Wilburn Boat Co. v. Fireman's Fund Insurance

Mr. Justice Black

delivered the opinion of the Court.

This case raises questions concerning the power of States to regulate the terms and conditions of marine insurance contracts.

Glenn, Frank and Henry Wilburn, merchants in Deni-son, Texas, bought a small houseboat to use for commercial carriage of passengers on nearby Lake Texoma, an artificial inland lake between Texas and Oklahoma. The respondent Fireman’s Fund Insurance Company insured the boat against loss from fire and other perils. While moored on the lake the boat was destroyed by fire. Following respondent’s refusal to pay for the loss, this suit was brought in a Texas state court by the Wilburns and by their wholly owned corporation, the Wilburn Boat Company, to which the boat’s legal title had been transferred. After removal of the case to the United States District Court because of diversity, respondent answered admitting issuance of the policy, payment of premiums and destruction of the boat. Liability was denied however because of alleged breaches of printed policy terms or "warranties” providing that, without written consent of the company, the boat could not be sold, transferred, assigned, pledged, hired or chartered, and must be used solely for private pleasure purposes.¹ The case was submitted on stipulated facts supplemented by oral testimony. Contending that the evidence showed the policy contract to have been made and delivered in Texas, petitioners urged that all questions concerning alleged policy breaches were controlled by Texas law. If Texas law does govern, the policy provision against pledging may be wholly invalid.² Furthermore no breach by the insured of the provisions of a fire insurance policy is a defense to any suit under Texas law unless the breach contributes to the loss.³ Without finding whether the policy had been made and delivered in Texas, the court refused to give that State’s law any effect at all, holding that since a marine policy is a maritime contract, federal admiralty law — not state law — governed.⁴ The court went on to hold that there is an established admiralty rule which requires literal fulfillment of every policy warranty so that any breach bars recovery, even though a loss would have happened had the warranty been carried out to the letter. Finding that the Wilburns had breached policy provisions against transfer, pledge and use of the boat,⁵ the District Court entered judgment for the insurance company. Approving the District Court’s actions in all respects, the Court of Appeals affirmed, saying that “It is the settled doctrine that a marine contract of insurance is 'derived from’ is 'governed by’, and is a ‘part of’ the general maritime law of the world.” 201 F. 2d 833, 837. Importance of the questions involved prompted us to grant certiorari. 347 U. S. 950.⁶

Since the insurance policy here sued on is a maritime contract the Admiralty Clause of the Constitution brings it within federal jurisdiction. Insurance Co. v. Dunham, 11 Wall. 1. But it does not follow, as the courts below seemed to think, that every term in every maritime contract can only be controlled by some federally defined admiralty rule. In the field of maritime contracts⁷ as in that of maritime torts,⁸ the National Government has left much regulatory power in the States. As later discússed in more detail, this state regulatory power, exercised with federal consent or acquiescence, has always been particularly broad in relation to insurance companies and the contracts they make.

Congress has not taken over the regulation of marine insurance contracts and has not dealt with the effect of marine insurance warranties at all; hence there is no possible question here of conflict between state law and any federal statute. But this does not answer the questions presented, since in the absence of controlling Acts of Congress this Court has fashioned a large part of the existing rules that govern admiralty. And States can no more override such judicial rules validly fashioned than they can override Acts of Congress. See, e. g., Garrett v. Moore-McCormack Co., 317 U. S. 239. Consequently the crucial questions in this case narrow down to these: (1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should we fashion one?

The only decision of this Court relied on by the Court of Appeals to support its holding that there is an established admiralty rule requiring strict fulfillment of marine insurance warranties was Imperial Fire Insurance Co. v. Coos County, 151 U. S. 452. There, because of a breach of warranty, an insurance company was relieved of liability for loss of a courthouse by fire, and this Court said it was immaterial whether the breach contributed to the loss. But no question of marine insurance was remotely involved nor was there any reliance on a marine insurance rule. Writing its own “general commercial law,” as was the custom in diversity cases prior to Erie R. Co. v. Tompkins, 304 U. S. 64, this Court in the Coos County case simply followed a general doctrine commonly applied to warranties in all types of insurance.⁹ A mere cursory examination of the cases, state and federal, will disclose that through the years this common-law doctrine, when accepted, has been treated not as an admiralty rule but as a general warranty rule applicable to many types of contracts including marine and other insurance.¹⁰ There are very few federal cases on marine insurance in which the strict breach of warranty rule has even been considered. And only two circuits appear to have thought of the rule as a part of the general admiralty law.¹¹. On the contrary, other circuit court decisions, including the ones relied on in those few cases holding the rule to be one of federal admiralty, seem to indicate that state law was followed in applying the rule ¹² or that the question was decided as one of “general commercial law,” a uniform practice during the era of Swift v. Tyson, 16 Pet. I.¹³ This Court did say in one marine insurance case that warranties “must be strictly and literally performed.” Hazard’s Administrator v. New England Marine Ins. Co., 8 Pet. 557, 580. But there is not the slightest indication that this statement referred to a federal admiralty rule and the Court in fact expressly followed and applied Massachusetts law to decide another question in that very case. Whatever the origin of the “literal performance” rule may be,¹⁴ we think it plain that it has not been judicially established as part of the body of federal admiralty law in this country. Therefore, the scope and validity of the policy provisions here involved and the consequences of breaching them can only be determined by state law¹⁵ unless we are now prepared to fashion controlling federal rules.

