The owner and charterer of a vessel which collided with a pier
and capsized in navigable waters in Louisiana filed consolidated
petitions in admiralty in the Federal District Court in Louisiana
to limit their liability under the provisions of 46 U.S.C. § 183
and 186. Subsequently, basing jurisdiction on diversity of
citizenship and the Jones Act, the representatives of five seamen
who had drowned brought this consolidated action in the same
District Court against the liability underwriters of the owner and
charterer of the vessel. For their right to proceed against the
insurance companies, the plaintiffs relied on § 655 of the
Louisiana Insurance Code, which authorizes direct suit "against the
insurer within the terms and limits of the policy," and on the
McCarran Act, 15 U.S.C. § 1012. The District Court dismissed the
consolidated suit against the insurers. The Court of Appeals
reversed.
Held: the judgment of the Court of Appeals is vacated,
and the case is remanded to the District Court to be continued
until after the completion of the limitation proceeding. Pp.
347 U. S.
410-427.
198 F.2d 536, judgment vacated and cause remanded.
The District Court dismissed a consolidated suit brought by
respondents against the petitioner insurance companies.
99 F. Supp.
681. The Court of Appeals reversed. 198 F.2d 536. This Court
granted certiorari. 345 U.S. 902.
Judgment of the Court of
Appeals vacated and cause remanded to the District Court with
directions, p.
347 U. S.
423.
Page 347 U. S. 410
MR. JUSTICE FRANKFURTER announced the judgment of the Court and
an opinion in which MR. JUSTICE REED, MR. JUSTICE JACKSON and MR.
JUSTICE BURTON join.
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.
[
Footnote 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.
[
Footnote 2] Jurisdiction was
based on diversity of citizenship and the Jones Act, 46 U.S.C. §
688. For their right to proceed against the insurance companies,
the plaintiffs relied on § 655 of the Louisiana
Page 347 U. S. 411
Insurance Code 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. [
Footnote 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
Page 347 U. S. 412
also contravene the essential purpose expressed by an Act of
Congress in a field already covered by that Act. Title 46, §
183."
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, 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.
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 the business of insurance . . . unless such Act
specifically relates to
Page 347 U. S. 413
the business of insurance. . . ."
15 U.S.C. § 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,
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;
Just v. Chambers, 312 U. S. 383.
Legislation limiting shipowners' liability was first enacted in
1851 to provide assistance to American shipowners, and thereby
place them in a favorable position
Page 347 U. S. 414
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. [
Footnote
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,
279 U. S. 63.
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.
Page 347 U. S. 415
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. 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
Page 347 U. S. 416
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
shipowners 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 shipowners
the benefit of the statute."
Providence & New York S.S. Co. v. Hill Mfg. Co.,
109 U. S. 578,
109 U. S.
594-595.
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
Page 347 U. S. 417
scheme for the "complete and just disposition of a many-cornered
controversy."
Hartford Accident & Indemnity Co. of Hartford
v. Southern Pacific Co., 273 U. S. 207,
273 U. S. 216.
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. [
Footnote 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. [
Footnote
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
Page 347 U. S. 418
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. [
Footnote 7] Without having bought any
policies
Page 347 U. S. 419
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., 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, 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
118 U. S.
504-505.
Page 347 U. S. 420
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
118 U. S.
505.
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. Washington, 302 U. S.
1. 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." [
Footnote 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
Page 347 U. S. 421
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 v. Mitchell, 330 U. S. 75. 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. 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
Page 347 U. S. 422
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
shipowners 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 shipowner 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. Co. v. Hill Mfg. Co.,
109 U. S. 578,
109 U. S.
588-589.
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
Page 347 U. S. 423
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.
[
Footnote 1]
46 U.S.C. § 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."
§ 186:
"The charterer of any vessel, in case he shall man, victual, and
navigate such vessel at his own expense, or by his own procurement,
shall be deemed the owner of such vessel within the meaning of the
provisions of this chapter relating to the limitation of the
liability of the owners of vessels. . . ."
[
Footnote 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.
[
Footnote 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."
Condition G of the policy issued by Maryland Casualty
provides:
"No action shall lie against the Company to recover upon any
claim or for any loss under Paragraph I(b) foregoing unless brought
after the amount of such claim or loss shall have been fixed and
rendered certain either by final judgment against this Employer
after trial of the issue or by agreement between the parties with
the written consent of the Company, nor in any event unless brought
within two years thereafter."
[
Footnote 4]
This Court has interpreted this as meaning the value after the
accident.
Norwich & N.Y. Transp. Co.
v. Wright, 13 Wall. 104.
After the
Morro Castle disaster, in which 135 lives
were lost and the owners sought to limit their liability to
$20,000, Congress changed the statute to provide that if the value
of the vessel and freight pending is not enough to cover all
claims, that portion of the total recovery applicable to personal
injury or death claims shall be at least $60 per ton. 49 Stat. 960,
1479. 46 U.S.C. § 183(b)-(e). This provision is applicable,
however, only to "seagoing vessels," defined as excluding towboats
which is the type of vessel involved here. 46 U.S.C. § 183(f).
[
Footnote 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.
[
Footnote 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.
[
Footnote 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.
[
Footnote 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.
MR. JUSTICE CLARK, concurring.
I see no necessity for invalidating Louisiana's law by
dismissing these direct actions. In administering the Limited
Liability Act, the Court can easily avoid a clear conflict between
it and the direct action statute.
