American Insurance v. Ogden & M'Comb

By the Court, Savage, C. J.

The points upon which the plaintiffs in error seek to reverse the judgment below are two: 1. That seaworthiness of the vessel is a warranty and condition of the contract of insurance; and the breach of it dis *536 charges the insurer from the time of its occurrence ; 2. That want 0f funds to make repairs is not a cause of abandonment.

There is no doubt that seaworthiness of the vessel insured is an implied warranty or condition. This condition is complied with, if the vessel insured is in a proper condition to cany the cargo actually on board, or intended to be put on board, when the insurance is made. It is sufficient that the vessel is in a fit condition for the voyage. There is no question but that the vessel in this case was seaworthy at the commencement of the voyage, and continued so until she lost her anchor. The warranty of seaworthiness relates to the beginning of the risk ; if it be broken at the commencement of the risk, the insurers are discharged from all liability; but a breach of this warranty, subsequent to the commencement of the risk, does not discharge the insurers from the payment of antecedent losses ; nor does it from subsequent losses, unless the loss was the consequence of such unseaworthiness. This point was recently before the supreme court of Massachusetts, in Paddock v. The Franklin Ins. Co. 11 Pick. 227 , where it was held to be the duty of the insured to keep the vessel seaworthy during the voyage, if in his power; and if she is rendered otherwise, he is bound to supply the damage or loss, as soon as he conveniently can. If, in consequence of his neglect to do so, a loss ensues, the underwriter will not be liable ; but if the loss was not attributable to the neglect of the insured, the insurer is not discharged ; forj instance, if the vessel sal’s without sufficient anchors, and is destroyed by lightning, the underwriters would not be discharged. In Holdsworth v. Wise and others, 1 Manning & Ryland, 673, 17 Com. Law R. 283,S. C., the insurance was on a ship from Belfast to her port of delivery in British America and home. When she sailed from St. Andrews, New Brunswick, for Valentía, in Ireland, she was leaky, and made from eleven to twelve inches of water every two hours. It was contended that the warranty implied seaworthiness in the ship at every port from which she sailed in the course of the voyage ; but the court were unanimous in the opinion that the implied warranty of seaworthiness did not extend so far as to require seaworthiness at every port from which she might depart, in the course of the voyage. *537 These decisions are in accordance with reason and the general principles of insurance. See also Weir v. Aberdeen, 2 Barn. & Ald. 320. The fact, therefore, that the vessel in question was not properly supplied with anchors when she left Norfolk, cannot excuse the insurers, as the loss was sustained from an injury received by the winds and waves, while the vessel was at sea; where it was totally immaterial, as to the injury, whether she had one or two anchors, or none at all.

