Maryland Cas Company v. Cushing/Opinion of the Court

United States Supreme Court

347 U.S. 409

Maryland Cas Company  v.  Cushing

 Argued: Nov. 10, 12, 1953. --- Decided: April 12, 1954

On the evening of May 19, 1950, the towboat Jane Smith in attempting to pass under a bridge over the Atchafalaya River in Louisiana collided with a concrete pier and capsized. The owner and charterer of the Jane Smith filed consolidated petitioners in admiralty in the United States District Court in Louisiana to limit their liability under the provisions of 46 U.S.C. §§ 183 and 186, 46 U.S.C.A. §§ 183, 186. ^[1] The owner and charterer having complied with the procedural requirements of the Limitation Act, the District Court issued an injunction prohibiting suit against them elsewhere than in the limitation proceeding.

Subsequently, in the same District Court, the plaintiffs below, as representatives of five seamen who had been drowned, brought this consolidated action against the owner of the bridge and the liability underwriters of the owner and charterer of the ship. ^[2] Jurisdiction was based on diversity of citizenship and the Jones Act, 46 U.S.C. § 688, 46 U.S.C.A. § 688. For their right to proceed against the insurance companies, the plaintiffs relied on § 655 of the Louisiana Insurance Code, LSA-R.S. 22:655, which authorizes direct suit 'against the insurer within the terms and limits of the policy'.

The two policies sued upon are (1) a workmen's compensation and employer's liability policy, in the amount of $10,000, issued by the Maryland Casualty Co. in which the charterer alone is named as the insured and which contains a special endorsement making its terms applicable to maritime employment; and (2) a 'protection and indemnity' policy in the amount of $170,000 issued by the Home Insurance Company of New York, in which both the owner and the charterer are named. Both policies by their terms preclude payment to anyone until the insured shall have been held liable to pay damages. ^[3]

The District Court granted a motion for summary judgment dismissing the consolidated suit against the insurers on the grounds that the Louisiana statute was, by its own terms, inapplicable to policies of marine insurance, and that in any case application of the statute here would 'not only work material prejudice to the characteristic features of the general maritime law but would also contravene the essential purpose expressed by an Act of Congress in a field already covered by that Act. Title 46, § 183, U.S.C.A.' Cushing v. Texas & P. Ry. Co., 99 F.Supp. 681, 684.

The Court of Appeals, relying solely on diversity jurisdiction, reversed, holding that as a matter of local law the District Court had read the Louisiana statute too restrictively, a question not open here, and that the statute was nothing more than a permissible regulation of insurance authorized by the McCarran Act, 15 U.S.C. § 1012, 15 U.S.C.A. § 1012, and not in 'conflict with any feature of substantive admiralty law, nor with any remedy peculiar to admiralty jurisdiction.' 198 F.2d 536, 539. Deeming this ruling important to the proper enforcement of the Limitation Act, we granted certiorari. 345 U.S. 902, 73 S.Ct. 642, 97 L.Ed. 1339.

The only question presented in the petition for certiorari is whether the application of the Louisiana statute in this case would violate 'the Jones Act, the Limited Liability Act and the constitutional grant to the federal government of exclusive jurisdiction in maritime matters.' We agree with the Court of Appeals that since diversity supports federal jurisdiction, the Jones Act need not be drawn upon for jurisdiction. Nor need we be detained by petitioners' contention that as applied to claims against petitioners as underwriters of the charterer who employed the decedents, the State statute here conflicts with the Jones Act in that it would provide an alternative remedy where Congress has prescribed the means of recovery. Since that Act itself makes its remedy available to a seaman 'at his election,' we perceive no conflict between the Jones Act and the Louisiana direct action statute.

Respondents, on the other hand, seek to derive support for reliance on the Louisiana statute from the McCarran Act which provides 'No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating th business of insurance * * * unless such Act specifically relates to the business of insurance * * *.' 15 U.S.C. § 1012, 15 U.S.C.A. § 1012. Suffice it to say that even the most cursory reading of the legislative history of this enactment makes it clear that its exclusive purpose was to counteract any adverse effect that this Court's decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, might be found to have on State regulation of insurance. The House Report on the Bill as enacted is decisive:

'It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Association case.' H.R.Rep. No. 143, 79th Cong., 1st Sess. 3.

