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United States v. Standard Oil Co.

decided: December 15, 1949.


Author: Clark

Before AUGUSTUS N. HAND, CHASE, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

The interesting question presented in this case is whether damage from a collision of an oil tanker with a mine-sweeper at work in the swept channel off New York harbor on December 16, 1940, was covered by special "war risk" or ordinary marine insurance, when the collision was due to the faulty navigation of the two vessels.

The vessels involved in the collision were the United States Navy Ship YMS-12 and the steam tanker John Worthington; it occurred at sea in a buoyed channel in the approaches to the New York harbor. At the time of the collision the YMS-12 was one of a three-ship formation proceeding seaward with mine sweeping gear streamed sweeping the buoyed channel. The John Worthington was outbound from New York in ballast, and was proceeding to sea in convoy. Both ships displayed regular and proper running lights, and in addition the YMS-12 was displaying three all-round green lights to indicate that it was a mine sweeping vessel towing mine sweeps. The weather was clear and the visibility was good.

The district court has found, pursuant to a stipulation of the parties, that "the aforesaid collision was contributed to both by fault in the navigation of S. S. John Worthington and fault in the navigation of the United States Ship YMS-12, consisting of failures on the part of both vessels to comply with the applicable rules for the prevention of collisions and the requirements of good seamanship under the circumstances." Only the YMS-12 was damaged as a result of the collision.

The John Worthington, owned and operated by the Standard Oil Company of New Jersey, was on a time charter to the United States Government. The charter party provided that the United States was to furnish "a standard hull war risk policy of the War Shipping Administration" and Standard was to assume or insure against all other risks. Thus Standard took out a normal marine hull policy which contained an F.C. & S. clause, excluding from its coverage war risks. Some twenty-two risks were defined by the parties as "war risks," including the important exclusion of "loss, damage, or expense caused by or resulting from * * * all consequences of hostilities or warlike operations."*fn1 Under the "war risk" endorsement attached to that marine hull policy the United States assumed "only those risks which would be covered by the attached policy (including the Collision Clause) in the absence of the F.C. & S. warranty contained therein but which are excluded by that warranty."

Since both ships were at fault, the United States of America would normally be entitled to recover from Standard for half of the damage suffered by the YMS-12; and it filed its libel below asking for such recovery. But Standard maintains that this was a "consequence of hostilities" insured against by the government, and has brought a cross-libel to recover from the government as war risk insurer the amount for which it is liable to the government as owner of the YMS-12. The two libels have been consolidated for the purposes of trial and appeal. The district court, in a reasoned opinion by Ryan, J., 81 F.Supp. 183, held that the collision did come within the war risk insurance and held in favor of Standard.*fn2 From that holding the government appeals.

The United States began to assume the war risks of merchant vessels at the time of the Civil War, and that conflict produced much litigation in our courts as to what constituted a war risk. Since that period, however, the question has arisen but infrequently in this country. The situation is otherwise in Great Britain, where half a dozen times in the last thirty years the House of Lords has been concerned with the meaning of just such a clause as that involved here.

Although it is not always easy to reconcile the diverse language of the many cases in both countries on this question, the principle which may properly be drawn from them is that a loss will be held to be a "consequence of hostilities" and to come within the limits of war risk insurance where one of the vessels party to the loss is both engaged in a warlike operation and so navigating as a result of the war that it creates a peril. To put it another way, not only must the vessel's mission be one of war, but the warlike character of its operation must be the dominant and effective cause of the resulting catastrophe.

Thus this principle affords the justification for a group of cases in which a vessel was so navigating because of the war as to create a peril, but was not on a mission of war; and the loss was held to be a marine risk, rather than a war risk. It explains the result in the companion cases of Britain Steamship Co. Ltd. v. The King (The Petersham) and Green v. British India Steam Navigation Co. Ltd. (The Matiana), [1921] 1 A.C. 99. The Petersham collided with another ship while both were sailing without lights in accordance with admiralty rules. The Matiana stranded on a reef while sailing under convoy and zigzagging. Both accidents were held to be not the consequence of hostilities, since the vessels were carrying nonwar cargoes and were not bound for war bases. The same principle was involved in the leading American case of Queen Ins. Co. of America v. Globe & Rutgers Fire Ins. Co. (The Napoli), 263 U.S. 487, 44 S. Ct. 175, 68 L. Ed. 402. The Napoli collided with another ship while both were sailing without lights and under convoy. Even though it carried some war materials it was held not to have been engaged in a warlike operation, and thus the loss was not a war risk. In accord is a decision of Judge Bright in Nordling v. Gibbon, D.C.S.D. N.Y., 62 F.Supp. 932. There the collision was the result of the joint negligence of two ships blacked out under Navy orders, but the insured ship was neither a warship nor bound for a war base, and its cargo, though intended for manufacture of war materials, was not capable of use for war in its then form. Hence its operation was not warlike, and the accident was not the result of warlike operations.