The whole judicial and legislative history of insurance regulation in the United States warns us against the judicial creation of admiralty rules to govern marine policy terms and warranties. The control of all types of insurance companies and contracts has been primarily a state function since the States came into being. In 1869, this Court held in Paul v. Virginia, 8 Wall. 168, that States possessed regulatory power over the insurance business and strongly indicated that the National Government did not have that power. Three years later, it was first authoritatively decided in Insurance Co. v. Dunham, supra, that federal courts could exercise “jurisdiction” over marine insurance contracts. In 1894, years after the Dunham holding, this Court applied the doctrine of Paul v. Virginia and held that States could regulate marine insurance the same as any other insurance. Hooper v. California, 155 U. S. 648. Later, the power of States to regulate marine insurance was reaffirmed in Nutting v. Massachusetts, 183 U. S. 553. This constitutional doctrine carrying implications of exclusive state power to regulate all types of- insurance contracts remained until 1944 when this Court decided United States v. South-Eastern Underwriters Assn., 322 U. S. 533. Thus it is clear that at least until 1944 this Court has always treated marine insurance contracts, like all others, as subject to state control.¹⁶ The vast amount of insurance litigation in state courts throughout our history also bears witness that until recently state legislatures and state courts have treated marine insurance as controlled by state law to the same extent as all other insurance.¹⁷ This is aptly illustrated by a Massachusetts case decided in 1893 which expressly held a generally worded statute of that State relating to warranties to be applicable to marine insurance companies equally with other insurance companies. Durkee v. India Mutual Ins. Co., 159 Mass. 514, 34 N. E. 1133.

Not only courts, but Congress, insurance companies, and those insured have all acted on the assumption that States can regulate marine insurance. In the Merchant Marine Act of 1920, Congress recognized that marine insurance companies were operating under state laws.¹⁸ Then, following a three-year study of marine insurance, Congress in 1922 passed a law regulating all types of insurance in the District of Columbia.¹⁹ This enactment generally referred to as the District of Columbia Model Marine Insurance Act, had the backing of insurance companies generally and was hailed as a model which it was hoped States would copy. Because of a provision in the bill as offered relating to “policy forms and conditions,” the bill was first criticized by a national association of shipowners but was later approved after the criticized provision was removed.²⁰ Hearings on the bill make it plain that shipowners and marine insurance companies recognized that marine insurance was then, and would continue to be, regulated by the States. This model bill which it was hoped would serve as a pattern for States to follow was prompted in part by widespread doubt created by Paul v. Virginia and Hooper v. California that the Federal Government could enter the field at all.²¹ Again in 1935 marine insurance was discussed in congressional hearings in connection with the Limitation of Liability Act. 49 Stat. 1479, 46 U. S. C. § § 181-196. There representatives of shipowners strongly opposed regulation of marine insurance by federal authority, arguing that it was better for the States to retain their regulatory function.²² Finally, in 1944 and 1945, Congress had before it for consideration bills specifically designed to authorize States to continue to regulate the business of insurance. At the very beginning of extensive hearings on these bills the Committee’s attention was directed to that part of this Court’s opinion in Hooper v. California deciding that States could regulate the marine insurance business the same as they could regulate other kinds of insurance businesses.²³ Again and again the Committee was reminded of the Paul and Hooper cases which together showed that States had previously been regulating marine insurance as well as all other types. Passage of the bill followed United States v. South-Eastern Underwriters Assn., supra, holding that, despite the constitutional doctrine embodied in the Paul v. Virginia line of cases, Congress had power under the Constitution to regulate interstate insurance transactions. In the South-Eastern case, however, all the opinions had emphasized the historical fact that States had always been free to regulate insurance. The measure Congress passed shortly thereafter, known as the McCarran Act, was designed to assure that existing state power to regulate insurance would continue. Accordingly, the Act contains a broad declaration of congressional policy that the continued regulation of insurance by the States is in the public interest, and that silence on the part of Congress should not be construed to impose any barrier to continued regulation of insurance by the States.²⁴