The question whether application of the direct action statute conflicts with federal maritime law is not touched by the South-Eastern Underwriters case. In the face of this unequivocal expression of congressional meaning, the statute cannot be read as doing something that Congress has told us it was not intended to do. The McCarran Act is not relevant here.

This brings us to the governing issue: does the Louisiana statute enter an area of maritime jurisdiction withdrawn from the States? Since Congress has provided a comprehensive legislative system for adjudicating maritime claims, we pass directly to considering whether the operation of the Louisiana statute conflicts with that system, putting to one side the question whether it encroaches upon the general body of nonstatutory maritime law. Cf. Red. Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 44 S.Ct. 274, 68 L.Ed. 582; Just v. Chambers, 312 U.S. 383, 668, 61 S.Ct. 687, 85 L.Ed. 903.

Legislation limiting shipowners' liability was first eancted in 1851 to provide assistance to American shipowners and thereby place them in a favorable position in the competition for world trade. 9 Stat. 635. It provides that in event of a collision or other maritime mishap, occurring 'without the privity or knowledge' of the owner (including therein a charterer), liability will be limited to the value of the ship and freight pending. ^[4] The Act also permits the shipowner by instituting limitation proceedings to have all claims against him brought into concourse in an admiralty tribunal.

The legislation was designed to induce the heavy financial commitments the shipping industry requires by mitigating the threat of a multitude of suits and the hazards of vast, unlimited liability as a result of a maritime disaster. This Court has been faithful to this ultimate purpose and has read the statute's words 'in a broad and popular sense in order not to defeat the manifest intent.' Flink v. Paladini, 279 U.S. 59, 63, 49 S.Ct. 255, 73 L.Ed. 613. Particularly in view of the fact that Congress subjected the whole limitation scheme to scrutiny in 1935 and 1936 as a result of its application to personal injury and death claims resulting from the sinking of the Morro Castle, and did not alter those provisions of the legislation involved here, we must read the statute in the light of its expressed purposes. It is not for us to sit in judgment on the policy of Congress in having all claims disposed of in one proceeding or in apportioning maritime losses. The direct action statute clashes with the federal system for marshalling all claims arising from certain maritime causes of action. See the detailed provisions in Admiralty Rules 51-54, 334 U.S. 864, 28 U.S.C.A. The heart of this system is a concursus of all claims to ensure the prompt and economical disposition of controversies in which there are often a multitude of claimants. The benefits a concursus bestows on the shipping industry were thus described in the hearings on the 1936 amendments to the Limitation Act:

'Under the limitation statutes, as we have had them since 1851, they had two different purposes to serve; one was to limit the liability of the owner and the other was to draw into one court, in the case of a large accident, all of the claims, in order that they might be heard by one judge on one state of facts, in one trial, and intelligently disposed of. Suppose a big sea comes aboard a passenger liner and 15 or 20 people on that deck are washed up against the stanchions or something else, and the claim is that the ship ought to have slowed down, ought to have known by radio. Those passengers may live anywhere from Maine to Texas, and if you have 20 separate laws in 20 different jurisdictions, you just cannot handle an accident of that kind in any possibly intelligent way. One court will say the line was not negligent; another court will say it was negligent; a third court will say you are entitled to $1,500; the next one may say you are entitled to $45,000; and nobody knows where he is.

'So one of the most useful purposes of the limitation statute was that in a case like that you could file a petition bringing into one court all of the claimants and have one trial. Otherwise you would have to keep the crew off of the ship traveling around the country for 2 or 3 years.' Statement by Mr. Charles S. Haight, representing the French Line, Hearings before House Committee on Merchant Marine and Fisheries on H.R. 9969, Part 4, 74th Cong., 2d Sess. 69-70.

