MARYLAND CASUALTY CO. ET AL. v. CUSHING ET AL.
No. 11
Supreme Court of the United States
Decided April 12, 1954
Argued April 27-28, 1953.—Reargued November 10, 12, 1953
347 U.S. 409
James J. Morrison argued the cause and filed a brief for respondents.
On the evening of May 19, 1950, the towboat Jane Smith in attempting to pass under a bridge over the Atchafalaya River in Louisiana collided with a concrete pier and capsized. The owner and charterer of the Jane Smith filed consolidated petitions in admiralty in the United States District Court in Louisiana to limit their liability under the provisions of
Subsequently, in the same District Court, the plaintiffs below, as representatives of five seamen who had been drowned, brought this consolidated action against the owner of the bridge and the liability underwriters of the owner and charterer of the ship.2 Jurisdiction was based on diversity of citizenship and the Jones Act,
The two policies sued upon are (1) a workmen‘s compensation and employer‘s liability policy, in the amount of $10,000, issued by the Maryland Casualty Co. in which the charterer alone is named as the insured and which contains a special endorsement making its terms applicable to maritime employment; and (2) a “protection and indemnity” policy in the amount of $170,000 issued by the Home Insurance Company of New York in which both the owner and the charterer are named. Both policies by their terms preclude payment to anyone until the insured shall have been held liable to pay damages.3
The District Court granted a motion for summary judgment dismissing the consolidated suit against the insurers on the grounds that the Louisiana statute was, by its own terms, inapplicable to policies of marine insurance, and that in any case application of the statute here would “not only work material prejudice to the characteristic features of the general maritime law but would
The Court of Appeals, relying solely on diversity jurisdiction, reversed, holding that as a matter of local law the District Court had read the Louisiana statute too restrictively, a question not open here, and that the statute was nothing more than a permissible regulation of insurance authorized by the McCarran Act,
The only question presented in the petition for certiorari is whether the application of the Louisiana statute in this case would violate “the Jones Act, the Limited Liability Act and the constitutional grant to the federal government of exclusive jurisdiction in maritime matters.” We agree with the Court of Appeals that since diversity supports federal jurisdiction, the Jones Act need not be drawn upon for jurisdiction. Nor need we be detained by petitioners’ contention that as applied to claims against petitioners as underwriters of the charterer who employed the decedents, the State statute here conflicts with the Jones Act in that it would provide an alternative remedy where Congress has prescribed the means of recovery. Since that Act itself makes its remedy available to a seaman “at his election,” we perceive no conflict between the Jones Act and the Louisiana direct action statute.
Respondents, on the other hand, seek to derive support for reliance on the Louisiana statute from the McCarran Act which provides “No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to
“It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Association case.” H. R. Rep. No. 143, 79th Cong., 1st Sess. 3.
The question whether application of the direct action statute conflicts with federal maritime law is not touched by the South-Eastern Underwriters case. In the face of this unequivocal expression of congressional meaning, the statute cannot be read as doing something that Congress has told us it was not intended to do. The McCarran Act is not relevant here.
This brings us to the governing issue: does the Louisiana statute enter an area of maritime jurisdiction withdrawn from the States? Since Congress has provided a comprehensive legislative system for adjudicating maritime claims, we pass directly to considering whether the operation of the Louisiana statute conflicts with that system, putting to one side the question whether it encroaches upon the general body of non-statutory maritime law. Cf. Red Cross Line v. Atlantic Fruit Co., 264 U. S. 109; Just v. Chambers, 312 U. S. 383.
Legislation limiting shipowners’ liability was first enacted in 1851 to provide assistance to American shipowners and thereby place them in a favorable position
The legislation was designed to induce the heavy financial commitments the shipping industry requires by mitigating the threat of a multitude of suits and the hazards of vast, unlimited liability as a result of a maritime disaster. This Court has been faithful to this ultimate purpose and has read the statute‘s words “in a broad and popular sense in order not to defeat the manifest intent.” Flink v. Paladini, 279 U. S. 59, 63. Particularly in view of the fact that Congress subjected the whole limitation scheme to scrutiny in 1935 and 1936 as a result of its application to personal injury and death claims resulting from the sinking of the Morro Castle, and did not alter those provisions of the legislation involved here, we must read the statute in the light of its expressed purposes. It is not for us to sit in judgment on the policy of Congress in having all claims disposed of in one proceeding or in apportioning maritime losses.
