Source: https://supreme.justia.com/cases/federal/us/279/708/
Timestamp: 2019-04-26 16:08:17+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 279 › Gulf Refining Co. v. Atlantic Mut. Ins. Co.
1. In adjusting a general average loss upon cargo insurance under a valued policy, the insured is co-insurer to the extent that the sound value of the cargo at the time of contribution exceeds the agreed value in the policy, and recovers that proportion of his loss which the agreed value bears to such sound value. P. 279 U. S. 709.
2. The co-insurance principle, long and consistently applied in the case of particular average losses under both open and valued policies, gives a reasonable and equitable effect to the stipulation fixing value, consonant with principles generally applicable to marine insurance. It may be applied to general average contributions with like effect and with added consistency and harmony in the law. P. 279 U. S. 712.
3. The application of the agreed value to the adjustment of the insurance loss does not depend on estoppel. P. 279 U. S. 712.
Certiorari, 278 U.S. 595, to a decree of the circuit court of appeals (see 1927 Am.Mar.Cas. 1669), which reversed a decree of the district court for the present petitioner in a suit in admiralty on a policy of insurance.
Respondent issued a war risk insurance policy for $27,690 upon a cargo of gasoline, owned by petitioner's predecessor in interest and valued in the policy at $212,000, on board the tanker Gulflight, bound from Port Arthur, Texas, to Rouen. On the voyage, the Gulflight was torpedoed and put into a port of refuge, where, in consequence of the injury to the ship, damages and expenses of a general average nature were incurred. A general average contribution of $49,088.04, the correctness of which is not questioned, was assessed against the cargo on the basis of the actual value of the cargo at destination, which was taken to be $417,178. Petitioner made claim on the policy for indemnity of $6,411.54, the proportion of the general average contribution which the amount of the policy bore to the agreed policy value of the cargo. Respondent paid only $3,258.25, that portion of the indemnity claimed which the agreed policy value bore to sound value at the time of the contribution, or that portion of the general average contribution which the amount of insurance bore to sound value.
In a suit in admiralty in the District Court for Southern New York to recover the balance claimed, that court confirmed the report of its commissioner, 1927 A.M.C. 1669, and gave judgment for petitioner, which was reversed by the Circuit Court of Appeals for the Second Circuit. 27 F.2d 678. This Court granted certiorari, 278 U.S. 595, because of a conflict of opinion between that and the Circuit Court of Appeals for the Ninth Circuit. British & Foreign Marine Insurance Co. v. Maldonado & Co., 182 F. 744, cert. denied, 220 U.S. 622.
form, whether the effect of a valued policy on cargo, in limiting the liability of the insurer, is the same in the case of a general average as of a particular average loss.
It has long been the accepted rule that, in the case of a partial loss of cargo insured under a valued policy, with the valuation honestly made, the insured, in case of increase or decrease in its value, recovers that proportion of his loss which the agreed value. or so much of it as was assumed by the particular insurer, bears to the sound value. In case of an increase in value, his recovery is thus limited as though he were a co-insurer. Lewis v. Rucker, 3 Burr. 1167; Johnson v. Sheddon, 2 East, 581. See Tunno v. Edwards, 12 East 488; Lawrence v. New York Insurance Co., 3 Johns. Cas. (N.Y.) 217, 218; Forbes v. Manufacturers' Ins. Co., 67 Mass. 371; London Assurance v. Companhia de Moagens, 167 U. S. 149, 167 U. S. 171; British & Foreign Ins. Co. v. Maldonado & Co., supra; International Navigation Co. v. Atlantic Mutual Insurance Co., 100 F. 304, 317, 318, aff'd, 108 F. 987, cert. denied, 181 U.S. 623. So applied, the rule permits the adjustment of the premium to an assumed certain and unchanging value of the subject of the insurance, and protects the underwriter against increases in liability because of increase in value of the cargo, as it protects the insured against diminution of his right to recover which might otherwise result from a decrease in value. It recognizes that the purpose of valuing the cargo is not to fix the maximum amount of recovery, which is accomplished by limiting the amount of the policy, but to eliminate from the risk which the insurer assumes so much of it as is consequent upon fluctuations of the market value of the cargo, whether the loss be total or partial. For, under it, the insurer's liability for the loss suffered can never be greater or less than if the actual value were the agreed value.
Agreed value thus stands in the place of prime value under an open marine policy, where the insured recovers covers such part of his loss as prime value bears to sound value. See Lewis v. Rucker, supra, 3 Burr. at 1171; Usher v. Noble, 12 East 639, 646; Clark v. United Fire & Marine Insurance Co., 7 Mass. 365.
