Court Opinion

ID: 9637622
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:12:46.55921+00
Date Added: 2024-06-11T18:09:58.002669
License: Public Domain

McCORD, Circuit Judge
(dissenting).
I do not concur in the majority opinion.
The words “fault or privity” as used in the policy of insurance should not be limited to the interpretation placed upon similar language used in the American and English limitation of liability statutes.
I do not agree that the words “fault or privity” have a “plain and settled meaning in both popular and legal usage.” There seem to be no decisions construing the same or similar language in policies of marine insurance and I think the oral testimony of qualified witnesses, such as was offered in this case, was admissible to show that the words “fault or privity” have a recognized and well-understood meaning among underwriters and their customers, and that this characteristic meaning is different from the ordinary dictionary definition. Policies of insurance, like other contracts, are to be construed to give effect to the intention of the parties and “In examining, for the first time, any question under a policy of insurance, it is necessary to ascertain whether the contract has received a practical construction, by merchants and underwriters.” General Mutual Ins. Co. v. Sherwood, 14 How. 351, 352, 362, 14 L.Ed. 452; Western Petroleum Co. v. Tidal Gasoline Co., 7 Cir., 284 F. 82; Daniel v. Pappas, 8 Cir., 16 F.2d 880; The Svartford, D.C., 38 F.2d 874; New Roads Oilmill & Mfg. Co. v. Kline, 5 Cir., 154 F. 296; Duer on Marine Insurance, Vol. 1, p. 187.
W. Harvel LaBoyteaux, president of Johnson & Higgins, insurance brokers of New York, with a background of over fifty years in the insurance business, testified that he was familiar with “fault or privity” clauses in P. & I. policies, and that “P. and I. insurers have generally interpreted the clause in the policy or club rules as applying only if the owner has knowingly and willfully tolerated or permitted conditions so dangerous as to practically amount to moral turpitude.”
Ellis Knowles, vice-president and head of the insurance department of C. D. Mallory 6 Co., Inc., and who had been in the insurance business for thirty-one years, testified that the words “without fault or privity” have a generally accepted meaning in the insurance business and that, “If an owner is deliberately crooked * * * — guilty of moral turpitude — then a P. and I. underwriter should not reimburse the owner, but if an owner is innocent of any intent or wrongdoing, the P.' and I. underwriter should not hide behind any technicality in either the law or his policy.”
Arthur J. Sullivan, who had been an average adjuster since 1917, testified that he was familiar with P. & I. policies containing “fault or privity” clauses; that the words “without fault or privity” have a generally accepted, “peculiar or characteristic meaning” in the insurance business; and that, “The meaning is that when a loss has been sustained through the deliberate and willful act of the assured, the underwriters shall be relieved of liability. * * I think the words must be given a particular meaning, because if they are taken in their ordinary dictionary sense that will entirely destroy the effect of the policy, because the functions of a P. and I. policy is to protect the owner from losses that may arise through somebody’s negligence in connection with the operation of steamships. That is the essential purpose of the policy. There is also a fault in the P. and I. claim, and if we exclude every claim in which there may be a fault we, in effect, • completely destroy the purpose of the policy, and some sense must be given to these words of the policy, and they cannot be construed in a way that will entirely destroy the policy. Q. And the construction you have given us is what you consider their meaning, generally, .in the insurance business to be? A. Yes.”
Testimony of other witnesses for the ap-pellee is to the same effect. This evidence shows that in the insurance business it is generally understood that for the underwriter to escape liability because of the “fault or privity” provision the negligence of the owner must measure to willful, deliberate, or intentional wrong.
The majority opinion points to cases which hold that fraud or willful, deliberate, or intentional negligence relieves the underwriter of liability under policies which do not contain the “fault or privity” clause. It is argued that a policy “containing these limiting terms should not be construed as are policies not containing them. For such a construction giving no effect whatever to the limitation, would in effect *702write it out of the policy.” It must be remembered that when a claim is made under an ‘‘all risk” policy which does not contain the “fault or privity” provision the underwriter who seeks to escape liability by showing fraud or “willful, deliberate, and intentional wrong” on the part of the assured must prove the wrongful conduct, and in the event of suit the burden of proof which the insurer must carry is a heavy one. When the underwriter inserted the words “without fault or privity” in the policy now before us it did so not to relieve itself from liability because of negligence on the part of the shipowner, but apparently in an attempt to place the burden upon the insured to show that the loss had been occasioned “without fault or privity”; that is, without willful, deliberate, or intentional wrongdoing on his part. “Fault or privity” as inserted in P. & I. policies, such as the one before us, should be construed to mean that henceforth the burden of proof as to cause of loss is upon the insured and not the underwriter. That is its purpose and nothing more. Cf. The Morro Castle Cases (New York & Cuba Mail S. S. Co. v. Continental Ins. Co.), D.C.N.Y., 32 F.Supp. 251; Id., 2 Cir., 117 F.2d 404, decided Jan. 27, 1941.
No contention is made in this case that the appellee was guilty of wanton or willful misconduct. So far as the record discloses the insured was honest and forthright in and about its business. At most it was guilty of simple negligence and bad judgment. For this dereliction this court has heretofore decreed that it must pay out large sums for the loss of seamen who were on the tug. Now it is told by the majority opinion that since it was guilty of simple negligence and bad judgment it may not recover the amount of insurance carried on the vessel.
The essential purpose of the policy is to protect the owner from loss that may arise through negligence in connection with the operation of its business. The construction placed upon the contested clause by the majority opinion is too narrow and virtually destroys the effectiveness of the policy of insurance. It not only places the burden of proof on the insured but also precludes recovery where even simple negligence on the part of the shipowner is shown.
I think the holding of the District Court was the correct one.
I respectfully dissent.