred Auto Ins. Co., 118 F.2d 118 (6th Cir. 1941); American Surety Co. of New York v. Canal Ins. Co., 258 F.2d 934 (4th Cir. 1958); and Louisiana Fire Ins. Co. v. Royal Indemnity Co., La.App., 38 So.2d 807, also involved additional insureds under omnibus clauses of the policies. These decisions, even if they were by Georgia courts, would not be controlling of the present question.

In the shipper-carrier cases it has been held that when a carrier in accepting goods for shipment has stipulated with the shipper to be allowed the benefit of insurance obtained by the shipper, the insurer cannot maintain an action against the carrier for loss of the goods, because as subrogee the insurer has no greater rights than the shipper had to maintain an action inconsistent with the terms of the stipulation. Phoenix Ins. Co. v. Erie & Western Transportation Co., 118 U.S. 312, 325, 6 S.Ct. 750, 29 L.Ed. 873; Home Ins. Co. of New York v. Northern Pacific Ry. Co., 18 Wash.2d 798, 140 P.2d 507, 147 A.L.R. 849. These cases are in a special class. See Vance On Insurance 794, § 134. Under the arrangements between the shipper and carrier, the insurance obtained by the owner served in effect as liability insurance for the carrier; it insured against perils to the goods in transit, for which in some cases the carrier would be liable to the shipper. The effect of the loss payable clause in the present case was not to insure against Gulf's liability to the owner of the property, but it served as security to Gulf against Harper's default in payment of his debt to Gulf.

The loss payable clause in the present case did not insure Gulf's interest in the property as mortgagee. Its purpose was to provide security for the indebtedness contracted by the mortgagor, Harper, to Gulf, the mortgagee. 5 Couch on Insurance 2d, 352, § 29.67. The tort claim of Harper, the insured, against Gulf, which is the basis of the present suit, is not related to the contract creating the insured's debt to Gulf. The satisfaction of the debt by collecting the security afforded by the insurance loss payable provision did not satisfy the claim in tort, any more than the foreclosure of any other form of security for a contract debt would satisfy a tort claim between the same parties. The fact that the loss payable clause gave Gulf rights in the proceeds of the insurance policy does not preclude the plaintiff being subrogated to J. B. Harper's tort claim against Gult.

The court did not err in sustaining plaint...