“Under the limitation statutes, as we have had them since 1851, they had two different purposes to serve; one was to limit the liability of the owner and the other was to draw into one court, in the case of a large accident, all of the claims, in order that they might be heard by one judge on one state of facts, in one trial, and intelligently disposed of. Suppose a big sea comes aboard a passenger liner and 15 or 20 people on that deck are washed up against the stanchions or something else, and the claim is that the ship ought to have slowed down, ought to have known by radio. Those passengers may live anywhere from Maine to Texas, and if you have 20 separate laws in 20 different jurisdictions, you just cannot handle an accident of that kind in any possibly intelligent way. One court will say the line was not negligent; another court will say it was negligent; a third court will say you are entitled to $1,500; the next one may say you are entitled to $45,000; and nobody knows where he is.
“So one of the most useful purposes of the limitation statute was that in a case like that you could file a petition bringing into one court all of the claimants and have one trial. Otherwise you would have to keep the crew off of the ship traveling around
the country for 2 or 3 years.” Statement by Mr. Charles S. Haight, representing the French Line, Hearings before House Committee on Merchant Marine and Fisheries on H. R. 9969, Part 4, 74th Cong., 2d Sess. 69-70.
And commenting on the limitation of liability sections of the Admiralty Rules of this Court, Mr. Justice Bradley thus described their purpose:
“In promulgating the rules referred to, this court expressed its deliberate judgment as to the proper mode of proceeding on the part of shipowners for the purpose of having their rights under the act declared and settled by the definitive decree of a competent court, which should be binding on all parties interested, and protect the ship owners from being harassed by litigation in other tribunals. . . . The questions to be settled by the statutory proceedings being, first, whether the ship or its owners are liable . . . and secondly, if liable, whether the owners are entitled to a limitation of liability, must necessarily be decided by the district court having jurisdiction of the case; and, to render its decision conclusive, it must have entire control of the subject to the exclusion of other courts and jurisdictions. If another court may investigate the same questions at the same time, it may come to a conclusion contrary to that of the district court; and if it does (as happened in this case), the proceedings in the district court will be thwarted and rendered ineffective to secure to the ship owners the benefit of the statute.” Providence & New York S. S. Co. v. Hill Co., 109 U. S. 578, 594-595.
Direct actions against the liability underwriter of the shipowner or charterer would detract from the benefit of a concursus and undermine the operation of the congres-
Furthermore, insurers, unable to rely on the limitation of liability of their insured and denied the benefits of the concursus, would in all likelihood reflect the increased costs in their premiums, thus passing on to the very class sought to be benefited by the federal legislation the short-circuiting effects of the State statute.6
In addition to encroachment upon the federal statutory system for bringing all claims into concourse, the direct action statute is in conflict with the congressional policy
Thus, to permit direct actions under the State statute would require that shipowners become self-insurers for liability risks in order to be sure of getting the full protection of the limitation legislation. In view of the fact that “substantially all maritime risks are insured,” Keen v. Overseas Tankship Corp., 194 F. 2d 515, 518 (L. Hand, J.), this sort of qualification would be completely inconsistent with the Limitation Act.
In 1886 the Court was called upon to decide whether the proceeds from a hull insurance policy are part of an owner‘s “interest” in a ship and as such must be turned into the limitation proceeding. In The City of Norwich, 118 U. S. 468, the Court held that insurance proceeds need not be turned in. In part, the decision was based on a narrow interpretation of “interest.” But Mr. Justice Bradley, who had a commanding role in applying the Limitation Act, reviewed the history and policy of limited liability, and the language of that opinion is an illuminating guide here:
“Now, to construe the law in such a manner as to prevent the merchant from contracting with an insurance company for indemnity against the loss of his investment is contrary to the spirit of commercial jurisprudence. Why should he not be allowed to purchase such an indemnity? Is it against public policy? That cannot be, for public policy would equally condemn all insurance by which a man provides indemnity for himself against the risks of fire, losses at sea, and other casualties. To hold that this cannot be done tends to discourage those who might otherwise be willing to invest their money in the shipping business.” 118 U. S., at 504-505.