And commenting on the limitation of liability sections of the Admiralty Rules of this Court, Mr. Justice Bradley thus described their purpose:

'In promulgating the rules referred to, this court expressed its deliberate judgment as to the proper mode of proceeding on the part of shipowners for the purpose of having their rights under the act declared and settled by the definitive decree of a competent court, which should be binding on all parties interested, and protect the ship-owners from being harassed by litigation in other tribunals. * * * The questions to be settled by the statutory proceedings being First, whether the ship or its owners are liable * * * and, secondly, if liable, whether the owners are entitled to a limitation of liability-must necessarily be decided by the district court having jurisdiction of the case; and to render its decision conclusive, it must have entire control of the subject to the exclusion of other courts and jurisdictions. If another court may investigate the same questions at the same time, it may come to a conclusion contrary to that of the district court; and if it does (as happened in this case,) the proceedings in the district court will be thwarted and rendered ineffective to secure the ship-owners the benefit of the statute.' Providence & New York S.S.C.o. v. Hill Mfg. Co., 109 U.S. 578, 594-595, 3 S.Ct. 379, 389-390, 617, 27 L.Ed. 1038.

Direct actions against the liability underwriter of the shipowner or charterer would detract from the benefit of a concursus and undermine the operation of the congressional scheme for the 'complete and just disposition of a manycorned controversy'. Hartford Accident & Indemnity Co. of Hartford v. Southern Pacific Co., 273 U.S. 207, 216, 47 S.Ct. 357, 359, 71 L.Ed. 612. The ship's company would be subject to call as witnesses in more than one proceeding, perhaps in diverse forums. Conflicting judgments might result. Ultimate recoveries might vary from the proportions contemplated by the statute. Moreover it is important to bear in mind that the concursus is not solely for the benefit of the shipowner. The elaborate notice provisions of the Admiralty Rules are designed to protect injured claimants. They ensure that all claimants, not just a favored few, will come in on an equal footing to obtain a pro rata share of their damages. To permit direct actions to drain away part or all of the insurance proceeds prejudices the rights of those victims who rely, and have every reason to rely, on the limitation proceeding to present their claims. ^[5]

Furthermore, insurers, unable to rely on the limitation of liability of their insured and denied the benefits of the concursus, would in all likelihood reflect the increased costs in their premiums, thus passing on to the very class sought to be benefited by the federal legislation the short-circuiting effects of the State statute. ^[6]

In addition to encroachment upon the federal statutory system for bringing all claims into concourse, the direct action statute is in conflict with the congressional policy of limited liability. The complaints in those two of the five consolidated suits which are by agreement part of the record here total $600,000 in alleged damages. Thus we are certainly on notice that the total damages of the respondents may exceed the $180,000 sum which the policies would cover. If the present actions were to result in judgments equaling the face amount of the policies, the insurers would be exonerated of any further obligation to indemnify the owner and charterer under the policies. The shipowner and charterer would then have to face whatever claims may be presented stripped of their insurance protection. How this may come about is easily seen if we assume that the salvaged ship will finally be valued at $25,000-the amount for which we are advised a stipulation has been filed in the limitation proceeding. If the five claimants were to succeed in obtaining judgments of $180,000 without exhausting all claims, there would be no bar to an additional $25,000 recovery from the shipowner and the charterer in the limitation proceeding by other claimants, or perhaps even by some of the respondents here. Yet in the absence of the direct action statute, the liability policies would be more than sufficient to cover any judgment that might be rendered in the limitation action. Under these circumstances, the extent to which the insured lose the benefits which Congress intended them to have is measured by the protective value of their insurance. ^[7] Without having bought any policies they could only have been held for $25,000. If they buy the policies and the Louisiana statute is applied to permit these suits, their liability is still $25,000.

Thus, to permit direct actions under the State statute would require that shipowners become self-insurers for liability risks in order to be sure of getting the full protection of the limitation legislation. In view of the fact that 'substantially all maritime risks are insured,' Keen v. Overseas Tankship Corp., 2 Cir., 194 F.2d 515, 518 (L. Hand, J.), this sort of qualification would be completely inconsistent with the Limitation Act.