In other cases a loss has been held to be a marine risk, even though a ship was involved in warlike operations, where the loss was not caused by navigation because of the war. This was the result in Clan Line Steamers Ltd. v. Board of Trade (The Clan Matheson), [1929] A.C. 514. The Clan Matheson, proceeding in a convoy at night without lights, was hit and sunk by a warship admittedly engaged in warlike operations. But it was hit because its steering gear had broken, causing it to drift across the course of the warship; and hence the breakdown of the gear, rather than the collision with the warship, was the dominant and effective cause resulting in the loss of the ship. A similar rule governed in Liverpool and London War Risks Ass'n Ltd. v. Ocean Steamship Co. Ltd. (The Priam), [1948] A.C. 243. The Priam, carrying war materials across the ocean and thus admittedly engaged in a warlike operation, ran into heavy weather which caused considerable damage. Some of the damage was attributable to war materials and armament carried on deck in a manner which would never have been countenanced save for the exigencies of war. This damage was said to be the result of a specific and special war peril, and the war risk underwriters were held responsible. But other damage which would have occurred solely because of the weather, regardless of the special arrangements for cargo handling necessitated by the war, was charged to the underwriters of the normal marine risk insurance.

There have been, of course, many cases in which both of the necessary elements were present, and in which the war risk underwriters were made to bear the loss. Attorney General v. Ard Coasters Ltd. (The Ardgantock), [1921] 2 A.C. 141, involved a collision between a merchant vessel and a destroyer on patrol duty in the North Sea. Neither vessel was negligent, but both were sailing without lights and the collision was caused by the course required by the destroyer's patrol duties. Liverpool & London War Risks Insurance Ass'n Ltd. v. Marine Underwriters (The Richard de Larrinaga), [1921] 2 A.C. 141, concerned a collision between a merchant vessel in convoy and a warship en route to take up escort duties. Again both vessels were unlighted because of the submarine danger, and neither was negligent. The transport by sea of war material in time of war from one war base to another was held to be a warlike operation in Commonwealth Shipping Representative v. Peninsular and Oriental Branch Service (The Geelong), [1923] A.C. 191; where two ships thus occupied collided, without negligence, and navigating without lights, the loss was held a consequence of hostilities. The most recent and most widely discussed of this group of cases is Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport (The Coxwold), [1942] A.C. 691. There a ship, admittedly engaged in a warlike operation, stranded. Although an unexpected tide set was a complicating factor, the dominant and effective cause which set the vessel on the rocks was a deviation of course it had made under naval orders to avoid submarine attack. The loss was held to have been a war risk.

There are two other cases which properly belong in this final category, but which have employed language so strong that some authorities have regarded them as stating a different rule from that which we have drawn from the cases. Attorney General v. Adelaide Steamship Co. Ltd. (The Warilda), [1923] A.C. 292, involved a collision between a hospital ship evacuating wounded troops from France, blacked out, and another ship which was displaying dimmed side lights. On these facts it would seems a simple case of a vessel both engaged in a warlike operation and so navigating as a result of the war that it creates a peril; thus the loss would properly be a consequence of hostilities. But the difference in this case was that the Warilda was held to have been negligent; and it was argued that the real cause of the collision was negligence, a marine risk, rather than the war risks incurred by sailing without lights. The House of Lords held that the dominant and effective cause of the collision was the warlike operation, but went on to use very strong language which might seem to negative negligence as an intervening factor taking a loss out of the category of "consequences of hostilities." Thus Lord Shaw of Dunfermline said, at 300: "* * * when a ship requisitioned by the naval authorities and actually engaged in what I have explained to be a warlike operation comes into collision with another vessel under, of course, the exceptional conditions of speed, with lights doused and other such warlike precautions, the category of war risk cannot be changed into the category of sea risk by reason of the negligence of those engaged in conducting those operations. The conduct may have been faulty, but it was a warlike operation although faultily conducted. Faulty navigation on the part of one ship or the other is, of course, the determining factor of responsibility as between the two ships, but, in my opinion, it is not a legitimate factor for the other purpose which is here attempted - namely, of converting a war risk into a sea risk. Once the category of warlike operations attaches to the movements of the vessel, that category must continue to attach, although those movements had an element of negligence in their operations."

The other of these cases is Board of Trade v. Hain Steamship Co. Ltd. (The Roanoke-Trevanion), [1929] A.C. 534. There a merchantman collided with a Navy mine planter. The collision was due to negligence by both vessels, but this was held to be ...

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