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March 11, 1981

Ralph F. MILLER, Plaintiff,

The opinion of the court was delivered by: SOFAER


Plaintiff is a seaman who suffered injuries on the vessel American Forwarder in November 1970. At that time injuries to employees on the vessel were covered by an insurance policy issued by defendant to Amercargo, Inc., the vessel owner. The policy was cancelled on December 20, 1970. Plaintiff sued Amercargo, Inc., for damages during 1971, and obtained a default judgment in December 1973; an inquest was held and damages were set at $ 19,136.00, plus interest. Although the defendant insurer had the right to appear in behalf of Amercargo, it did not do so. Amercargo has been financially insolvent for some time, and nothing has been paid on the default judgment.

 Defendant has moved for summary judgment, arguing that the policy involved gives no claims to any person other than the insured, and that the governing law of New York does not permit a direct action against the insurer because the insurance contract involved is one that relates to maritime matters. These arguments were upheld by Judge Sweigert in Ahmed v. American Steamship Owners Mutual Protection and Indemnity Association, Inc., 444 F. Supp. 569 (N.D.Cal.1978), which involved an indistinguishable insurance contract and the same vessel owner, Amercargo. Judge Sweigert's disposition of all these issues was sustained on appeal, although the appellate court remanded for further consideration of plaintiff's equal protection argument. Ahmed v. American Steamship Mutual Protection & Indemnity Association, 640 F.2d 993 at 996, No. 78-1368, slip op. at 5 (9th Cir. March 6, 1981).

 Plaintiff contests the view that the insurance contract on which he seeks to recover was an indemnity policy, rather than one of liability. Under an indemnity policy the insurer would be responsible only for payments actually made by the insured, a circumstance that can no longer occur in this case since the owner is bankrupt. Under a liability policy the insurer would be responsible for any liability incurred by the insured while the policy was effective; in this case it is stipulated that the owner's liability to plaintiff was incurred while the policy was in effect. See generally Stuyvesant Insurance Co. of New York v. Nardelli, 286 F.2d 600 (5th Cir. 1961); 11 Couch on Insurance § 44:4 (2d ed. 1963).

 The relevant provision of the policy states that: "The Association agrees to indemnify the Assured against loss, damage or expense which the assured shall become liable to pay and shall pay by reason of the fact that the Assured is the owner...." Plaintiff contends that defendant's agreement "to indemnify" the insured does not establish that the contract is one of indemnity, for the word indemnify is ambiguous and used in both types of policies. The phrase "which the assured shall become liable to pay and shall pay," plaintiff asserts, refers only to the expenses the insured pays, and not to any "loss" or "damage."

 Courts have occasionally strained to construe the language of insurance policies as policies of liability rather than of indemnity. E. g., Orion Insurance Co. Ltd. v. Firemen's Insurance Co. of Newark, 46 Cal.App.3d 374, 120 Cal.Rptr. 222 (1975); Olympic Towing Corp. v. Nebel Towing Co., 419 F.2d 230 (5th Cir. 1969). The policy in this case, however, is clearly one of indemnity and would be construed as such under New York law. See Hansen v. Continental Insurance Co., 262 N.Y. 136, 186 N.E. 420 (1933); Cucurillo v. American Steamship Owners Mutual Protection & Indemnity Association, Inc., 1969 AMC 2334 (Sup.Ct.N.Y. County 1969); Burke v. London Guarantee & Accident Co., 47 Misc. 171, 93 N.Y.S. 652 (Sup.Ct. Kings Cty.1905), aff'd mem., 126 A.D. 933, 110 N.Y.S. 1124 (1908), aff'd mem., 199 N.Y. 557, 93 N.E. 1117 (1910). The very policy at issue in this case was conceded by the parties to be one of indemnity in Liman v. American Steamship Owners Mutual Protection & Indemnity Association, 299 F. Supp. 106, 107 (S.D.N.Y.), aff'd per curiam, 417 F.2d 627 (2d Cir. 1969), cert. denied, 397 U.S. 936, 90 S. Ct. 946, 25 L. Ed. 2d 116 (1970).