In 1886 the Court was called upon to decide whether the proceeds from a hull insurance policy are part of an owner's 'interest' in a ship and as such must be turned into the limitation proceeding. In The City of Norwich, 118 U.S. 468, 6 S.Ct. 1150, 30 L.Ed. 134, the Court held that insurance proceeds need not be turned in. In part, the decision was based on a narrow interpretation of 'interest.' But Mr. Justice Bradley, who had a commanding role in applying the Limitation Act, reviewed the history and policy of limited liability, and the language of that opinion is an illuminating guide here:

'Now, to construe the law in such a manner as to prevent the merchant from contracting with an insurance company for indemnity against the loss of his investment, is contrary to the spirit of commercial jurisprudence. Why should he not be allowed to purchase such an indemnity? Is it against public policy? That cannot be, for public policy would equally condemn all insurance by which a man provides indemnity for himself against the risks of fire, losses at sea, and other casualties. To hold that this cannot be done tends to discourage those who might otherwise be willing to invest their money in the shipping business.' 118 U.S. at pages 504 505, 6 S.Ct. at page 1163.

And the Court, in The City of Norwich, foreshadowed the consequences of permitting direct actions against liability insurers of shipowners: 'No form of agreement could be framed by which (shipowners) could protect themselves. This is a result entirely foreign to the spirit of our legislation.' 118 U.S., at page 505, 6 S.Ct. at page 1163.

Of course, wholly apart from the respect to be accorded State legislation, this Court should be slow to find that even where Congress has exercised its legislative power it has not left room for State action. Kelly v. State of Washington ex rel. Foss Co., 302 U.S. 1, 58 S.Ct. 87, 82 L.Ed. 3. But where, as in this case, the evident design of Congress can only be carried out by barring State action, it must be barred.

It is true that the record before us does not establish with certainty that the present suits would in fact operate to leave the shipowner and charterer to face liability in the limitation action without indemnification. Judgments in the present actions against the insurers might satisfy all claims or leave enough insurance money to indemnify the shipowner and charterer for liability in the limitation action. The salvaged vessel may finally be valued as worthless, exonerating the shipowner and charterer from any liability in the limitation action. Or the right of the shipowner and charterer to limit their liability might be successfully challenged on the grounds that the mishap did not happen without their 'privity or knowledge'. ^[8]

These elements of uncertainty provide a temptation to let the present actions proceed. Further support for this view may reasonably be found in the fact that it is the insurers rather than the shipowner and charterer who are here seeking to rely on the Limitation Act as a defense. But the crucial fact which requires that the conflict between State and federal law be faced now is that the present actions are brought completely independently of the limitation proceeding. If the Court keeps hands off the direct actions, the draining away of the insurance proceeds cannot be challenged at any time by anyone.

This is not a case where some future action remains to be taken by one of the parties to a suit before the critical issue is presented to the Court as clearly as may be. See United Public Workers of America (C.I.O.) v. Mitchell, 330 U.S. 75, 67 S.Ct. 556, 91 L.Ed. 754. Nor is this a case where we can postpone our review until a State court gives meaning to a challenged State statute. Albertson v. Millard, 345 U.S. 242, 73 S.Ct. 600, 97 L.Ed. 983. In the suits before us, the Court is at the point of no return. Once the respondents have recovered from the insurers the face amount of the insurance policies in the present actions, and they or other claimants are going after the shipowner and charterer in the limitation action, it will be too late to rely on the Limitation Act to preserve the insurance proceeds.

Thus, it is clear that if the present direct actions are permitted, they involve substantial hazard to rights granted by an Act of Congress, leaving no way for such impairment to be challenged. Respect for the Act precludes allowance of litigation, based on a State statute, which carries the potentiality of irreparable infringement upon federal law. The point of inadmissible conflict between State and federal legislation is reached as soon as suit is brought against the liability underwriters to get at proceeds of the policies. And if the federal legislation bars such a suit, it would be anomalous to say that the underwriters may not here contest the direct actions.

Of course, liability underwriters are not entitled to 'limitation of liability' as that phrase is used as a term of art in admiralty. To state the issue in these terms is to misconceive it. The question is whether the Court is to disregard the effect of a direct action on the federal proceedings. The Louisiana statute, as applied to authorize suits against the insurers of shipowners and charterers who have instituted limitation proceedings, is a disturbing intrusion by a State on the harmony and uniformity of one aspect of maritime law. It is accentuated by the fact that the federal law involved is not a more or less ill-defined area of maritime common law, incursion upon which need not be here considered, but an Act of Congress, well-defined and consciously designed, with detailed rules for its execution established by this Court.

