Reed v. Insurance Company
95 U.S. 23 (1877)

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U.S. Supreme Court

Reed v. Insurance Company, 95 U.S. 23 (1877)

Reed v. Insurance Company

95 U.S. 23

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE DISTRICT OF MARYLAND

Syllabus

1. A policy of insurance on a vessel at and from Honolulu, via Baker's Island, to a port of discharge in the United States, contained a clause, "the risk to be suspended while vessel is at Baker's Island loading." Held, in view of the circumstances which must be supposed to have appeared to the parties at the time of making the contract, that the meaning of the clause is that the risk was to be suspended while the vessel was at Baker's Island for the purpose of loading, whether actually engaged in the process of loading or not.

2. Although a written agreement cannot be varied by proof of the circumstances out of which it grew and which surrounded its adoption, they may be resorted to for the purpose of ascertaining its subject matter, and the standpoint of the parties in relation thereto.

3. Quaere, can a demand arising out of contract be enforced by a libel in personam in admiralty when a suit to recover it, if brought in a state court of concurrent jurisdiction, would be barred by the statute of limitations?

The circumstances of this case, as gathered from the pleadings and evidence, particularly the agreed statement made by the parties themselves, are substantially as follows:

In November, 1867, the libellant, Samuel G. Reed, of Boston, was owner of the ship Minnehaha, then lying at Honolulu, in the Sandwich Islands, and about to sail from that place in ballast via Baker's Island, with the intention of there taking in a cargo of guano, to a port of discharge in the United states. Baker's Island is a small rocky island in mid-ocean, nearly under the equator, and about two thousand miles southwesterly from the Sandwich Islands, having no harbor or anchorage, and only frequented for its guano. When ships arrive there, they are moored in the open sea, in an exposed and perilous position. The mooring is effected by means of a heavy stationary anchor, weighing five thousand six hundred pounds, fastened to a coral reef in about one hundred fathoms of water, to which anchor a large buoy is attached by a heavy pendant chain. This chain is braced by two other chains, each over a thousand feet long, attached to anchors fastened to another coral reef nearer to the island. By still another chain the ship is moored to the first-mentioned pendant chain as long as she remains at the island, and her cargo is sent aboard from the

Page 95 U. S. 24

island in small boats. The place is subject to strong currents and heavy gales, and vessels are, in consequence of the weather, frequently obliged to put to sea while loading.

On the 6th of January, 1868, the libellant, through a firm of insurance brokers in New York, made application by mail to the Merchants' Mutual Insurance Company of Baltimore for insurance on the said ship Minnehaha, in the following terms:

"Application for insurance is hereby made by Johnson & Higgins, as agents, in the name of Samuel G. Reed, account of whom it may concern. Loss, if any, payable to them or order. For [$5,000, at seven percent net] on ship Minnehaha, valued at $60,000, at and from Honolulu, via Baker's Island, to a port of discharge in the United states not east of Boston, with liberty to use Hampton Roads for order; the risk to be suspended while vessel is at Baker's Island loading."

This application was enclosed in the following letter:

"OFFICE OF JOHNSON & HIGGINS, &c."

"87 Wall Street, New York"

"Jan. 6, 1868"

"GEORGE R. COALE, Esq., Secretary:"

"DEAR SIR -- Enclosed please find two applications for Samuel G. Reed: viz., one on the Minnehaha (our companies here are averse to Baker's Island risks, and for that reason the owners suspend the risk while at Baker's Island loading. The Atlantic have taken a large line on vessel and freight at seven percent, with scrip); also, one on the Guiding Star, now loading under inspection of Captains Ellis and Story, for underwriters. Please let us know how much your companies will take on each, and the lowest respective rates. Should like to hear by telegraph."

"Yours respectfully,"

"JOHNSON & HIGGINS"

"Per TOOKER"

In pursuance of this application, the company issued the policy on which the present suit is brought, the operative clause of which is in these words:

"The Merchants' Mutual Insurance Company of Baltimore have insured, and do hereby insure, agreeably to order, Samuel G. Reed, for account of whom it may concern, lost or not lost, at and from Honolulu, via Baker's Island, to a port of discharge in the United

Page 95 U. S. 25

States not east of Boston, with liberty to use Hampton Roads for orders, the risk to be suspended while vessel is at Baker's Island loading, $5,000, upon the body, tackle, &c., of the good ship Minnehaha."