 In contending that the policy is one of liability, plaintiff relies upon the manner in which the Fifth Circuit has construed insurance contracts in applying Louisiana statutes. The Fifth Circuit decisions are conclusory, however, and all ultimately refer back to the decision in Cushing v. Maryland Casualty Co., 198 F.2d 536 (5th Cir. 1952), reversed on other grounds, 347 U.S. 409, 74 S. Ct. 608, 98 L. Ed. 806 (1954). That opinion reflects a fundamental misunderstanding, or a determination to ignore, the difference between liability and indemnity insurance. See 198 F.2d at 538. It is unpersuasive. Judge Pregerson's decision for the Ninth Circuit in Ahmed, supra, is far more convincing.

 Plaintiff's contention that New York's courts have adopted a policy of protecting the intended beneficiaries of insurance policies is beside the point. If the insurance policy is one of indemnity, New York common law precludes a suit even by the insured, until payment has been made. The seaman would have been deemed out of privity under New York law prior to the adoption of the direct action statute. See, e.g., Beyer v. International Aluminum Co., 115 A.D. 853, 854-55, 101 N.Y.S. 83, 84; accord, Hansen v. Continental Insurance Co., 262 N.Y. 136, 186 N.E. 420 (1933).

 Irrespective of how the policy is construed, however, it remains a marine insurance policy. New York law provides for a direct action against insurers on both liability and indemnity policies, but no direct action is allowed on any marine insurance policy, whether it is one of liability or indemnity. *fn1" Plaintiff's argument to the contrary ignores the language and purpose of the statutory exception for such insurance contracts. The exception was consciously made by the New York legislature to eliminate a perceived competitive disadvantage to which New York's marine insurers were placed by the direct action statute. *fn2"

 Here, again, plaintiff relies upon Fifth Circuit decisions construing Louisiana's direct action statute. Apart from the difficulty already expressed concerning those decisions, the Louisiana statute differs materially from New York's. First, the direct action statute in Louisiana is much broader than the New York law. It provides for direct action regardless of the financial condition of the insured, not merely upon the insured's insolvency. La.Rev.Stat.Ann. § 22:655. This reflects a very strong policy in Louisiana in favor of direct actions much stronger than the policy in New York. Furthermore, the Louisiana exception for marine accident insurance from the general rule regarding direct actions is so broad as to be vague. The statute provides simply: "The applicable provision of this Part shall apply to insurances other than ocean marine and foreign trade insurances." Id. § 22:611. The New York exception applies expressly to marine insurance for risks due to injury to the person. See N.Y.Ins.Law § 46(21).

 Given the clear limitation in New York's direct action statute, defendant's motion for summary judgment must be granted unless the applicable statutes are superseded by federal law.

 Plaintiff's contention that the New York statute is invalid as a denial of equal protection is meritless. Neither the state nor the federal equal protection clause would treat a legislative classification as "suspect" merely because it affects seamen. Congress may have extended protection to seamen in the Jones Act, but seamen do not constitute an insular and disadvantaged group warranting special constitutional protection. Furthermore, the statutory classification involved in this case may affect seamen adversely as compared to other laborers doing analogous work, but it applies to all forms of marine insurance, not merely to insurance for personal injuries.

 The argument that the New York statute "favors" marine insurers over other insurers is speculative, for the economic consequences of the law have not been alleged or proved; whether insurers make a higher profit in the absence of a direct action statute depends on the rates negotiated as a result of the limitation of liability thereby created. In any event, the legislative history of the particular statute challenged here makes clear that a rational basis was relied upon in excepting marine insurance from the direct action rule. The bill jacket reflects that the statute was intended to enable insurers doing business in New York to compete with those selling insurance in other jurisdictions. That this consequence resulted from "a concerted effort by the American Institute of Marine Underwriters to obtain passage of a "special interests' bill," as plaintiff contends, Plaintiff's Memorandum of Law at 45-46, would establish only that the challenged law shares a characteristic common of most laws passed by all American legislatures.

 Plaintiff's other argument, advanced repeatedly but in vague terms, is that federal statutory law requires that seamen be afforded a direct action remedy ...

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