In Auto Owners Insurance Company v. Southwest Nut Company,1 a fire destroyed portions of a storage warehouse in Georgia. The warehouse contained nine storage bays and was about 60,000 square feet. The owner of the warehouse leased portions of the warehouse to a tenant which used the space to store its inventory of pecans. The lease between the landlord and tenant provided that the tenant will “insure and keep in effect on the Warehouse and contents, fire, extended coverage and all other endorsements to cover the full range of losses for which Tenant is responsible hereunder.” The lease also defined the term “Warehouse” as “a refrigerated bulk commodity storage facility consisting of three cold storage bays and one dry storage bay with office … comprising approximately 24,000 square feet in floor size, and associated loading dock area.” Also, as part of the lease, the tenant agreed “to procure and maintain full insurance coverage for absolutely all losses, liabilities, damages, or claims that may occur in connection with Tenant’s use of the Warehouse and Tenant’s obligations under this lease.” (emphasis added). The owner had insured the warehouse under a policy issued by Auto-Owners Insurance. The tenant obtained an insurance policy from Travelers which provided coverage for “newly acquired property.”
After the fire, the owner filed a claim for property damage with Auto Owners, which paid the claim. Auto Owners then sought subrogation from the tenant’s insurer, Travelers. Auto Owners argued that the Travelers policy insured the warehouse as “newly acquired property” and that the owner and Auto Owners were intended third party beneficiaries under the Travelers policy.
The Eleventh Circuit held that the owner had no direct claim against Travelers as an intended third party beneficiary under the Travelers policy:2
Under Georgia law, “an action on a contract … shall be brought in the name of the party in whom the legal interest in the contract is vested.” O.C.G.A. § 9–2–20. However, “[t]he beneficiary of a contract made between other parties for his benefit may maintain an action against the promisor on the contract.” Id. Georgia law differentiates between intended beneficiaries and incidental beneficiaries. See Lee v. Am. Cent. Ins. Co., 241 Ga.App. 650, 530 S.E.2d 727, 730 (Ga.Ct.App.1999) (holding that for a third party to bring a claim “it must clearly appear from the contract that it was intended for his benefit”). A plaintiff is not a third-party beneficiary if a policy only incidentally covers his property. For example, in Insured Lloyds v. Bobo, 116 Ga.App. 89, 156 S.E.2d 518 (Ga.Ct.App.1967), the plaintiff consigned his car to the insured. See id. at 519. The insurance policy specifically covered “automobiles consigned to … the insured.” Id. When the plaintiff’s car was stolen from the insured’s dealership, the plaintiff filed suit directly against the insurer, contending that he was a third-party beneficiary under the insurance policy. Id. The Georgia Court of Appeals held that the plaintiff was not an intended beneficiary because the policy was intended to protect the insured from potential liability to owners of consigned cars, not to compensate the owners of consigned cars. See id. at 520.
Here, because the intent of the Travelers’ policy was to provide coverage for buildings which were “newly acquired by the insured,” the Travelers policy was intended to protect the tenant, not the owner. The Court acknowledged that the Georgia Supreme Court has said that more than an incidental benefit is required to create a third-party beneficiary.3 Therefore, it affirmed the district court’s ruling that the owner was not a third-party beneficiary of the Travelers policy and has no direct claim against Travelers for subrogation.