Of course, wholly apart from the respect to be accorded State legislation, this Court should be slow to find that even where Congress has exercised its legislative power it has not left room for State action. Kelly v. Washington, 302 U. S. 1. But where, as in this case, the evident design of Congress can only be carried out by barring State action, it must be barred.
It is true that the record before us does not establish with certainty that the present suits would in fact operate to leave the shipowner and charterer to face liability in the limitation action without indemnification. Judgments in the present actions against the insurers might satisfy all claims or leave enough insurance money to indemnify the shipowner and charterer for liability in the limitation action. The salvaged vessel may finally be valued as worthless, exonerating the shipowner and charterer from any liability in the limitation action. Or the right of the shipowner and charterer to limit their liability might be successfully challenged on the grounds that the mishap did not happen without their “privity or knowledge.”8
These elements of uncertainty provide a temptation to let the present actions proceed. Further support for this view may reasonably be found in the fact that it is the insurers rather than the shipowner and charterer who are
This is not a case where some future action remains to be taken by one of the parties to a suit before the critical issue is presented to the Court as clearly as may be. See United Public Workers v. Mitchell, 330 U. S. 75. Nor is this a case where we can postpone our review until a State court gives meaning to a challenged State statute. Albertson v. Millard, 345 U. S. 242. In the suits before us, the Court is at the point of no return. Once the respondents have recovered from the insurers the face amount of the insurance policies in the present actions, and they or other claimants are going after the shipowner and charterer in the limitation action, it will be too late to rely on the Limitation Act to preserve the insurance proceeds.
Thus, it is clear that if the present direct actions are permitted, they involve substantial hazard to rights granted by an Act of Congress, leaving no way for such impairment to be challenged. Respect for the Act precludes allowance of litigation, based on a State statute, which carries the potentiality of irreparable infringement upon federal law. The point of inadmissible conflict between State and federal legislation is reached as soon as suit is brought against the liability underwriters to get at proceeds of the policies. And if the federal legislation bars such a suit, it would be anomalous to say that the underwriters may not here contest the direct actions.
Of course, liability underwriters are not entitled to “limitation of liability” as that phrase is used as a term
“If the courts having the execution of [the Limitation Act] administer it in a spirit of fairness, with the view of giving to ship owners the full benefit of the immunities intended to be secured by it, the encouragement it will afford to commercial operations (as before stated) will be of the last importance: but if it is administered with a tight and grudging hand, construing every clause most unfavorably against the ship owner, and allowing as little as possible to operate in his favor, the law will hardly be worth the trouble of its enactment. Its value and efficiency will also be greatly diminished, if not entirely destroyed, by allowing its administration to be hampered and interfered with by various and conflicting jurisdictions.” Providence & New York S. S. Co. v. Hill Co., 109 U. S. 578, 588-589.
Accordingly, MR. JUSTICE REED, MR. JUSTICE JACKSON, MR. JUSTICE BURTON and I would reverse the judgment of the Court of Appeals and reinstate that of the District Court dismissing the complaints. For the reasons stated in his opinion, MR. JUSTICE CLARK agrees that the direct
In order to break the deadlock resulting from the differences of opinion within the Court and to enable a majority to dispose of this litigation, we vacate the judgment of the Court of Appeals and order the case to be remanded to the District Court to be continued until after the completion of the limitation proceeding.
It is so ordered.
MR. JUSTICE CLARK, concurring.
I see no necessity for invalidating Louisiana‘s law by dismissing these direct actions. In administering the Limited Liability Act the Court can easily avoid a clear conflict between it and the direct action statute.
