Case ID: johns-cas_2/html/0442-02.html
Source: Caselaw Access Project
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Date Created: 2024-08-24T03:29:51.129683

*The United Insurance Company of New York, Plaintiffs in Error, against Robert Lenox, Defendant in Error.
    
    Where a ship is abandoned to the insurer who accepts the abandonment, and the voyage is afterwards performed, and freight earned, the insurer is entitled to the freight earned after the abandonment, or pro rata.
    
    This cause came before the court, on a writ of error from the supreme court. See 1 Johns. Cases, p. 377, 390, where the facts and opinions delivered by the judges of the supreme court are stated.
    
      Troup and Harison, for the plaintiffs in error,
    contended, that the judgment of the supreme court ought to be reversed :
    1. Because freight being nothing more than the earnings of the ship, is to be regarded solely as an incident which is attached to the ship, as the principal. When, therefore, an abandonment of the ship is made and accepted, the freight, of course, passes with the ship to the underwriter; in like manner as the grant of a tree vests the fruit of it in the grantee. If a different principle were to prevail, the underwriter, by an abandonment, would acquire a qualified, instead of an absolute right to the property abandoned.
    2. Because the contract of insurance, being a contract of indemnity, has it in view to place the assured in the situation he was in, at the commencement of the voyage ; and not to yield him a profit. It naturally happens, that the ship becomes deteriorated in the course of her voyage ; and the freight she earns is intended to compensate for such deterioration. But if the assured may abandon the ship, and at the same time retain the freight, he will, in many cases, convert what was designed as a mere indemnity, into a gainful speculation.
    *3. Because, although the law permits freight to be insured, yet the underwriter thereon, in case of abandonment, cannot be entitled to more than the owner of the ship, who had made no insurance on freight, would have a right to receive; and if, in such case, the owner of the ship, upon principle, would have no right to freight, it must necessarily follow, that the claim for freight, on the part of the underwriter, cannot be supported.
    4. Because, if the freight can be apportioned, as has been done in this cause, it would become the interest of the owner of the ship, (who had not insured his freight,) upon some pretext or other, to break up the voyage whenever it was nearly accomplished. Thus an extensive field would be opened for additional frauds upon underwriters, who are a class of men already too much exposed to the pernicious effects of fraud.
    