'If the courts having the execution of (the Limitation Act) administer it in a spirit of fairness, with the view of giving to ship-owners the full benefit of the immunities intended to be secured by it, the encouragement it will afford to commercial operations (as before stated) will be of the last importance; but if it is administered with a tight and grudging hand, construing every clause most unfavorably against the ship-owner, and allowing as little as possible to operate in his favor, the law will hardly be worth the trouble of its enactment. Its value and efficiency will also be greatly diminished, if not entirely destroyed, by allowing its administration to be hampered and interfered with by various and conflicting jurisdictions.' Providence & New York S.S.C.o. v. Hill Mfg. Co., 109 U.S. 578, 588-589, 3 S.Ct. 379, 385-386, 617, 27 L.Ed. 1038.

Accordingly, Mr. Justice REED, Mr. Justice JACKSON, Mr. Justice BURTON and I would reverse the judgment of the Court of Appeals and reinstate that of the District Court dismissing the complaints. For the reasons stated in his opinion, Mr. Justice CLARK agrees that the direct action suits should not be permitted to impair the shipowner's and charterer's right to indemnification, but he would allow the District Court to adjudicate the liability of the petitioners to the respondents after the limitation proceeding has run its course.

In order to break the deadlock resulting from the differences of opinion within the Court and to enable a majority to dispose of this litigation, we vacate the judgment of the Court of Appeals and order the case to be remanded to the District Court to be continued until after the completion of the limitation proceeding.

It is so ordered.

Judgment of Court of Appeals vacated and case remanded to District Court.

Notes

1. 46 U.S.C. § 183, 46 U.S.C.A. § 183: '(a) The liability of the owner of any vessel, whether American or foreign * * * for any loss, damage, or injury by collision, or for any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners, shall not, except in the cases provided for in subsection (b) of this section, exceed the amount or value of the interest of such owner in such vessel, and her freight then pending.'
2. Prior to instituting this action, all five plaintiffs had filed in the limitation proceeding pleadings challenging the shipowner's and charterer's right to limit their liability and asserting claims for damages.
3. The Protection and Indemnity policy issued by the Home Insurance Company contained the following clauses. 'It is agreed that if the Assured, as shipowners, shall have become liable to pay, and shall have in fact paid, any sum or sums in respect of any responsibility, claim, demand, damages and/or expenses, or shall become liable for and shall pay any other loss arising from or occasioned by any of the following matters or things. * * *' There follows the types of injury and loss for which the Company is liable. A subsequent proviso reads 'Liability hereunder shall in no event exceed that which would be imposed on the Assured by law in the absence of Contract.'
4. This Court has interpreted this as meaning the value after the accident. Norwich & N.Y. Transp. Co. v. Wright, 13 Wall. 104, 20 L.Ed. 585.
5. For example, in this case the representatives of a sixth victim may be relying on the limitation action to prove 'privity or knowledge' and thus seek a judgment substantially in excess of the ship's value. They will be penalized for relying on the federal legislation and the Rules if the direct actions drain away the insurance proceeds and the shipowner and charterer are unable to meet additional judgments.
6. That the cost and indeed the availability of insurance depends on limited liability was brought to the attention of Congress in the hearings on the 1936 amendments to the Limitation Act. See Hearings before House Committee on Merchant Marine and Fisheries on H.R. 9969, Part 4, 74th Cong., 2d Sess. 66-67, 129.
7. This is equally true whatever the vessel is valued at. Of course, we do not know now that the vessel will finally be valued at $25,000. The final valuation may be more or less. Certainly, on the record before us we cannot assume that the ship is valueless, and it may be that shipowner and charterer will need the full $180,000 face value of the policy to indemnify them for a judgment in the limitation action. The very reason that the present suit should not be allowed to proceed is that it is for the limitation proceeding to determine value.
8. The allegation of 'privity' and 'knowledge' is not an assumption on the basis of which this case could be disposed of. The shipowner's and charterer's right to limitation must be determined, as provided by the Act and Rules of this Court, in the limitation proceeding itself, not in the present suits to which they are not parties.