Stephenson v. Piscataqua Fire & Marine Insurance

DickeRSON, J.

Assumpsit on a policy of marine insurance on schooner "Arbutus,” of Freeport, Maine, "at and from Portland to Cardenas, and at and from thence back to a port of discharge in the United States.” The insurance was effected "for whom it concerns,” and the loss made payable to the plaintiffs. The vessel was owned by James C. Rogers, who was also master.

The plaintiffs are met, in limine, with the objection that this action cannot be maintained because of their non-compliance with the following clause in the policy : — " In case any difference or dispute shall arise in relation to any loss sustained or alleged to be sustained, by any person insured under a policy issued by this company, the same shall be referred to and determined by referees to be chosen mutually by the assured and the board of directors, * * * and no holder of a policy shall be entitled to maintain any action thereon against the company until he shall have offered to submit his claim to such reference. In case any suit shall be commenced without such offer of reference having been made, the claim of the party so commencing such suit shall be released and discharged, and the company bo exempted from all liability under it.”

For every breach of a valid contract, the law provides a remedy as a necessary incident of the contract. The law supplies the omission to specify the remedy in the contract and makes it part and parcel of, and inseparable from it. While parties may impose, as a condition precedent to application to the courts, that they shall first have settled the amount to be recovered by an agreed mode, they cannot entirely close the access to the courts of law. The law and. not the contract prescribes the remedy; and parties have no more right to enter into stipulations against a resort to the courts for their remedy, in a given case, than they have to pi’ovide a remedy prohibited by law. Such stipulations ,are repugnant to the rest of the contract and assume to divest courts of their established jurisdiction. As conditions precedent to an appeal to the courts, they are void. Livingston v. Ralli, 30 Eng. L. & Eq., 279; Scott v. Avery, 20 Eng. Law & Eq., 336; 36 Eng. Law & Eq., 336; Nute v. Insurance Co., 11 Exch., 180, 181.

The policy in the case at bar first gives the plaintiffs a perfect right, and then provides that, in case differences shall arise under it, the whole subject, including both the right to recover and the amount of damages shall be. determined by referees. This stipulation does not prescribe a particular mode of ascertaining the damages as preliminary to the commencement of an action, but is purely a condition subsequent to the claim or right, and precedent to the institution of proceedings for its enforcement. It therefore relates to the remedy, and comes within the principles above stated. An offer of the insured to refer is made a condition precedent to bringing an action, while an offer made by them and accepted by the company, makes the referees final judges of the matter in controversy. In either case, the court is divested of its jurisdiction. This clause in the policy, in effect, if not in terms, commands the court to order a nonsuit, if the assured shall presume to bring an action before he has offered to submit his claim to a reference ; and such seems to have been the construction put upon this provision of the policy by the learned counsel for the defendants, when he submitted his motion for a nonsuit, though he seems to have waived the point in his argument. If anything further is needed to illustrate the obvious groundlessness of this motion, it may be found in the manifest impropriety of holding a party to submit to ordinary arbitration the grave and complicated questions of law which arise in this case. The provision in question being repugnant to the rights secured by the contract, and aiming to divest the court of its jurisdiction, is void, as a condition precedent to the maintenance of this action; and the presiding Judge very properly so ruled.

The argument of the learned counsel for the plaintiffs is a conclusive answer to the position taken by the defendants’ counsel in his request for instruction, that the policy applied only to the claim for supplies. In terms, the insurance was effected upon, and the valuation made of, the vessel only. The subsequent clause in the policy that " the above is to cover their claim for supplies furnished the vessel,” cannot, nor does it purport to change the insurance effected on the vessel by a previous clause, and put it upon the supplies. The loss was obviously made payable to the plaintiffs to enable them to indemnify themselves against the loss of their claim for supplies, and this paragraph was inserted to indicate their authority and purpose to do so. Besides, the supplies only amounted to $200, whereas insurance was effected for <S700. The defendants have no cause of complaint that the instructions requested on this point were refused.