The ship sailed in ballast from Honolulu the 7th of November, 1867, and arrived near Baker's Island on the afternoon of the twentieth day of that month. She came to her mooring near the island in safety, shortly after which a heavy gale and heavy surf arose, and continued with violence until the 3d of December, when the ship parted her moorings, and was totally wrecked and lost. At no time after her arrival at that island was it possible to discharge ballast or receive cargo or commence the process of loading or even the preparation for loading.

Proof of loss and of interest and adjustment was duly presented to the company, and payment demanded therefor and refused.

On May 20, 1872, Reed exhibited his libel in the District Court of the United states for the District of Maryland against said company. That court upon hearing dismissed the cause, and the circuit court having affirmed the decree, the libellant brought the case here.

The statute of limitations in force in Maryland provides as follows:

"All actions of account, actions of assumpsit or on the case, actions of debt on simple contract, or for rent in arrears, detinue, and replevin, all actions for trespass for injuries to real or personal property, shall be commenced or sued within three years from time the cause of action accrues. "

Page 95 U. S. 29

MR. JUSTICE BRADLEY delivered the opinion of the Court.

This is a cause of contract, civil and maritime, commenced by a libel in personam by Samuel G. Reed, the appellant, against the Merchants' Mutual Insurance Company of Baltimore, the appellee, to recover $5,000, the amount insured by the latter on the ship Minnehaha, belonging to the libellant. The policy was dated the fourteenth day of January, 1868, and insured said ship in the amount named, lost or not lost, at and from Honolulu, via Baker's Island, to a port of discharge in the United states not east of Boston, with liberty to use Hampton Roads for orders, "the risk to be suspended while vessel is at Baker's Island loading." The ship was lost at Baker's Island, where she had gone for the purpose of loading, on the third day of December, 1868. The defense was that

Page 95 U. S. 30

the loss occurred whilst the risk was suspended under the clause above quoted; also laches by reason of the delay in commencing suit, being more than four years after the cause of action accrued.

This case, upon the merits, depends solely upon the construction to be given to the clause in the policy before referred to, namely, "the risk to be suspended while vessel is at Baker's Island loading," and turns upon the point whether the clause means, while the vessel is at Baker's Island for the purpose of loading, or while it is at said island actually loading. If it means the former, the company is not liable; if the latter, it is liable.

A strictly literal construction would favor the latter meaning. But a rigid adherence to the letter often leads to erroneous results, and misinterprets the meaning of the parties. That such was not the sense in which the parties in this case used the words in question is manifest, we think, from all the circumstances of the case. Although a written agreement cannot be varied (by addition or subtraction) by proof of the circumstances out of which it grew and which surrounded its adoption, yet such circumstances are constantly resorted to for the purpose of ascertaining the subject matter and the standpoint of the parties in relation thereto. Without some knowledge derived from such evidence, it would be impossible to comprehend the meaning of an instrument, or the effect to be given to the words of which it is composed. This preliminary knowledge is as indispensable as that of the language in which the instrument is written. A reference to the actual condition of things at the time, as they appeared to the parties themselves, is often necessary to prevent the court, in construing their language, from falling into mistakes and even absurdities. On this subject Professor Greenleaf says:

"The writing, it is true, may be read by the light of surrounding circumstances, in order more perfectly to understand the intent and meaning of the parties; but, as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it, or substituted in its stead. The duty of the courts in such cases is to ascertain, not what the parties may have secretly intended, as contradistinguished from what their words express, but what is the meaning of the

Page 95 U. S. 31

words they have used."

1 Greenl. Evid., sec. 277. Mr. Taylor uses language of similar purport. He says:

"Whatever be the nature of the document under review, the object is to discover the intention of the writer as evidenced by the words he has used, and in order to do this, the judge must put himself in the writer's place, and then see how the terms of the instrument affect the property or subject matter. With this view, extrinsic evidence must be admissible of all the circumstances surrounding the author of the instrument."