The next point urged in behalf of the insurers is, that the want of funds wherewith to make repairs is not a good ground of abandonment. The contract of insurance is a contract of indemnity, and the policy of insurance is, in substance, a bond of indemnity. The consideration is nailed the premium, and the contract itself receives the name of a policy ; but the difference between a policy of insurance and a bond of indemnity is merely in name. Where the loss is only partial, the amount of such loss affords the indemnity ; where the whole subject insured is lost, the whole value must be paid, to indemnify the insured ; and in such cases the analogy between a policy of insurance and the bond of indemnity is perfect, with the exception that in partial losses the whole amount is not paid. But when the doctrine of a technical total loss is considered, the analogy fails. Where the loss is actually total, then the principle of indemnity requires payment of the whole loss; but where the loss barely exceeds one-half, it may be difficult to perceive how the right to abandon and recover as for a total loss, was ever deduced from the obligation to indemnify. The right, however, is as perfect, under the construction which has long been given to policies of insurance to recover for a technical total loss, as for an actual total loss, or a partial loss. Mr. Justice Buller, in Mitchell v. Edie, 1 T. R. 608, and Lord Mansfield, in Goss v. Withers, 2 Burr. 683, have said, that the right of abandonment is one which ought not to be extended, and for the reason given, “ for fear of letting in frauds.” The cases in which the insured may abandon, and thereby turn that which is, in its nature, only z. partial loss, into a total loss, are enumerated by some of the writers on this branch of the law. According to the French law, the right o,f abandon-. *538 mentis confined-to five cases, to wit: capture, shipwreck, stranding, arrest of princes, or the entire loss of the subject in'sured. The latter case is explained to mean where there is an average loss or damage which exceeds half the value of the goods insured. 2 Marshall, 562. By the new code, other: cases are admitted to exist. Park says, page 194, that ah abandonment may be made, and the insurer held liable for a total loss, if the damage exceed half the value of the thing; or if the voyage be lost, or so interrupted that the pursuit of it is not worth the freight. In the case of Peck v. The Merchants’ Ins. Co. 3 Mason, 65 , Mr. Justice Story, after a very elaborate review of most, jf not all the cases on this point, comes to the conclusion that the right of abandonment exists, 1. “ Where there is a forcible dispossession-or ouster of the owner of the ship, as in cases of capture; 2. Where there is a moral restraint or detention, which deprives the owner of the free use of the ship, as in case of embargoes, blockades and arrests by sovereign authority; 3. Where there is a present total loss of the physical possession and use of the ship, as in case of submersion ; 4. Where there is a total loss of the ship for the voyage, as in case of shipwreck, so that the ship cannot be repaired for the voyage in the port where the disaster happens; and lastly, where the injury is so extensive that by reason of' it the ship is useless, and yet the necessary repairs would exceed her present value.” He further remarks: “ If there be any general principle that pervades and governs them, it seems to be this.: that the right to abandon exists, whenev-: er from the circumstances of the case, the ship, for all the useful purposes of a ship for the voyage, is for the present gone ' from the control of the owner, and the time when she will be restored to him in a state to resume the voyage is uncertain, or unreasonably distant, or the risk and expense are disproportioned to the expected benefit and objects of the voyage. In such a case the law deems the ship, though having a physical existence, as ceasing to exist for purposes of utility, and therefore subjects her to be treated as lost.” The conclusion here drawn from the cases has received the approbation of Chancellor .Kent. In his Commentaries,*3 Kent, 322, he says, The conclusion is that the right of abandonment is to be *539 judged of by all the circumstances of each particular case, and that there is no general rule, that the injury to the ship by the - perils insured against must, in all cases, exceed one half her value, to justify an abandonment.” The case of the Patapsco Ins. Co. v. Southgate and others, 5 Peters’ R. 604, exemplifies this principle. There the insurance was on the schooner Frances, from Curracoa, or a port of departure in the West Indies, or on the main to a port in the United States. On her voyage from Carthagena to Norfolk she received injuries which made it necessary for her to return to Carthagena; on entering that port she struck on a bar, and it was found that she required considerable repairs in her hull and rigging. She was placed under the care of the American consul at Carthagena, and was sold by him. On the argument of the case it was contended that no evidence was offered to show that the vessel was injured beyond half her value, and that only extreme necessity will justify a sale by the master. On the other hand it was contended that if a sale was necessary for the interest of all concerned, and if a discreet owner, under similar circumstances, would have sold the vessel, then the sale made by the captain was justifiable, and the plaintiffs had a right to abandon. Whether such necessity existed was a question of fact. The opinion of the court was delivered by Mr. Justice Thompson. He states that the court below had instructed the jury that if the vessel could not have been repaired without an expenditure exceeding half her value at the port of Carthagena, after such repairs, it constituted a total loss. “ This direction,” says the learned judge, “ we think certainly correct.” Upon the propriety of the sale he remarks, “As a general proposition, there can be no doubt that the injury to the vessel may be so great, and the necessity so urgent as to justify a sale. There must be this implied authority in the master, from the nature of the case. He, from necessity, becomes the agent of both parties, and is bound in good faith to act for the benefit of all concerned; and the underwriter must answer for the consequences, because it is within his contract of indemnity. He adds, that all the circumstances must be submitted to the jury, and they must find both the necessity and good faith of the master, in order to justify the sale.