By another clause in the policy the company is made "answerable,” in case of prior insurance on the vessel, " only for so much as the amount of such prior insurance may be deficient toward fully covering the property at risk.” Although this is a valued policy and the value of the vessel is fixed, yet this provision of the policy restricts the right of the plaintiffs to recover the excess of the value of the vessel, when lost, over the amount of the prior insurance, not exceeding $700. In order to give effect to this provision, it became necessary to ascertain the value of the vessel at the time and place of the loss, and there was no error in so instructing the jury. This is the rule in analogous cases. Patapsco Ins. Co. v. Southgate, 5 Peters, 490.

The instructions in regard to the amount of prior insui’ance to be allowed, were given as requested. The requested instruction that, if the jury should find that there was a constructive total loss, the amount of the vessel’s portion of the salvage should be deducted from the amount of the loss, was refused. Such salvage in case of abandonment to the underwriters or a sale from necessity by the master belongs to the insurers. It is not the duty of the assured to take part in the litigation which may arise among the several parties who have risks on the property for the due apportionment of the salvage among themselves. The assured is entitled to recover the full amount of his claim irrespective of such apportionment or of the amount of salvage received by the insurers. But for the argument of counsel, it would be difficult to perceive the ground upon which this request is to be placed. It there appears to be based upon the assumption that the plaintiffs have received the salvage belonging to the vessel. In that case the principle contended for would'undoubtedly be applicable; but we do not understand that the plaintiffs have ever received any part of the salvage. The sale of the vessel and the remittance of the salvage to the Alliance Company took place without their knowledge, authority or consent. Neither they nor any one over whom they had control, received any part of the salvage. On the contrary, the auctioneer sent, the Vessel’s part of the salvage to the Alliance Company against the remonstrance of the master. The requested instructions were rightfully refused.

The insurance having been effected " for whom it concerned,” it was competent for the plaintiffs to show who had the insurable interest, and the authority they had for procuring the insurance. Evidence of statements made by Rogers, the owner, to the plaintiffs, tending to show this, was dearly admissible, as the presiding Judge held it to be.

So, also, the ruling excluding the alleged copy of the report of the surveyors was unobjectionable. The survey was not made by order of a court of admiralty; nor is there any evidence that the surveyors acted under the sanction of an oath. The master had no control over them, nor is he responsible for their acts, declarations or opinions. He had no opportunity to examine them. There is no law or usage recognized by courts by which the certificate of an American consul stamps such a paper with the authority and character of a deposition, or makes a copy equivalent to the original. ■ The assured is not bound to produce the survey, if called for by the underwriters, nor can it be road in defence against his objection. If the defendants would avail themselves of the facts disclosed in the report of the surveyors, they should have taken their depositions or had them present as witnesses at the trial. The rules of law do not invest evidence of this description with special immunities. Neither plaintiff nor defendant can use such a document in evidence without consent of parties. Hall v. Franklin Ins. Co., 9 Pick., 466; Mitchell v. New England Mar. Ins. Co., 6 Pick., 117; Phillips on Ins., § 2096.

No exception lies to the ruling of a Judge in refusing to order a nonsuit, and the question of seaworthiness was properly submitted to the jury.

In every contract of marine insurance against sea perils, during a certain voyage, the assured impliedly warrants that his vessel is in a suitable condition to proceed on the voyage, and to meet all the common perils and dangers incident thereto with safety. This warranty is a condition precedent to the obligation of insurance; and if, at the inception of the risk, the vessel is lacking in any of the essential requisites of seaworthiness, the policy is void. This rule of law applies, as well where the uuseaworthiness is neither known nor could be known to the assured, as where it was known or caused by him. The question of good faith on the part of the assured in this respect is immaterial when the fact of unseaworthiness is proved. If the vessel is seaworthy at the commencement of the risk, the condition of warranty is fulfilled, though she becomes unfit for sea, and goes to the bottom in twenty-four hours afterwards. But if a ship sails on a voyage, and within a day or two becomes leaky, or founders, or is obliged to return to port without encountering stress of weather or any visible or adequate cause to produce such an effect, the presumption is that she was not seaworthy when she sailed; though no such presumption exists, where it is proved affirmatively that the ship was seaworthy when she left port, and that she encountered perils such as might disable a staunch and well manned vessel. The question whether a ship was seaworthy at the commencement of the risk on a voyage, when not otherwise ascertained, must be decided by rational inference from the circumstances in proof. ITer age, the materials of which she was built, the skill and fidelity of her architects, the climatic tests to which she has been subjected, the kind of cargoes she has carried, the nature of the perils she has encountered, and the proximity in time between the inception of the risk and the disaster, for the most part, make up the magazine of facts from which the conclusion as to seaworthiness is to be drawn. The question of seaworthiness is to be determined by the jury. The burden of proof, however, is on the insurer to establish the fact of unseaworthiness, the presumption of law being that the ship was seaworthy. Treadwell v. Union Ins. Co., 6 Dow, 273; Paddock v. Franklin Ins. Co., 11 Pick., 226; Watson v. Clark, 1 Dow, 344; Munroe v. Vandam, 1 Park. Ins., 333; Parker v. Potts, 3 Dow, 23; Walsh v. Washington Mar. Ins. Co., 32 N. Y., 427; Patrick v. Hallett & al., 1 Johns., 341; Talcot v. Am. Ins. Co., 2 Johns., 124, 467; Arnould on Ins., (Perkins,) § 245.