The hearings on the McCarran Act reveal the complexities and difficulties of an attempt to unify insurance law on a nationwide basis, even by Congress. Courts would find such a task far more difficult. Congress in passing laws is not limited to the narrow factual situation of a particular controversy as courts are in deciding lawsuits. And Congress could replace the presently functioning state regulations of marine insurance by one comprehensive Act. Courts, however, could only do it piecemeal, on a case-by-case basis. Such a creeping approach would result in leaving marine insurance largely unregulated for years to come.²⁵

In this very case, should we attempt to fashion an admiralty rule governing policy provisions, we would at once be faced with the difficulty of determining what should be the consequences of breaches. We could adopt the old common-law doctrine of forfeiting all right of recovery in the absence of strict and literal performance of warranties, but that is a harsh rule.²⁶ Most States, deeming the old rule a breeder of wrong and injustice, have abandoned it in whole or in part. But that has left open the question of what kind of new rule could be substituted that would be fair both to insurance companies and policyholders. Out of their abundant broad experience in regulating the insurance business, some state legislatures have adopted one kind of new rule and some another.²⁷ Some States for example have denied companies the right to forfeit policies in the absence of an insured’s bad faith or fraud. Other States have thought this kind of rule inadequate to stamp out forfeiture practices deemed evil. The result, as this Court has pointed out, has been state statutes like that of Texas which “go to the root of the evil” and forbid forfeiture for an insured’s breach of policy terms unless the breach actually contributes to bring about the loss insured against. Northwestern National Life Ins. Co. v. Riggs, 203 U. S. 243, 253-254. Thus there are a number of other possible rules from which this Court could fashion one for admiralty. But such a choice involves varied policy considerations and is obviously one which Congress is peculiarly suited to make. And we decline to undertake the task. See Halcyon Lines v. Haenn Ship Corp., 342 U. S. 282, 285.

Under our present system of diverse state regulations, which is as old as the Union, the insurance business has become one of the great enterprises of the Nation. Congress has been exceedingly cautious about disturbing this system, even as to marine insurance where congressional power is undoubted.²⁸ We, like Congress, leave the regulation of marine insurance where it has been — with the States.²⁹

The judgments of the Court of Appeals and the District Court are reversed and the cause is remanded to the District Court for a trial under appropriate state law.

It is so ordered.

1 “It Is Also Agreed that this insurance shall be void in case this Policy or the interest insured thereby shall be sold, assigned, transferred or pledged without the previous consent in writing of the Assurers.”

“Warranted by the Assured that the within named vessel shall be used solely for private pleasure purposes during the currency of this Policy and shall not be hired or chartered unless permission is granted by endorsement hereon.”

2 Vernon's Rev. Civ. Stat., 1936, Art. 4890: “Any provision in any policy of insurance issued by any company subject to the provisions of this law to the effect that if said property is encumbered by a lien of any character or shall after the issuance of such policy become encumbered by a lien of any character then such encumbrance shall render such policy void shall be of no force and effect. Any such provision within or placed upon any such policy shall be null and void."

3 Vernon’s Rev. Civ. Stat., 1936, Art. 4930: “No breach or violation by the insured of any warranty, condition or provision of any fire insurance policy, contract of insurance, or application therefor, upon personal property, shall render void the policy or contract, or constitute a defense to a suit for loss thereon, unless such breach or violation contributed to bring about the destruction of the property.”

4 The District Court said: “After much consideration of the above matter, I am of the opinion that the policy involved here is a maritime contract and therefore governed by the general admiralty law and not by the law of Texas, since the policy covered the vessel on navigable waters of the United States, without as well as within the State of Texas, and I find that the waters of Lake Texoma are navigable waters of the United States.”

5 There was evidence that prior to the loss the company had notice that the boat was constantly used for commercial purposes. Because of this petitioners urged that the company had waived the policy provision against such use and was also estopped to plead it. Questions involved in these contentions remain wholly open for consideration by the District Court in any new trial that may be had.

6 The Court of Appeals assumed that if any state law applied it was that of Texas. The question of the appropriate state law is not before us, however, and we express no opinion on that aspect of the case. Cf. Watson v. Employers Liability Assur. Corp., 348 U. S. 66. Likewise we are not concerned at this time with whether the District Court’s holdings that the Wilburns’ transactions constituted breaches, and that the breaches had not been waived by the company, would be correct holdings under state law.

7 See, e. g., The Lottawanna, 21 Wall. 558; Madruga v. Superior Court, 346 U. S. 556. But cf. Union Fish Co. v. Erickson, 248 U. S. 308.

