MacOn-bibb County Industrial Authority v. Nord Bitumi, U.S., Inc.

United States Court of Appeals,

Eleventh Circuit.

No. 95-8371.

MACON-BIBB COUNTY INDUSTRIAL AUTHORITY, Plaintiff-Appellant,

v.

NORD BITUMI, U.S., INC., Defendant-Appellee.

March 13, 1996.

Appeal from the United States District Court for the Middle
District of Georgia. (No. CIV-89-95-2-MAC(CHW), Claude W. Hicks,
Jr. Magistrate Judge.

Before TJOFLAT, Chief Judge, and RONEY and CAMPBELL*, Senior
Circuit Judges.

PER CURIAM:

This is an alleged subrogation claim by the fire insurer of

a property owner against the allegedly negligent tenant of the

property. On consent of the parties, United States Magistrate

Judge Claude W. Hicks, Jr. decided the case. See 28 U.S.C. §

636(c)(1). (Section 636(c)(3) allows appeal from the magistrate

judge's judgment to be taken directly to this Court). Judge Hicks

held that under the terms of the lease, the parties agreed to a

waiver of subrogation and entered a summary judgment for the

defendant. We affirm, essentially for the reasons set forth in the

Order from which this appeal is taken, the material parts of which

are incorporated herein as an Appendix. 1 See Tuxedo Plumbing &

*
Honorable Levin H. Campbell, Senior U.S. Circuit Judge for
the First Circuit, sitting by designation.
1
There has been a suggestion that our decision should be
stayed pending the Georgia Supreme Court's consideration of
Southern Trust Insurance Co. v. Center Developers, Inc., 217
Heating Co. v. Lie-Nielson, 245 Ga. 27, 262 S.E.2d 794, 795 (1980).

AFFIRMED.

APPENDIX

IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF
GEORGIA MACON DIVISION

Macon-Bibb County Industrial Authority, Plaintiff,

v.

Nord Bitumi, U.S., Inc., Defendant.

Civil Action No. 89-95-2-MAC(CWH)

Before the U.S. Magistrate Judge

ORDER

. . . . .

On April 1, 1984, plaintiff and defendant entered into a

five-year lease and option agreement. On October 1, 1984, while

the defendant was in possession of the leased premises, a fire

damaged the property; the INDUSTRIAL AUTHORITY contends that this

fire was caused by the negligence of defendant NORD BITUMI and/or

its employees. On April 9, 1985, plaintiff was paid $104,955 for

its loss by its insurer, St. Paul Surplus Lines Insurance Company,

pursuant to an agreement styled as a loan receipt. The total loss

was $109,955; there was a $5,000 insurance deductible.

Thereafter, St. Paul caused this lawsuit to be filed in the name of

its insured, MACON-BIBB COUNTY INDUSTRIAL AUTHORITY, seeking to

recover from NORD BITUMI through its subrogation rights the money

it paid to its insured for damages resulting from the fire.

Ga.App. 215, 456 S.E.2d 608 (1995). It seems more efficient to
issue this opinion and let the matter pend on a Petition for
Rehearing if the parties are so advised.
 In its motion for summary judgment, defendant NORD BITUMI,

U.S., INC. contends that under the language of the lease the

plaintiff waived its subrogation rights. The INDUSTRIAL AUTHORITY

disagrees.

The lease in question contains the following relevant

provisions:

10(a) Lessor's Insurance. Lessor agrees that it will, at its
own expense, except as hereinafter provided, keep the premises
insured against loss or damage by fire with extended coverage
endorsement in an amount sufficient to prevent Lessor from
being a co-insurer under the terms of the applicable policies,
but, in any event, in an amount not less than eighty percent
(80%) of the full replacement value of the property of which
the premises are a part as determined from time to time. If,
during the term of this Lease or any renewal thereof, the cost
of Lessor's fire and extended coverage insurance should be
increased as a result of Lessee's occupancy, then Lessee shall
pay such increase.

10(b) Lessee's Insurance. Lessee agrees to maintain, at its
own expense, such fire and extended coverage insurance on
Lessee's personal property and improvements located on the
premises, in amounts as it may deem advisable....

12(a) Indemnity by Lessee. Lessee agrees to indemnify and
hold harmless Lessor from and against all claims of whatever
nature arising from any act, omission, or negligence of
Lessee, or Lessee's contractors, licensees, agents or
employees, or arising from any accident, injury or damage
whatsoever caused to any person, or to the property of any
person, occurring during the terms of this Lease in or about
the premises, including the streets and roads upon the
property of Lessor used by Lessee for access to and from the
premises, or arising from any accident, injury or damage
occurring outside the premises where such accident, damage or
injury results, or is claimed to be resulted, from any act or
omission on the part of the Lessee or its contractors,
licensees, agents or employees....

12(c) Liability Insurance Requirements. For the foregoing
purpose, the Lessee agrees during the term hereof to maintain
adequate public liability and other insurance with reputable
insurance companies approved by Lessor, and upon request, to
furnish Lessor with certificates of insurance evidencing such
fact. The insurance coverage to be maintained by Lessee shall
be as follows:

(i) Comprehensive general liability insurance against
 claims for bodily injury, death and property damage
occurring in or about the premises, affording minimum
single limit protection of One Hundred Thousand Dollars
($100,000) with respect to personal injury or death and
property damage occurring or resulting from one
occurrence; and

(ii) Workmen's Compensation and employer's liability
insurance in accordance with the statutory requirements
of the State of Georgia.

This is a diversity case; thus, under Erie Railroad Co. v.

Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), Georgia

law is applied to decide the substantive issues. Under Georgia

law, the construction of a contract is a question of law for the

court. O.C.G.A. § 13-2-1. See also Early v. Kent, 215 Ga. 49, 108

S.E.2d 708 (1959) (where the terms of the contract are plain and

unambiguous, construction is for the court rather than the jury)

and Sims' Crane Service, Inc. v. Reliance Ins. Co., 514 F.Supp.

1033, 1036 (S.D.Ga.1981) (construction and interpretation of

written contract is a matter of law for the court and properly

subject to disposition on summary judgment), aff'd 667 F.2d 30

(11th Cir.1982). (Note: subsequent history, not in the original).

Under Georgia law, where parties to a business transaction

mutually agree that insurance will be provided as a part of the

bargain, such agreement must be construed as providing mutual

exculpation to the bargaining parties who must be deemed to have

agreed to look solely to the insurance in the event of loss and not

to liability on the part of the opposing party. Tuxedo Plumbing &

Heating Co. v. Lie-Nielson, 245 Ga. 27, 262 S.E.2d 794, 795 (1980).

See Pettus v. APC, Inc., 162 Ga.App. 804, 293 S.E.2d 65 (1982);

Central Warehouse & Development Corp. v. Nostalgia, Inc., 210

Ga.App. 15, 435 S.E.2d 230, 232 (1993). See also Frank Briscoe Co.
v. Georgia Sprinkler Co., 713 F.2d 1500, 1504 (11th Cir.1983).

Upon review of all matters brought to the attention of the

court by counsel for the parties, the undersigned is convinced,

particularly in light of the provisions of clause ten set out

above, that under Georgia law there has been a waiver of

subrogation by the parties in this case. The court specifically

finds from the lease agreement itself that the parties mutually

agreed to provide insurance coverage as a part of their bargain.

The provisions of the lease speak for themselves and are

unambiguous; both the INDUSTRIAL AUTHORITY and NORD BITUMI

contemplated that in the event of fire damage such as that which

occurred in October of 1984, they would look to the insurance

coverage required by the terms of the lease to reimburse them for

any fire loss. Indeed, NORD BITUMI was even required under the

agreement (as part of the bargain) to pay for any increase in the

fire and extended coverage insurance on the premises resulting from

its occupancy.2

Plaintiff's argument that the indemnity clause (clause twelve

set out above) shows that the parties intended for the plaintiff to

still be able to pursue negligence claims against the defendant for

damages to the premises is unavailing. The presence of an

indemnification clause in a contract has not been found to override

2
Under O.C.G.A. § 13-2-2, parol evidence is inadmissible to
add to, take from, or vary a written contract; words in the
contract generally bear their usual and common significance;
and, the construction which will uphold a contract in whole and
in every part is preferred. See also Hornsby v. Holt, 257 Ga.
341, 359 S.E.2d 646, 648 (1987) (under the parol evidence rule,
in the absence of fraud, accident, or mistake, this court is not
to go beyond the written terms of the contract to ascertain the
parties intent).
a waiver of subrogation created as a result of a mutual insurance

requirement. See cases cited above, notably Tuxedo.

To support its argument that there was no "mutual exculpatory

agreement," plaintiff INDUSTRIAL AUTHORITY relies heavily on the

decision of the Court of Appeals of Georgia in Alimenta Processing

Corp. v. South Georgia Pecan Co., 185 Ga.App. 330, 364 S.E.2d 84

(1987). In that case, the court found "a contrary intent ... so

obviously expressed" in the lease contract between the parties.

However, unlike Alimenta, this is not a case "where a contrary

intent is so obviously expressed." Moreover, as noted by the

dissent in Alimenta, the presence in Tuxedo of hold harmless

language similar to the Alimenta release provisions relied upon by

the majority in Alimenta, did not alter the Supreme Court of

Georgia's decision in Tuxedo. See Alimenta, supra, 364 S.Ed.2d at

86-87 (McMurray, J., dissenting) (noting also that the language in

question further demonstrates the parties' intention to look to the

insurance for protection against loss).

A careful reading of paragraphs 12(a) and 12(c) of the lease

contract herein reveals these provisions were written to protect

the plaintiff from third party claims arising from the defendant's

(and defendant's agent's) negligence "in or about" and "outside"

the premises. The provision in question does not specifically

mention any recovery for fire damage occurring to the premises

itself; it deals only with the protection from third party

negligence claims. See Vasche v. Habersham Marina, 209 Ga.App.

263, 433 S.E.2d 671, 673 (1993) wherein the court distinguished

between provisions in a rental agreement covering damage caused by
a marina's negligence in launching and retrieving boats and loss

occasioned by the theft of boats.

In addition, paragraph 12(c) of the lease agreement entitled

Liability Insurance Requirements (emphasis added) evinces the

intention of the parties that coverage afforded by liability

insurance coverage rather than the parties themselves would pay for

any losses covered by liability insurance. See McAbee Construction

Co. v. Georgia Kraft Co., 178 Ga.App. 496, 343 S.E.2d 513, 514-15

(1986). This dovetails nicely with paragraph 10(a) which reflects

the same intention insofar as fire insurance coverage is concerned.

Under the circumstances outlined above, MACON-BIBB COUNTY

INDUSTRIAL AUTHORITY cannot recover from NORD BITUMI, U.S., INC.

for liability mutually agreed by the parties to be covered by

insurance, and St. Paul Surplus Lines Insurance Company suing in

the name of the INDUSTRIAL AUTHORITY under the terms of the loan

receipt given upon payment of insurance proceeds cannot have rights

superior to its insured. See Tuxedo, supra, 262 S.E.2d at 795.

. . . . .

SO ORDERED, this 8th day of MARCH, 1995.

/s/ Claude W. Hicks, Jr.

United States Magistrate Judge