The theory of the defence is, that the evidence manifestly overcomes both the presumption and the proof of the seaworthiness of the "Arbutus,” and also raises the presumption of her unseaworthiness. The principal fact relied upon in support of this position, is the occurrence of the disaster, in the absence of extraordinary sea perils and all other causes sufficient to produce such an effect, within a few hours after she sailed from Cardenas. This argument would undoubtedly be entitled to grave consideration if the risk commenced at Cardenas ; but the risk attached at Portland, some sixty days prior to the disaster. Iler seaworthiness, when she sailed from Portland, is not only to be presumed, but it is proved. She had been built only a few months, of hard wood materials, and was pronounced a first class vessel by her architects. This was her second voyage, and there is no evidence that she was damaged on her first voyage, or that she did not then prove to be a sound, tight and staunch vessel. On her outward passage to Cardonas, she experienced rough weather, encountering a " gale of wind for seventeen days,” and losing her deckload. This was a peril covered by the policy, and such as might well disable a seaworthy ship. The consideration that the effects of these perils on the " Arbutus” were not discovered at the time she fell in with them, is by no means conclusive proof that she was not injured by them, nor does it absolve the insurers from liability if the final disaster actually arose from this cause. A marine insurance policy covers not only losses that result from injuries caused by extraordinary perils of the sea which are immediately known, but also losses that result from latent injuries. The frowning waves which a ship seems to mock at unharmed, or the storm that she proudly outrides in apparent safety, may give her a death wound ; and, though the hour of her dissolution be far distant, and, when it comes, it may be in the very calm that betokens immunity to her faithful mariners, yet her destiny is not the less certain from the remoteness of the injury, nor the damages the less severe in their consequences that they were not apparent at their inception. A bolt may be loosened or a timber started in a storm, without being perceived until the subsequent action of the water, or the climate, or the greater strain of a different cargo has so augmented the injury as to cause the loss of the vessel. The most skilful, experienced and energetic navigator cannot go into the hold of his ship, and overhaul her cargo to note the effect the storm is producing upon her hull; his presence in such cases is required upon the quarter deck. If the pumps " suck dry” all the while the storm is raging, all below decks is presumed to be well. In numberless instances of marine disasters, from the nature of the case, the injury complained of does not happen simultaneously with the particular peril that caused it. To restrict the insurers’ liability to cases whore such coincidence occurs, would be to deprive the assured of all remedy in a vast number of cases, where every rational inference points to some previous peril of the sea, as the actual cause of the loss, though the particular effects are not experienced or perceived until a long time thereafter. It is in some degree to remedy this difficulty, that the law arms the assured with the presumption that his ship, in a given case, was seaworthy; and, having proved that she met with perils of the sea adequate to disable a seaworthy ship, and that she has received an injury which such perils ordinarily occasion, he is entitled to .recover as for a loss by the perils of the sea, unless the contrary appears, if the jury are satisfied that the damage originated from previous perils.