The Limited Liability Act admittedly was not designed for the benefit of insurance companies; nor does it deal with their liability. The purpose of the Congress in passing the Act in 1851 was to encourage investment in American ships by placing a limitation upon the personal liability of the shipowner in the event of an accident where there is no “privity or knowledge.” Thereafter this Court in The City of Norwich, 118 U. S. 468 (1886), recognized the right of a shipowner to buy insurance coverage for damage to his hull in order to protect against the loss of his investment. The proceeds of such “hull insurance” were held, for purposes of a limitation proceeding, not a part of “the interest” of the owner in the vessel. The basis of the decision was that Congress intended the Act to protect the investment of shipowners, and if the latter were prevented from indemnify-
To say that this view benefits the shipowner “at the expense of the families of the deceased seamen” is to ignore the realities of the case. Had the owner not purchased liability insurance the claimants could not, under any condition, recover more than the value of the damaged hull if there is no “privity or knowledge.” The owner‘s liability insurance is the sole source of the claimants’ hope for a recovery beyond the value of the
This is not to say that the insurance companies in a direct action are liable to damage claimants. That would be a question of Louisiana law. Our only interest is to make certain that such actions do not interfere with the Federal Limitation proceeding. To do this we need only require that the limitation proceeding be concluded first and the owner‘s liability settled under it. The petitioners could then discharge this liability, to the extent their policies covered it, by paying into the limitation proceeding the proper sum.2 The door would then be left open for prosecution of the direct actions against the insurance companies on the remaining coverage of the policies. Thus, whatever the insurers’ liability may be under Louisiana law in the subsequent direct actions, the owner‘s purse cannot be touched.
MR. JUSTICE FRANKFURTER‘S opinion states that the cases might be held for the limitation proceeding were it not that Congress intended that proceeding to be, in addition to a concursus of all claims against the owner
For these reasons, I would direct the District Court to first conclude the limitation proceeding, after which the liability, if any, of the petitioners on their policies in the direct actions could be determined.
MR. JUSTICE BLACK, with whom THE CHIEF JUSTICE, MR. JUSTICE DOUGLAS and MR. JUSTICE MINTON concur, dissenting.
The towboat Jane Smith hit a railroad bridge and sank in Louisiana waters of the Atchafalaya River. Five crew members were drowned. Petitioners, Maryland Casualty Company and Home Insurance Company, had previously sold insurance policies to the boat‘s owner and its charterer agreeing to repay them for any money they had to pay on account of injury or death caused by the boat. These policies were issued and delivered in Louisiana. A Louisiana statute authorizes injured persons or their heirs to sue insurance companies directly on such policies. Under this law the widows of the drowned crewmen brought these diversity actions in federal court against petitioners. A majority of the Court hold that permitting these suits to go forward to judgments against the insurance companies prior to completion of limitation of liability proceedings under an 1851 Act of Congress would bring this state statute into conflict with that Act. But the 1851 Act was passed to help shipowners by limiting the damages they must pay on account of wrongs inflicted by their agents. I see no possible reason for making insurance companies the beneficiaries of this shipowners’ relief Act. Neither can I understand why this Court should feel called on to relieve shipowners from even the light financial burden that the 1851 Act left them to bear. Nor do I think the Louisiana Act is subject to any of the
I.
(a) The insurance companies argue that the Louisiana law impairs the obligation of “maritime contracts.” The implication is that maritime contracts have more constitutional protection than other kinds of contracts. But
(b)
Louisiana‘s statute, as sought to be applied here, would further the equitable aims of admiralty by providing relief not otherwise available for maritime wrongs. For behind this “direct action” statute lies a long history of state attempts to protect the public interest by ensuring that liability policies furnish adequate protection to persons injured. At one time insurance companies were commonly able to avoid payment of a single dollar on their policies whenever the insured was insolvent and therefore judgment-proof. The insurance, although bought and paid for, would remain untouched while valid claims went entirely unsatisfied. To prevent this injustice many states passed laws of one kind or another which required insurance companies to pay injured persons even though the insured had paid out no money. The Massachusetts Supreme Judicial Court took the lead in sustaining a law of this type, Chief Justice Rugg suggesting its need to prevent liability insurance from becoming a “snare to the insured and a barren hope to the injured.” Lorando v. Gethro, 228 Mass. 181, 189, 117 N. E. 185, 189. And,
There can be no constitutional barrier to this Louisiana law passed to protect persons injured within its borders. Consequently, unless Congress has specifically forbidden states to protect seamen this way, Louisiana‘s statute is valid and should be enforced.