8 See, e. g., Just v. Chambers, 312 U. S. 383; The Hamilton, 207 U. S. 398. But cf. Pope & Talbot v. Hawn, 346 U. S. 406; Butler v. Boston & Savannah S. S. Co., 130 IP. S. 527, 557-558.

9 See, e. g., Phoenix Life Ins. Co. v. Raddin, 120 U. S. 183, 189-190.

10 See, e. g., cases collected in 87 A. L. R. 1074; L. R. A. 1918B, 429; 34 L. R. A. (N. S.) 563; 11 L. R. A. (N. S.) 981; 29 Am. Jur., Insurance, § 529 et seq.

11 Aetna Ins. Co. v. Houston Oil & Transport Co., 49 F. 2d 121 (1931); Home Ins. Co. v. Ciconett, 179 F. 2d 892 (1950).

12 Gelb v. Automobile Ins. Co., 168 F. 2d 774; Levine v. Aetna Ins. Co., 139 F. 2d 217; Shamrock Towing Co. v. American Ins. Co., 9 F. 2d 57. See also United States Gypsum Co. v. Insurance Co. of North America, 19 F. Supp. 767. See Goulder, Evolution of the Admiralty Law in America, 5 Am. Lawyer 314.

13 E. g., Canton Ins. Office, Ltd. v. Independent Transp. Co., 217 F. 213; Whealton Packing Co. v. Aetna Ins. Co., 185 F. 108; Robinson v. Home Ins. Co., 73 F. 2d 3; Fidelity-Phenix Ins. Co. v. Chicago Title & Trust Co., 12 F. 2d 573.

14 See Vance, The History of the Development of the Warranty in Insurance Law, 20 Yale L. J. 523; Patterson, Warranties in Insurance Law, 34 Col. L. Rev. 595.

15 The Hamilton, 207 U. S. 398, and cases there cited.

16 For cases subsequent to 1944 holding that States could regulate insurance, see Robertson v. California, 328 U. S. 440; Prudential Ins. Co. v. Benjamin, 328 U. S. 408.

17 See cases collected in 9 L. Ed. 1123; 22 L. Ed. 216; 42 L. Ed. 113; 9 A. L. R. 1314; 13 A. L. R. 893; 43 A. L. R. 222; L. R. A. 1917C, 730; L. R. A. 1916F, 1171; 10 L. R. A. (N. S.) 742; 36 Am. St. Rep. 854; 29 Am. Jur., Insurance, §§227-237, 758-785, 1032-1051, 1198-1224; note 10, supra.

18 41 Stat. 1000, 46 U. S. C. § 885 (a) (2).

19 42 Stat. 408; D. C. Code, 1951, §35-1101 et seq.

20 Hearings before Senate Committee on Commerce on S. 210, 67th Cong., 1st Sess. 111, 112, 213.

21 Id., at 20-30. See also S. Rep. No. 228, 67th Cong., 1st Sess.; H. R. Rep. No. 582, 67th Cong., 2d Sess.

22 Hearings before House Committee on Merchant Marine and Fisheries on H. R. 4550, 74th Cong., 1st Sess. 124 et seq.

23 Joint Hearing before the Subcommittees of the Committees on the Judiciary on S. 1362, H. R. 3269, H. R. 3270, 78th Cong., 1st Sess. 7. Attention was also called to New York Life Ins. Co. v. Cravens, 178 U. S. 389, and other cases which held that States had power to bar policy provisions deemed contrary to the public interest and compel inclusion of provisions deemed to be in the public welfare.

24 59 Stat. 33,15 U.S.C.§1011.

25 For the multitudinous insurance regulations States have found necessary after long experience, see, e. g., McKinney’s N. Y. Laws, Insurance Law; La. Rev. Stat., 1950, Title 22; Vernon’s Tex. Rev. Civ. Stat., 1936, Arts. 4679-5068b.

26 For criticisms of the rule see note 14, supra.

27 4 Couch, Cyclopedia of Insurance Law, § 819 et seq.; 12 Apple-man, Insurance Law and Practice, § 7251 et seq. For instances where state courts have relaxed the rule of their own accord see 4 Appleman, Insurance Law and Practice, § 2695; 12 id., § 7354.

28 Congress has made certain provisions in connection with war risk insurance. 64 Stat. 773, 46 U. S. C. §§ 1281-1294. And to a very limited extent it has authorized governmental agencies to regulate policies and insurance companies which are insuring vessels in which the Government has some interest. 41 Stat. 992, 46 U. S. C. § 868; 52 Stat. 969, 46 U. S. C. §§ 1271-1279; 55 Stat. 243, 50 U. S. C. App. § 1273.

29 It is faintly contended that the Federal Constitution forbids States to regulate marine insurance, even where Congress acquiesces or expressly consents. This contention is so lacking in merit that it need not be discussed.