MEMORANDUM OPINION AND ORDER
During the construction of Three Girard Plaza, Philadelphia, Pennsylvania, a fire occurred that was allegedly caused by the negligence of a subcontractor, John B. Kelly Company (Kelly). The general contractor, Turner Construction Company (Turner) was paid the full amount of the loss, $107,777 less $5,000 deductible, on its fire insurance policy. The insurance carriers, as subrogees of Turner, filed action in the name of Turner against Kelly. The basis of jurisdiction is diversity of citizenship. 1
Turner’s fire insurance policy under Section 3 “Property Covered” insures:
all property, materials, equipment, machinery and supplies, contractors tools chargeable to the job, owned by the Assured or оthers and for which the Assured may be liable or assumes liability, to be used in or incidental to the construction.
Section 4, “Extension of Interests Covered” states:
It is specifically understood and agreed that this policy covers both the interest of the Assured and contractor(s) and subcontractor^) as additional Assureds hereunder, as their interests may appear. (emphasis added).
Section 20, “Company’s Rights of Recovery” contains the following clause:
the company specifically waives its rights of subrogation against any person, firm or corporation insured hereunder.
Kelly contends that, as a subcontractor it became an additional assured under Section 4 of the policy and as such is a “person, firm or corporation insured hereunder” against whom the insurеr has expressly waived a right of subrogation under Section 20 of the policy. Kelly has moved for summary judgment. The motion will be denied.
Normally, 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. Subrogation thus arises by operation of law and there is no need for the contract of insurance to contain an express stipulation as to subrogation.
Roberts v. Fireman’s Ins. Co.,
Subrogation, howеver, has been held not to lie against an insured. “No rights of subrogation can arise in favor of the insurer
*553
against its own insured, since by definition subrogation arises only with respect to the rights of the insured against third persons to whom the insurer owеs no duty.” 16 Couch on Insurance § 61:133 (2d ed. 1966).
See, e.g., Graham v. Rockman,
Defendant Kelly is not specifically named as an insured or as a co-insured. Kelly claims coverage under Section 4 of the policy insuring subcontractors as additional assureds “as their interests may appear.” Turner disputes this interpretatiоn on two grounds: (1) Kelly suffered no insurable loss as a result of the fire, therefore, it had no insurable interest and could not be an insured; (2) the insurance contract between the insurers and Turner covered actual damage to thе property of the subcontractors and did not purport to insure their legal liability to others.
Kelly cites a line of cases, all stemming from two Louisiana decisions, which view the partial insuring of a party as immunizing it from a later subrоgation action brought by the insurer. In
Glens Falls Ins. Co. v. Globe Indemnity Co.,
This case was followed a few months later by
Louisiana Fire Ins. Co.
v.
Royal Indemnity Co.,
Louisiana does not distinguish between property and liability coverage in its determination of the existence of a co-insured status. In the recent case of
State Farm Fire and Casualty Co. v. Sentry Indemnity Co.,
The reasoning of these Louisiana decisions has been adopted in
Transamerica Ins. Co.
v.
Gage Plumbing & Heating Co.,
The cases rejecting the “Louisiana Rule” draw a clear distinction between a subcontractor who is insured against property damage alone as opposed to a subcontractor who is additionally protected for his legal liability. In
Tishman, supra,
the court found the policies “included as assured the defendant as well as other subcontractors.” The policies, however, insured only thе structure for loss by fire or other included risk. “These policies did not insure the assureds against liability to others.”
A Texas court, in a lengthy opinion, undertook to analyze carefully a factual situation similar to the instant case. In MсBroome-Bennett Plumbing, Inc. v. Villa-France, Inc., supra, the insurer instituted suit in the name of Villa-France, a general contractor, to recover for the negligence of the subcontractor. The subcontractor defendеd on the ground that it was a co-insured under the insurance contract between Villa-France and the insurer. Of the total damage of $15,719 caused by the fire, the subcontractor received $545 for loss to his property. In determining the equities of the situation, the court reasoned that in the absence of insurance, Villa-France could have sued the negligent subcontractor for the full loss sustained. Additionally, Villa-France paid all the insurance prеmiums and the subcontractor was not a direct party to the insurance contract. In such circumstances the court concluded that no automatic “co-insured status” was created. In upholding the insurer’s right of subrogation, thе court found that the subcontractor was covered under the insurance policy only to the
extent oí Villa France’s liability for them. However, the negligence of the subcontractor to the property of others is not covered as the policy stated it covered (1) the property of the assured and (2) the property for which thе assured is liable. Clearly Villa France is not liable for the subcontractor’s negligence to Villa France. Id. at 38. (emphasis in original)
This same reasoning is fully applicable to this case. The insurance policy contains similar language to that in
Villa-France.
The subcontractor’s interest in the insurance contract is limited by the phrase “as their interests may appear.”
Clarke & Cohen v. Hartman & Co.,
The above analysis is fully consistent with the intent of the parties as exprеssed in the contract. Kelly procured its own liability insurance policy pursuant to the requirements of Article XXIII of the Turner-Kelly contract. Article XXIII states that the “Subcontractor shall procure and maintain, at its own exрense . . . the following insurance ... (2) CONTRACTORS PUBLIC' LIABILITY INSURANCE.” This added fact distinguishes the present case from Transamerica v. Gage, supra, where the subcontractor relied for insurance coverage solely upon the Builder’s Risk policy procured by the general contractor and carried no insurance of its own. *555 The parties did not intend Kelly to be insured for its legal liability under the insurance contract entered into between Turner and the insurers, nor to be relieved of liability to Turner for negligenсe. See Baltimore Contractors, Inc. v. Circle Floor Co., supra at 110. 3
What is the effect of the express waiver of subrogation against “any person, firm or corporation insured hereunder”? As discussed above, Kelly was an insured for purposes of its property interests protectiоn alone. Any payment it received to compensate it for fire damage to its property, even if caused by its own negligence, could not later be recovered by the insurer. Thus, for example, if the insurer paid а total of $100,000 to Turner, of which Kelly was to receive $10,000 for losses it sustained, Kelly’s maximum liability on the subsequent subrogation suit would be $90,-000.00. See Public Service Co. v. Black and Veatch, supra at 17. The importance of determining the amount of the loss, if any, suffered by the subcontractor is not for the purpose of determining its status as a co-insured but instead to determine the potential maximum dollar liability of the allegedly negligent subcontractor. The waiver clause does not extend, however, to relieving a subcontractor for its negligence in causing damage to property owned by the general contractor. For liability purposes, Kelly was not an “insured hereunder.”
Thus, if Kelly negligently caused a fire damage loss to Turner, Turner may recover against Kelly, and Turner’s insurance carrier has the right to proceed against Kelly as the subrogee of Turner.
Notes
.
United States v. Aetna Casualty & Surety Co.,
. The court in McBroome-Bennett observed that the Louisiana decisions were “based admittedly upon certain customs and practices of the building trade in Louisiana and upon thе civil law of that state.” Id. at 40.
. Indeed, it does not appear that the policy between Turner and the insurers even covered Turner’s legal liability. At oral argument counsel for Turner stated that Turner had a separate policy with the insurer for liability protection.