It was this inference that the jury doubtless drew in regard to the cause of the disaster to the "Arbutus.” Nothing happened to her after she sailed from Cardenas to cause her to fill with water so suddenly, unless she had previously sustained some latent injury. Finding that she was seaworthy when she left Portland, the jury would naturally look to the perils of the sea which swept away her deck load on her outward passage, as the cause of her disaster. Her exposure to the climate of Cardenas for thirty days, and the change in her cargo, in the estimation of the jury, may have accounted for the sudden development of the latent injuries inflicted upon her by those perils. We are not prepared to say this inference is an irrational one.

The counsel for the defendants further argues that the evidence fails to show that the master had authority to sell the vessel and thereby turn a trifling, partial loss into a constructive total loss. The authority of a master to sell a vessel or cargo in case of marine disaster rests exclusively upon the ground of necessity. In kind, the necessity is not a legal or physical necessity, but a moral one; and though different courts and jurists use various epithets to intensify the degree of the requisite necessity, these add little significance to the simple language, moral necessity. The necessity need not be actual, for the next wave that comes may deliver the ship from her perils, but it must be apparent from the surrounding circumstances, and the master must act from a conviction of its actuality. Viewed from his stand point, the facts and circumstances must exclude every rational theory that the interests of those he represents would be subserved in any other way than by a sale; or, in other words, to refrain from selling, to a man of ordinary maritime experience and intelligence as a shipmaster, must seem to be the violation of a manifest moral duty. Prince v. Ocean Insurance Co., 40 Maine, 481; Butler v. Murray, 30 N. Y., 88.

The questions which force themselves upon a master in case of disaster to his vessel are, what is the extent of the injury? Is it a partial loss, or a technical or constructive total loss ? What are the dangers of further damage ? What means of rescue are at hand, and what are the facilities for using them ? What are the chances and cost of repairing the vessel where she lies? If she cannot be there repaired, can she be. taken to another port, and what are the opportunities and probable expense of repairing her at such port ? What are the nature and condition of her cargo and the means -and expense of transhipping or landing it? What are the available channels of communication with the owners or insurers ? If a claim of salvage has intervened, what effect ought that consideration to have in determining his course? The duty of the shipmaster to sacrifice a part and oftentimes the greater part of the value of the ship by sale, in order to save the balance, is not always easily discernible; but when it is, it is as obligatory as his duty to en-jgage the most advantageous freights, seek the best markets, ¡or make the quickest despatch.

The fact that the master was, also, owner of the vessel, does not materially change his rights, duties and obligations in the premises. The burden of proof is upon the plaintiffs to establish the necessity for the sale, and that the master acted in good faith. It is, also incumbent on them to show, in the language of the policy, " by positive proof, that a further loss would have been sustained by waiting for advice” from the defendants, the master not having advised them of the condition of the vessel, or of his intention to sell.

Was there a moral necessity for the sale ? In such cases, the master acts for the owners or for the insurers because they cannot act personally for themselves. It is their right to have the vessel sold, or to repair her; and if she can be kept safely until they can be consulted in regard to the sale, the necessity to act for them ceases. The damage to the " Arbutus” was not very serious. The master was on board of her every day for ten days after the disaster, " looking around her and saw nothing out of shape” except a plug hole which was not filled when she left Cardenas. She had been rescued from peril and taken into Cardenas harbor, forty miles from the place of her disaster, in a few hours afterward, under her own sails, and lay only a quarter of a mile from the wharf. According to the testimony of Mr. Churchill, an experienced merchant of Cardenas, and consignee of the "Arbutus’” outward cargo, the vessel might have been hove down by any of the wharves in Cardenas, and her bottom examined, and the injury to her wale repaired, as was the custom with vessels of her class. The same witness, also, testified, the total expense of landing her cargo would not have exceeded a hundred dollars, though the master’s estimate exceeds twice that sum. The expense of keeping the vessel in case of delay, would have been the trifling wages of one or two shipkeepers which must in any event have been borne by the insurers, and she would meanwhile have remained at their risk. She did lie there in safety for ten days prior to the sale, and there is no evidence that she might not have continued there without further damage for an indefinite period. Tho mail left Cardenas for New York once a fortnight. The alternatives of letting the vessel remain in safety and with small expense, of discharging her cargo at trifling cost, of having her examined to ascertain the extent of the injury, and of repairing her without difficulty, if her damage should be found not very serious, and of communicating with the insurers, were thus all open to the master and seemed not only to invite but to command him to consult them. How then can it be said, in the language of the policy stipulating for notice to the underwriters, " that there was positive proof that a further loss would have been sustained by waiting for advice” from them ? Most certainly tho spes recujperandi was worth as much to them as to tho purchaser, and they were entitled to the benefit of an election whether to sell or repair the vessel. If they had had the opportunity to make this election, there can be no doubt but they would have adopted the latter alternative. The burden is on the plaintiffs to prove the necessity for a sale, but the proof adduced most emphatically negatives the existence of such necessity. Patapsco Ins. Co., v. Southgate, 5 Pet., 490; Hall v. Franklin Ins. Co., 9 Pick., 466.