*540 In the case under consideration, the counsel for the defend-» ants below raised no question of fact for the jury upon the bondfides or the discretion of the master; they requested the presiding judge to charge, as matter of law, that St. Thomas being the port of destination, the inability of the master to procure there the necessary funds for repairing the vessel, supposing such inability to be proved, was not a sufficient ground of abandonment. The learned judge instructed the jury that the inability of the master to procure the necessary funds at St. Thomas was a valid cause'of abandonment. This presents the point whether the inability to procure funds, in other words, the inability to repair Die vessel, was a good cause of abandonment. For the purpose ■ of deciding this question it must be admitted that this inability was real, and that the captain in making the sale acted for the benefit of all concerned. The omission to put any question to the jury is an admission both of the necessity and good faith of the transaction. These facts conceded, it seems to me to come precisely within the case of The Patapsco Ins. Co. v. Southgate. In the language of Mr. Justice Thompson in that case, “He,” the master, “from necessity becomes the agent of both parties, and is bound in good faith to act for the benefit of all concerned; and the Underwriter must answer for the consequences, because it is within his contract of indemnity.” The circumstance of St. Thomas being the port of destination as to that particular voyage seems to have been thought of consequence : whether it would be so or not, I need not inquire, as the policy in this case was ontime, and the time only half expired. Although.it is true therefore that where the damage exceeds half the value of the vessel, the insured may abandon whether the master is furnished with funds or not; yet it is also true that the right to abandon does not in all cases depend upon the amount of damages: but as was said in Peale v. The Merchants’ Ins. Co. the right exists in all cases where the ship is gonp from the control of the insured; where the voyage is broken up ; and, as in The Patapsco Ins. Co. v. Southgate, where a sale of the ship has become necessary for the interest of all concerned. This case falls within the latter class; the voyage was broken up, and that by a peril insured against j *541 the vessel was entirely useless without repairs ; and those repairs the master could not make for want of funds. But it was said that the owners were bound to furnish the masters of vessels with the means of obtaining all the credit which the exigencies of the voyage may require. 9 Coioen, 168. That was said arguendo, it must be remembered, in an action by a seaman against the owners to recover his wages, and not in an action between the assured and insurer upon the policy. In this case the master had all the means of acquiring credit which the control of the ship;gave him, which in this action I think is sufficient. On the whole, therefore, the judgment of the superior court seems to be correct, and should be affirmed.

The following dissenting opinion was delivered by Mr. Justice Bronson.

I am unable to agree with my brethren in the opinion that there was any valid ground for the abandonment. The master estimated the expense of repairing the schooner at $1700, but according to the survey which he afterwards procured to be made, the repairs would not have cost above half that sum. The survey by competent persons specially appointed, rather than the opinion of the master; should govern in such a case ; but whichever may have been right, it was not pretended that the vessel had been damaged to half her value. She was in the port of destination. The master testified that he had no funds whatever on his arrival at St.Thomas; that he had not even been supplied with money for the ordinary expenses of the voyage. He could not obtain money to make repairs from the consignee, and failed in an attempt to raise it on bottomry. Under these circumstances the insurers insisted that the mere want of funds to make repairs in the port of destination did not constitute a valid ground for abandoning: but the learned judge charged the jury “ that the inability of the master to procure the necessary funds at St. Thomas was a valid cause of abandonment.”