Petitioner does not question the soundness of the rule when applied to partial loss of cargo, but argues that it should not be applied to general average contribution. It is said that petitioner need not refer to sound value to compute its loss, which is already fixed by the general average adjustment, and the valuation clause estops the insurer from showing that the sound value of the cargo was greater than the agreed value, and so reducing the amount of its indemnity; also that the rule to be applied to the present case should be the same as that applied to insurance on hulls, where the insured is allowed to recover in full for a partial loss up to the amount of the insurance. Finally, it is insisted that this clause of the policy should be construed as having been adopted by the parties in contemplation of the rule contended for as one established by the decisions in New York, where the policy was effected, and as settled in British & Foreign Marine Insurance Co. v. Maldonado & Co. supra.
purpose of the agreed value is to substitute a definite for an uncertain prime value, and to eliminate from the contract, in the interest of both the insured and the insurer, the fluctuation of liability which would otherwise result from a change in sound value. To allow petitioner to recover for the loss suffered in double the amount which concededly would have been its recovery had the same loss resulted from fire, jettison, or other partial loss of cargo, would be an anomalous result for which petitioner offers no justification in reason or in generally established principles of marine insurance law. The co-insurance principle, long and consistently applied in the case of particular average losses under both open and valued policies, gives a reasonable and equitable effect to the stipulation fixing value consonant with principles generally applicable to marine insurance. It may be applied to general average contributions with like effect and with added consistency and harmony in the law.
establish his loss merely by proof of its amount, but his contribution is itself based upon sound value which entered into its computation, and its amount, for all practical purposes, as in the case of particular average, is increased in proportion to the excess of sound value over agreed value, see S.S. Balmoral Co. v. Marten  App.Cas. 511, 514, 515. We perceive no reason why his recovery may not likewise be reduced accordingly.
point is given to this explanation by the ruling in Pitman v. Universal Marine Insurance Co., L.R. 9 Q.B.D.192, that the same rule should be applied as in particular average loss of cargoes, where the repairs were not in fact made and the loss was established by a sale of the ship. And, in a case of general average contribution by the hull, the House of Lords, in S.S. Balmoral Co. v. Marten, supra, held the insured to be a co-insurer, thus applying the rule accepted in the case of partial cargo losses and implicitly supporting the co-insurance rule applied below to general average contribution by cargo.
It is said that this rule would result in a recovery by the insured of more than the amount of his contribution, in event of a decrease in the value of the cargo below the agreed value. The court below seems to have thought that this might be so. But no court has so held. The insured, in the case of partial loss of cargo whose sound value is less than the agreed, may recover more than his actual loss, since, in computing the indemnity, the cargo must be taken at the agreed value. But, where there is in fact no loss of the cargo, it is not entirely clear upon what theory the insured could increase his recovery beyond his contribution in general average by any recourse to the agreed value. Having the cargo intact, no matter what its value, it may well be that the insured must needs be content with the discharge of the general average lien upon it.
argued against any such distinction. But the court seems to have considered that the only question before it was whether a general average adjustment made in a foreign port was enforceable against the insurer even though made under rules different from those in force in the home port. Diligent efforts at the trial of the present case to prove a custom failed. The commissioner's finding that no settled custom or usage was proved is not challenged here. He found that, underwriters, the Strong case notwithstanding, did not usually pay general average contributions in full when sound value exceeded agreed value; that, after the decision in the Maldonado case, refusals to pay on the basis of full contribution were less frequent, but some underwriters, including respondent, continued to settle on that basis, and the failure to bring the issue before a court for adjudication was due to the fact that the amounts involved were too small to justify litigation.
The Massachusetts courts have followed the rule applied below. Clark v. Universal F. & M. Insurance Co., supra. Cf. Brewer v. American Ins. Co., supra. The other American cases have dealt with insurance on hulls, and so are not decisive. The fact that the co-insurance rule has been applied to general average contributions in England both by judicial decision, see S.S. Balmoral Co. v. Marten, supra, and by statute, Marine Insurance Act 1906, § 73, and that such is conceded to be the rule by law or custom in France, Germany, Holland, and Japan, is of weight in making a choice of two conflicting rules applicable to sea-borne commerce. We conclude that the rule applied below is the more consonant with principle and the more consistent with other accepted doctrines of marine insurance, and that the judgment below should accordingly be affirmed.

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