hi or is the plaintiffs’ case relieved by the claim for salvage. Tho sale was not compulsory; no appeal had been made to a court of admiralty. A compulsory sale could only have been made upon judgment of such court. Proceedings in admiralty are necessarily attended with delay; and before an order of sale could have been obtained, there would ordinarily have been time to consult the insurers. Besides, in case of sale under legal process, the additional expense would be more than compensated by the guaranty of good faith it would have afforded. Under the circumstances of this case, too, the proximity of the disaster to Cardenas, and the trifling danger, difficulty and expense of 1 relieving the vessel, and taking her into port, it is appar-' j ent that a - court of admiralty would have disallowed no ■ inconsiderable part of the exorbitant claim for salvage,;!, though the master allowed it without cavil, or question,' or even submitting it to arbitration. The salvors were bound to take due care of the vessel and to afford every requisite facility for improving its condition, on peril of losing their claim. Thei’e is not a scintilla of evidence to show that it would have cost anything like fifty per cent, of the value of the vessel to repair her, a rule which courts have 'adopted as indicative of the necessity for abandonment. Ship-owners hold title to their ships by a frail tenure, if they are to be thus divested of it, and insurers in vain stipulate, in their policies, for notice of disasters, if these are to be thus disregarded.

In order to justify a sale by the master, necessity and good faitlf must concur. The necessity cannot be inferred from good faith, for the master’s judgment may have been at fault; but it must be determined from the circumstances as they existed at the time. Nor can good faith be inferred from necessity; for the .master may have colluded with the purchaser in the sale; but the inquiry whether a prudent owner, then and there- present, and uninsured, would have done as the master did, may aid the jury in determining whether good faith had been maintained. The master’s good judgment will not make that a case of necessity which would not otherwise be, nor his bad judgment prevent that from being necessary which would otherwise be necessary. The authorities concur in the doctrine that if the damage sustained was of trivial amount, and could have been repaired at the place where the ship is, or may be readily taken, there is no necessity for the sale, whatever may have been the judgment or faith of the master. Win v. Columbia Ins. Co., 12 Pick., 279; 7 Sergt. & Lowb., 275; Clark v. Mass. M. and F. Ins. Co., 2 Pick., 104.

Were it necessary for ns to pass upon the question of tbe master’s good faith, we should say that his neglect to ascertain the extent of the injury and to notify the insurers, under the circumstances of the case, and his allowance of the exorbitant claim for salvage, without awaiting the judgment of a court of admiralty or submitting the matter to arbitration, indicate, at least, a lack of judgment, if not of good faith. But it is unnecessary for us to decide that question.

The power of sale is liable to such great abuse, that it should be carefully watched; and it is the duty of courts to take care that the safeguards which the law has thrown around the rights of owners and insurers should not be entirely swept away by the failure of the jury to make a proper application of them. If the sale had been necessary, the plaintiffs would be entitled to recover for a total loss without abandonment, but the sale being unauthorized, the plaintiffs have put it out of their power, by the sale, to make the abandonment necessary in case of a constructive total loss, and can recover only for a partial loss.

Exceptions overruled, — Motion sustained,— Verdict set aside, and new trial granted.

ApplbtoN, C. J., Cutting, WaltoN, Barrows, Dan-eorth, and Talley, JJ., concurred.