I cannot subscribe to this doctrine. The assured sends out ihe vessel without furnishing the master with a single dollar *542 to pay any necessary expenses; he has no credit with his corresp0n¿eiltj the consignee, nor with any one else residing at tí16 place to which the vessel is sent; and he is still permitted to recover as for a total loss on the single ground of the inability of the master to procure the necessary funds to make1 repairs ; and this too without reference to the extent of damage to the schooner in comparison with her value. Want of funds to repair damages has sometimes been taken into consideration in connexion with other circumstances; and in a port of necessity it may be an important if not a controlling fact. But no case was cited on the argument, and I think none can be found in the books, where the want of funds in the port of destination has of itself been held a sufficient ground of abandonment. The counsel for the assured referred to the case of The Petapsco Ins. Co. v. Southgate, 5 Peters, 604 ; but that case does not, I think, advance a single step towards supporting the decision of the superior court. As I read that case, there were three general questions: first, whether there was sufficient ground for abandoning; second, whether an abandonment had in fact been made; and third, whether there was such a necessity as would justify the sale which had been made of the vessel by the master. The twro last questions have nothing to dó with the case under consideration. In relation to the first, the circuit court of the district of Maryland gave the following instruction—“ that if the jury find from the evidence, that the damage done to the schooner Frances by any perils of the sea on the voyage insured could not be repaired without an expenditure of money to an amount exceeding half her value, at the port of Carthagena, after such ■repairs, then such damage constitutes a total loss, and the plaintiffs are entitled to recover.” The right to abandon and recover as for a total loss was expressly put upon the ground that the damage must exceed half the value of, the vessel when repaired; a familiar and well settled doctrine. Whether the case had been made out in evidence or not was a question of fact for the jury, and if their verdict was not warranted by the evidence, it could not be reviewed on a writ of error. The discussion as to the right of abandonment was as to the place where the value of the vessel was to be ascertained ; and the *543 court held it was the place where the injury happened. So far is this decision from supporting the doctrine for which the defendents in error contend, that the want of funds or the inability of the master to procure them is not so much as mentioned in the case; and the validity of the abandonment was distinctly placed upon another ground. Whether there was such a necessity as would justify the sale of the schooner by the master, was another and a distinct question, with which the court of review had nothing to do beyond the inquiry whether the law had been properly expounded to the jury ; and the facts upon which this question arose are not mentioned in the report.

I shall not go into an examination of the cases. If the decision of the judge on the trial does not rest upon the ground of authority, (and none was adduced on the argument,) it cannot, I think, be sustained upon any general principle applicable to the law of insurance. The contract of insurance is a contract of indemnity. The underwriter agrees that he will pay all such loss or damage as the assured may sustain by any of the perils to which the policy extends. There is nothing in the nature of the contract to warrant the doctrine of abandonment, by which the assured is permitted to turn a partial into a total loss ; and although that doctrine is now well established, the policy of its original introduction has been questioned by high authority, and it ought not, I think, to be extended beyond the cases in which it has already been allowed. Permitting the assured to abandon and recover as for a total loss, where the deterioration of the subject insured only exceeds by a fraction the half of its value, was going a great way; and this rule, as was remarked by Chancellor Lansing in Smith v. Bell, 2 Caines’ Cas. in Err. 157, originated “ in the convenience of having a determinate and precise test in all cases, which, by its universality and uniformity, may render inquiries into minute objects, rather calculated to perplex than to elucidate, unnecessary.”

What will be the practical effect of the rule laid down by the judge on the trial of this case ? It will open a wide door to fraud. The owner may send out his ship without funds and without credit, and then, for the want of some trifling *544 sum of money, • he may break up the adventure and turn the Pr0Perty over t° the insurer ; and this, too, in the port of destination, where at least he ought to have either funds or credit, if not in other places. 9 Cowen, 168. Besides the danger of fraud, there will no longer be any “ determinate and pre-' cise test ” for the regulation of the right to abandon ; and there is much reason to apprehend that this doctrine will lead to interminable controversy. When may the assured abandon, and when is the insurer bound to accept the abandonment and pay as for- a.total loss ? When we depart from the settled rule on that subject, what amount of damage and consequent want’of funds will warrant an abandonment? If the1 damage need not, amount to one half the value of the subject insured, must it be one third, or will a quarter or one tenth answer the purpose ? May the owner recover as for a total loss, because the master was unable to procure the necessary funds to supply the place of a lost anchor, or a chain cable ? The rule laid down on the trial sheds no light on these inquiries. It is no less important in commercial than in other pursuits, and the rights and the duties of parties should be as accurately defined as the nature of the case will permit. The merchant, on the one hand, should be able to ascertain with reasonable certainty the circumstances which will authorize him to call on the underwriter for the payment of a total loss; and on the other, the insurer should know what is the extent of his liability. The amount of premium to be paid and received depends essentially upon this’ principle ; and beyond this, without abiding by well defined rules so far as they have been settled, and laying down others with equal accuracy wherever it is practicable, it cannot be expected that interested parties will be able to agree as to their respective rights and obligations. The consequences must be, that the courts will be called upon to adjust every loss, and the merchant will suffer all the inconvenience of awaiting the uncertain issue of a protracted litigation, before he can embark his capital in some new enterprize. I think the judgment of the superior court should be reversed.

Judgment affirmed!