Appeal from the District Court of the United States for the Southern District of New York.
Before MANTON, SWAN, and CHASE, Circuit Judges.
Faults in navigation by both ships brought the libelant's steamship Mexico into collision in the harbor at New York with the steamship Hamilton. The master of the Mexico justifiably there incurred expenses of a general average nature. These expenses were stated by average adjustors and cargo contributed accordingly.
Suits against each vessel, in one of which this libelant sued both as owner of the Mexico and bailee of her cargo, were settled on an equal fault basis. In the computation between the ships, the contributions in general average made by the Mexico's cargo were treated as a liability of the Hamilton and accordingly as part of its collision damages, and, when the balance was struck, the Hamilton, having sustained less damage than the Mexico, paid the difference to the libelant. The libelant paid to the cargo of the Mexico the amount which was recovered from the Hamilton on account of the general average contributions by the Mexico's cargo.
The Mexico carried hull insurance under policies having collision or running down clauses with provision for settlement of losses on the basis of cross-liabilities and tried to collect thereunder one-half of the amount which had been treated as the Hamilton's collision damages in its settlement with the Hamilton. The hull underwriters paid the libelant one-half of the amount of the direct damage sustained by the Hamilton and accounted for by the Mexico, but refused to pay the libelant what it actually lost by the reduction in its recovery from the Hamilton and accounted for by the Mexico, but refused to pay the libelant what it actually lost by the reduction in its recovery from the Hamilton to the extent that the Hamilton added to its other damages the amount of its liability to reimburse the Mexico's cargo for general average contributions. This refusal was based on a provision in the collision clauses in the policies that such clauses "in no case shall extend to any sum the assured may become liable to pay * * * in respect to cargo * * * of the insured vessel."
The Mexico also was insured by the respondent appellee under so-called club insurance in accordance with the respondent's by-laws. The insurance was to the effect, subject to certain limitations not now in issue, that the respondent would indemnify the Mexico for its liability for loss or damage arising from collision with another vessel or craft to the extent that such liability was not covered by hull insurance described, inter alia, as being subject to settlement on the principle of cross-liabilities. Respondent's by-laws, art. VIII, § 6, clause 2. Such described hull insurance was the kind carried by the Mexico. The respondent's insurance liability also extended, with limitations not now in issue, to indemnify for loss or damage to or in connection with cargo carried on board the Mexico. Respondent's by-laws, art. VIII, § 6, clause 5.
The District Judge, following his decision in The Toluma-Sucarseco Case (D.C.) 4 F. Supp. 344, in which our decision on appeal is handed down herewith, Aktieselskabet v. Sucarseco, 72 F.2d 690, held that the respondent was liable for one-half of the physical damage to the Mexico's cargo, but denied recovery for that part of the libelant's claim which was based on contributions by the Mexico's cargo in general average which had been settled for by the Hamilton and treated as damage sustained by the Hamilton in the adjustment between the two ships. This liability was considered to be imposed upon the respondent under clause 2 above mentioned, though not under clause 5 of the same article and section. The distinction was drawn on the ground that the respondent was bound to adjust a claim for liability for collision loss or damage under clause 2 on the principle of cross-liabilities but under clause 5 only on the basis of single liability, and, since the balance struck between the two ships was in favor of the Mexico, the Mexico had suffered no loss for which the respondent was liable unless the basis of settlement was that of cross-liability.
It is convenient to determine first the correctness of the decision below as to the basis on which the respondent was bound by its liability insurance to indemnify under either clause 2 or clause 5. There was no express provision in either clause that settlement should be made, where both vessels were at fault for the collision, on the basis of cross-liabilities. As to clause 5, the subject of cross-liabilities is not mentioned either in the clause itself or in any of its subdivisions. Since there is nothing whatever to indicate that the respondent agreed to indemnify for losses adjusted under clause 5 on any other basis than that of single liability which follows as a matter of course under well-settled principles of maritime law which will be presently discussed, the trial judge was clearly right in holding that the Mexico, which paid the Hamilton nothing, had no liability for which it was to be indemnified by the respondent under clause 5.
Under clause 2, however, which made the respondent liable, except to the extent of a now immaterial deduction, to indemnify the libelant for liability for collision loss or damage which was not covered by hull policies under which settlement was to be made on the basis of cross-liabilities, the District Judge was of the opinion, and held, that the respondent was bound to settle on the same basis; i.e., cross-liability. To this construction we cannot agree. Nor does our decision depend at all on any technical construction of the clause. In plain and simple language the respondent agreed to indemnify the libelant for liability for collision loss or damage for which hull underwriters were not liable when the liability of such hull underwriters was determined on the principle of cross-liabilities. The engagement of the respondent was not to settle for any additional loss or damage liability on the same basis hull underwriters were bound to adjust losses, but to indemnify for any additional liability for loss or damage; and, since the parties did not in any way define such liability, it follows that it was only what was additional liability of the Mexico as a matter of law.
Clause 2 reads as follows:
"(2) Liability for loss or damage arising from collision with another vessel or craft to the extent only that such liability is not or would not be covered by hull policies under a clause in words or substance as follows:
"And it is further agreed, that if the Ship hereby insured shall come into collision with any other Ship or Vessel, and the Assured shall in consequence thereof become liable to pay, and shall pay by way of damages to any other person or persons any sum of sums not exceeding in respect of any one such collision the value of the Ship hereby Insured, we, the Assurers, will pay the Assured such proportion of three-fourths of such sum or sums so paid as our subscriptions hereto bear to the value of the Ship hereby insured. And in cases where the liability of the Ship has been contested with the consent in writing of a majority of the Underwriters on the hull and/or machinery (in amount) we will also pay a like proportion of three-fourths of the costs thereby incurred or paid; but when both Vessels are to blame, then, unless the liability of the Onwers of one or both of such Vessels becomes limited by law, claims under the Collision Clause shall be settled on the principle of Cross-Liabilities as if the Owners of each Vessel had been compelled to pay to the Owners of the other of such Vessels such one-half or other proportion of the latter's damages as may have been properly allowed in ascertaining the balance or sum payable by or to the Assured in consequence of such collision; and it is further agreed that the principles involved in this clause shall apply to the case where both Vessels are the property, in part or in whole, of the same owners, all questions of responsibility and amount of liability as between the two ships being left to the decision of a single Arbitrator, or failing such agreement, to the decision of Arbitrators, one to be appointed by the Managing Owners of both Vessels, and one to be appointed by the majority (in amount) of Underwriters interested in each Vessel; the two Arbitrators chosen to choose a third Arbitrator before entering upon the reference, and the decision of ...