Taylor, Evid., sec. 1082. Again he says:

"It may and indeed it often does happen that, in consequence of the surrounding circumstances being proved in evidence, the courts give to the instrument, thus relatively considered, an interpretation very different from what it would have received, had it been considered in the abstract. But this is only just and proper; since the effect of the evidence is not to vary the language employed, but merely to explain the sense in which the writer understood it."

Id., sec. 1085. See Thorington v. Smith, 8 Wall. 1, and remarks of MR. JUSTICE STRONG in Maryland v. Railroad Company, 22 Wall. 105.

The principles announced in these quotations, with the limitations and cautions with which they are accompanied, seem to us indisputable, and, availing ourselves of the light of the surrounding circumstances in this case, as they appeared, or must be supposed to have appeared, to the parties at the time of making the contract, we cannot doubt that the meaning of the words which are presented for our consideration is that the risk was to be suspended while the vessel was at Baker's Island for the purpose of loading, whether actually engaged in the process of loading or not. Taking this clause in absolute literality, the risk would only be suspended when loading was actually going on. It would revive at any time after the loading was commenced, if it had to be discontinued by stress of weather, or any other cause. It would even revive at night, when the men were not at work. This could not have been the intent of the parties. It could not have been what they meant by the words "while vessel is at Baker's Island loading." It was the place, its exposure, its unfavorable moorage, which the insurance companies had to fear, and the risk

Page 95 U. S. 32

of which they desired to avoid. The whole reason of the thing and the object in view point to the intent of protecting themselves whilst the vessel was in that exposed place for the purpose referred to, not merely to protect themselves whilst loading was actually going on. Her visit to the island was only for the purpose of loading; as between the contracting parties, she had no right to be there for any other purpose, and, supposing that they intended that the risk should be suspended whilst she was there for that purpose, it would not be an unnatural form of expression to say, "the risk to be suspended while vessel is at Baker's Island loading." And we think that no violence is done to the language used, to give it the sense which all the circumstances of the case indicate that it must have had in the minds of the parties.

If we are right in this construction of the contract, there can be no uncertainty as to its effect upon the liability of the underwriters. The loss clearly accrued at a time when, by the terms of the policy, the risk was suspended. The ship sailed in ballast from Honolulu on or about the 7th of November, 1867, and arrived at Baker's Island on the afternoon of the twentieth day of November, 1867. She came to her mooring in safety, and her sails were furled, shortly after which a heavy gale and heavy surf arose. The gale and surf continued with violence until the 3d of December, 1867, when the ship parted her moorings and was totally wrecked and lost. At no time after her arrival at Baker's Island was it possible to discharge ballast or receive cargo or to commence the progress of loading. The violence of the winds, current, and waves, and their adverse course and direction, prevented the ship from slipping her cables and getting to sea, or otherwise escaping the perils that surrounded her.

These facts are indisputable, and they show that when the loss occurred, the vessel was at Baker's Island for the purpose of loading. That the process of loading had not actually commenced is of no consequence. The suspension of the risk commenced as soon as the vessel arrived at the island and was safely moored in her proper station for loading.

The appellee, as a further defense, set up laches in bringing suit. The libel was not filed until more than four years had

Page 95 U. S. 33

elapsed after the cause of action had accrued. The statute of limitations of Maryland requires actions of account, assumpsit, on the case, &c., to be brought within three years, and the counsel for the appellee insists that by analogy to this statute the Admiralty Court, having concurrent jurisdiction with the state courts in this case, should apply the same rule. We had occasion, in the case of The Key City, 14 Wall. 653, to explain the principles by which courts of admiralty are governed when laches in bringing suit is urged as an exception in cases cognizable therein. In view of the construction which we have given to the contract in this case, it is not necessary to pass upon the precise question now raised by the appellee.

It is also unnecessary to examine other questions which were mooted on the argument.

Decree affirmed.

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