      B. Livingston, for the defendant in error,
    contended, that the judgment of the supreme court was erroneous, because the plaintiffs were entitled to no part of the freight earned during the voyage insured, and therefore, the judgment should have been rendered for the defendant generally.
    1. Yessels, goods and freight are distinct interests, and the most frequent objects of marine insurance. In case of abandonment, the respective underwriters acquire an interest in each, according to the subject matter of the different policies. The portion of property oftentimes saved, in case of total loss, technically so called, is a great encouragement to insurance; but an insurer on freight would never, in cases of disaster, if the plaintiffs be right, have any thing to receive. This would turn a policy of freight into a very unequal, if not gambling contract on the part of the insurer. He must ever forego all benefit of salvage; but if this were so, premia on freight would always be higher than on ships *or goods. This is not pretended to be the case. The rates on these different articles, in general, do not vary.
    2. It is a mistake to consider freight as “ nothing more than the earnings of a ship.” The vessel, it is true, is one, and the principal item in the expense from which profit is ultimately expected ; but provisions, seamen’s wages, &c. are also heavy charges. To indemnify merchants for these advances, in case of loss, and not for the cost of the vessel, is the principal object of an insurance on freight. The freight received by the owner will, in many cases, not be equal to these expenses, for which he is personally responsible, and which can in no way be thrown on an insurer of the ship. It will be no answer to say, that wages, which form one article of this expense, remain a lien on her, in the hands of the underwriters. If they do, there can be no doubt the owner would be compelled to refund ; for he must abandon the property free of encumbrance ; and were this otherwise, the vessel might sink the day after her arrival, and the mariners be left without recourse, but against the owner. As the underwriter on a vessel, therefore, contributes no part of the expense necessary to make freight, it is unreasonable in him to expect any part of it. “ Qui sentit commodum, sentire debet et onus.” The plaintiffs have borne none of the bur-then, and have, therefore, no title to any of the earnings, which may, after all, be very inadequate to cancel the debt of the owner.
    3. In case of capture and an abandonment, the expenses of reclaiming the property are apportioned among the underwriters on the ship, the goods and the freight. But why make the underwriter on the latter pay any thing, if, the moment the vessel arrives, in case of release, the assurer on the ship is to pocket all her hire? He pays his portion of this expense, because the freight earned, and to be earned, on that voyage, is regarded, after abandonment, as his property, just as much as the goods belong to those who have insured them.
    *4th. True it is, every policy is a contract of indemnity ; at least, such was its original design : but it may and frequently is converted into an instrument of gain ; we are willing here to regard it only as a mean of indemnity. This principle, properly understood, will entitle the defendant to a judgment. Freight is not an imaginary profit. It is a compensation received or expected for the use of the property. Thus a merchant, whose ship may have cost a large sum, lets her out for a voyage of two or three years, at a rate, which, after paying the expenses, will not, perhaps, yield more than lawful interest for the capital expended in building her. The ship is insured at her just value ; the freight is uncovered. After being absent near the whole time, he hears of a detention or some other accident, which induces him to abandon. In a day or two the vessel arrives, and the whole freight becomes payable. How is the merchant indemnified for being so long oat of his money, and for the heavy expenses of the voyage, unless he receives the freight ? or under what pretence can the underwiter on the ship demand it ? He has expended no capital; incurred ¿no expense; nor been at any risk as to the freight. The subject he insured he receives, and ought to be satisfied with it. If the vessel had arrived in ballast, or by any means no freight had been made, he would hardly have reimbursed the owner, the large sums he had expended, in hope of a reasonable gain.
    5th. On the plaintiff’s system, an insurer on a vessel, must frequently be a great gainer. A policy on freight attaches as soon as the right of freight commences, that is, the moment the cargo is on board and the voyage begins. Suppose freight from New York to the East Indies is insured to the amount of 20,000 dollars; the vessel is taken, the day-after she sails, by a French privatéer ; she is robbed of her cargo and sent back, with two or three hands, to New York; the owner abandons the ship and freight to their respective underwriters; the ^vessel has received no damage, and will probably sell for the amount of the policy. This ought to content the underwriters on the vessel. Not so. They no sooner hear the owner has received 20,000 dollars from the underwriters, on freight, than they very civilly call on him to refund. Were the request a little more modest, a solitary precedent might be found in its favor. As none is produced, although the case niust occur every day, we may fairly presume the sense of the mercantile world has ever been against so extraordinary and ill-founded a pretension.
    6th. The plaintiffs have likened an abandonment of a ship to the grant of a tree. There is a difference in the cases. The former, when furnished, earns nothing of itself, or without great expense and labor, on the owner’s part; a tree once planted bears of itself; if this expense and labor have been bestowed by the former proprietor, it is reasonable to give him the avails. A sale of a vessel at sea, would hardly pass the freight for the voyage she was then on, without containing a special stipulation to that effect, and an indemnity to the grantor against wages and other charges. The common understanding of such a sale is, that the ship and tackle only pass to the vendee, and that the freight belongs to the vendor, or former proprietor. But if the analogy between the fruit of a tree and the earnings of a ship, be complete, the former as well as the latter is an insurable interest. Suppose then the tree, or its trunk and limbs, to be insured against thieves, by one man, and the fruit by another ; just as the oranges are ripe, the tree is stolen and carried off, and an abandonment in due form is immediately made to both underwriters. The next day the booty is recovered from the captors, who are no other than some mischievous boys of the neighborhood. The oranges are plucked, but the detection takes place in time to secure every thing. How is this property to be divided. I am not certain there is any adjudged case in point, in *Emerigon, Pothier, Yalin, Roccus, Bartholus, or Park; but it appears reasonable that the underwriter on the fruit should take all the oranges to himself; because, if they had been stolen, and the tree left, he alone must have made good the loss. We are willing the tree, with its body, bark, boughs, suckers and leaves, be disposed of for the benefit of the other underwriter.
    7th. It is said that the owner, by an apportionment of the freight, has an inducement to break up the voyage ; this supposes it to be in his power so to do, when he pleases. This is not correct; a fraud of this kind cannot be well committed without the privity of the master, and others, which would lead to detection. It is also supposing men to be more wicked than they really are. If we determine to guard against every imposition that may be practised on underwriters, we must put an end to all insurances. Abandonments open a wide door to frauds; so do high valuations ; so do insurances on profits, on lives, on goods, on houses, &c. but this is no argument against them. Now and then a worthless member of society will pervert them to the purposes of fraud, while thousands are thereby honestly preserved from ruin. It is not in human foresight to form a general rule, which may not, in its application to particular cases, be abused ; yet such rules must be adopted and adhered to. In doing this, in the case before us, we must respect the rights and pretensions of the different parties, and not do injustice to either, because frauds may be perpetrated by others.
    Upon the whole, we insist, that an underwriter on the ship has no claim to any of the freight earned during the ;particular voyage insured ; that on the termination of such voyage, the vessel alone, in case of abandonment, becomes his property; that an insurer on freight, or the owner, where no such insurance is made, is entitled to the whole of the freight which is earned during such voyage ; that this necessarily results from the relative *situation. and the rights of the parties, and that a contrary doctrine will put an end to all insurance on freight. We therefore hope the judgment complained of will be reversed, and one rendered in favor of the defendant.
    A majority of the court being of opinion that the plaintiff was entitled only to the freight earned subsequent to the peril incurred which caused the abandonment, or pro rata, it was thereupon ordered, adjudged and decreed, that the judgment of the supreme court be affirmed, with costs, and the record remitted, &c.
    Judgment of affirmance.()()
    
      
      (a) See supra, vol. 1, p. 377, n. (b.)
    
    
      
      
        (b) [Old note.] See Davy v. Hallett, 3 Caines, 16-22, and 251. Mumford v. Hallett, 1 Johns. Rep. 433. Livingston v. Columbian Ins. Co. 3 Johns. Rep. 49. And see Thompson v. Rowcroft, 4 East’s Rep. 34. Latham v. Terry, 3 Bos. & Pull. 479. M’Carthy v. Abel, 5 East’s Rep. 388. Sharp v. Gladstone, 7 East, 24. Ker v. Osborne, 9 East, 378. Park on Ins. 227-236, 6th ed. Marshall, 2d ed. 604-608. The question in the English courts, as to whom the freight, earned subsequent to an abandonment of the ship, belongs, in ease of a separate insurance on freight, appears, from the above authorities, to remain still undecided. In this state, though the supreme court, in the ease of Livingston v. The United Ins. Co. (3 Johns. Rep. 49,) definitively settled, that the insured might abandon the ship to one insurer and the freight to another, on separate policies, and recover the amount from each, in case of a total loss ; yet they declined deciding the question between the two sets of insurers, to which of them the freight subsequently earned belonged. But Livingston, J. in 1 Caines, 578, and 3 Caines, 251, in giving his opinion, seemed to suppose it settled by the case of The United Ins. Co. v. Lenox, that the underwriters on the ship, were entitled to the freight earned after the abandonment, during the voyage insured.