II.
The majority hold that the Limited Liability Act of 1851, as amended, bestows on the shipowner a right to collect all or part of the insurance money for his profit despite Louisiana‘s statute requiring insurance companies to make their payments directly to the families of persons injured or killed. I think this construc-tion gives shipowners far more than Congress intended.
(a) The majority appear to hold that if the insurance companies pay out the full amount of their policies in these actions and some recovery is also had against the shipowner in limitation proceedings the shipowner will be unable to get reimbursement for that recovery from the insurers and to that extent will be “deprived of his insurance.” It was conceded at the bar, however, that the
(b) Even if the ship has some value and there should be recoveries from the limitation fund, Louisiana‘s statute would not deprive the shipowner of any right given by the Limited Liability Act. That Act was passed to help shipowners by permitting them to escape full liability for wrongs of their agents. But not a word in it suggests that Congress also intended to give shipowners additional special privileges with respect to liability insurance or to interfere with state regulation of any type of insurance. Nor was any such expanded construction of the Act made by this Court in The City of Norwich, 118 U. S. 468. That case rested entirely on a holding that money from hull insurance was no part of an owner‘s “interest” in his ship which the Limited Liability Act required him to turn over to damage claimants. The Court was concerned only with what made up the limitation fund. The claimants here make no contention that liability insurance is part of the limitation fund. They concede that the shipowner can be made to pay out only the value of his “interest” in the damaged ship. But they insist that the shipowner should not be allowed to escape loss from even the limited liability which Congress put on him, if the result is to deprive injured persons of insurance bought to protect them. There is a vital difference between liability insurance and hull insurance with which The City of Norwich dealt. The latter provides recovery for loss of the shipowner‘s property. But liability insurance is not bought to guarantee reimbursement for loss of a shipowner‘s property. Its purpose is to pay for damage done
(c) It is said, however, that other shipowners might have to pay higher premiums and also buy more insurance if recoveries are allowed here, and that this would discourage investment in ships. How the Limited Liability Act may be read to impose a ceiling on premiums, over which the states normally have full power, is difficult for me to understand. I have searched the Act‘s history in vain for any support for this interpretation. Yet 103 years after the Act‘s passage it is discovered that Congress intended to help shipowners by preventing states from making regulations that might raise the cost of marine insurance. But Congress decided to help shipowners by reducing their obligations due to wrecks, not by reducing the prices they had to pay for carrying on their business either before or after a wreck. Construing the Act to protect shipowners from having to pay higher prices for oil or coal would be no less farfetched than construing it to keep down insurance premiums. This Court often
(d) Despite the insistence of petitioner insurance companies that these suits must be wholly barred to save shipowners from injury, it seems plain that the only real beneficiaries of such a holding would be the companies themselves. They, rather than the shipowner, would enjoy the protection sought to be written into the Limited Liability Act. But even the most generous reading of the Act gives no ground for believing that it was intended to help insurance companies, directly or indirectly. And nothing in the records of the congressional debates or reports supports such a strained interpretation. Shipowners, not insurance companies, were the group Congress wanted to help.
(e) For the above reasons I think the Limited Liability Act does not require deferring the present suits so that the shipowner can be the direct beneficiary of these insurance policies at the expense of the families of the deceased seamen. But quite apart from these reasons, the same conclusion is required by specific instructions from Congress. The McCarran Act provides that “No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance ....”
III.
Judicial expansion of the Limited Liability Act at this date seems especially inappropriate. Many of the conditions in the shipping industry which induced the 1851 Congress to pass the Act no longer prevail. And later Congresses, when they wished to aid shipping, provided subsidies paid out of the public treasury rather than subsidies paid by injured persons.5 If shipowners really need an additional subsidy, Congress can give it to them without making injured seamen bear the cost. It is significant that no shipowner has argued here against direct recoveries from the insurance companies.
Today‘s decision creates unnecessary delay and doubt as to recovery by the families of the Jane Smith‘s victims. The loss of their breadwinners is not to be shared by