The Limited Liability Act admittedly was not designed for the
benefit of insurance companies; nor does it deal with their
liability. The purpose of the Congress in passing the Act in 1851
was to encourage investment in American ships by placing a
limitation upon the personal liability of the shipowner in the
event of an accident where there is no "privity or knowledge."
Thereafter. this Court, in
The City of Norwich,
118 U. S. 468
(1886), recognized the right of a shipowner to buy insurance
coverage for damage to his hull in order to protect against the
loss of his investment. The proceeds of such "hull insurance" were
held, for purposes of a limitation proceeding, not a part of "the
interest" of the owner in the vessel. The basis of the decision was
that Congress intended the Act to protect the investment of
shipowners, and, if the latter were prevented from indemnifying
Page 347 U. S. 424
themselves from loss of their investment in the ship, it would
be contrary to the purpose of Congress, as well as to the spirit of
commercial jurisprudence. Here, the damage claims which may be
sustained in the limitation proceeding will be chargeable against
the
Jane Smith, and the owner may lose the damaged hull or
its value unless he can recoup through the insurance which is
involved in these direct actions and which he purchased for his
protection. If the insurance proceeds are exhausted in the direct
actions, the owner's recoupment will be impossible. Though the
holding in
The City of Norwich does not control, I think
that the reasoning of that case is pertinent; in other words, the
owner of the ship has the same right to protect his investment in
the ship by insurance against damage claims arising in its
operation and which are chargeable to it [
Footnote 2/1] as he has to protect his investment from
damage to the ship itself. Unless the owner is afforded an
opportunity to provide for such protection, the purpose of Congress
to encourage investment in American ships will be just as much
thwarted as it would have been had the owner's right to buy
insurance protection in
The City of Norwich not been
recognized.
To say that this view benefits the shipowner "at the expense of
the families of the deceased seamen" is to ignore the realities of
the case. Had the owner not purchased liability insurance, the
claimants could not, under any condition, recover more than the
value of the damaged hull if there is no "privity or knowledge."
The owner's liability insurance is the sole source of the
claimants' hope for a recovery beyond the value of the
Page 347 U. S. 425
damaged hull. The owner's motive in purchasing insurance
certainly was not to protect his seamen or the public, but to
protect himself against damage claims. And, in so doing, he has
aided the widows and orphans of the deceased seamen by creating the
possibility of an additional recovery against the insurance
companies. Nor can the owner "profit" from the accident. The amount
he may recover from the insurers under the liability policies could
never exceed the amount he is obligated to pay to the claimants in
the limitation proceedings. He "profits" only in the sense that he
is permitted to receive the protection for which he paid.
This is not to say that the insurance companies in a direct
action are liable to damage claimants. That would be a question of
Louisiana law. Our only interest is to make certain that such
actions do not interfere with the Federal Limitation proceeding. To
do this, we need only require that the limitation proceeding be
concluded first, and the owner's liability settled under it. The
petitioners could then discharge this liability, to the extent
their policies covered it, by paying into the limitation proceeding
the proper sum. [
Footnote 2/2] The
door would then be left open for prosecution of the direct actions
against the insurance companies on the remaining coverage of the
policies. Thus, whatever the insurers' liability may be under
Louisiana law in the subsequent direct actions, the owner's purse
cannot be touched.
MR. JUSTICE FRANKFURTER's opinion states that the cases might be
held for the limitation proceeding were it not that Congress
intended that proceeding to be, in addition to a concursus of all
claims against the owner
Page 347 U. S. 426
and charterer, the exclusive forum for litigating all liability
resulting from the accident. This is certainly not an unreasonable
position. To be sure, some of the arguments for a concursus of
claims against the owner or charterer would be applicable to claims
against the insurer. But I do not think the arguments for such a
holding are so persuasive, and the case for an opposite conclusion
so feeble, that we should proceed at this juncture to invalidate a
state law. It is also reasonable to read the Limited Liability Act
as aimed at protecting only owners and charterers. The statute does
not speak of suits against insurers. And, when the Admiralty Rules
were adopted, we were concerned solely with the problems of the
owner and charterer. For example, the limitation court is empowered
to enjoin suits in other courts arising out of the accident only if
the suits are against the owner, charterer or vessel; no mention
was made of enjoining suits against any other party,
e.g.,
insurance companies.
See Rule 51. In sum, we must read
between the lines in interpreting the Act, regardless of how we
hold. When the issue is so close, I would resolve it in favor of
upholding, rather than invalidating, a state statute. We are not
here confronted with a picture of law suits in twenty odd states
under twenty different state laws; if this be a valid argument
against upholding the statute in another situation, it has no
application in this case. The towboat
Jane Smith, owned by
a Louisiana resident, plied only Louisiana waters of the
Atchafalaya River; the accident which befell the vessel occurred in
Louisiana; all the parties save one resided in the state, and both
the limitation proceeding and the damage suits are pending in the
same court before the same judge. Moreover, the damage claimants,
perhaps secondary beneficiaries of the Limited Liability Act, are
also the beneficiaries of a holding that the Limited Liability Act
does
Page 347 U. S. 427
not foreclose the possibility of direct actions by them
subsequent to the limitation proceeding.
For these reasons, I would direct the District Court to first
conclude the limitation proceeding, after which the liability, if
any, of the petitioners on their policies in the direct actions
could be determined.
[
Footnote 2/1]
The business practice of purchasing marine protection and
indemnity insurance, the type primarily involved here, to protect
the shipowner against this contingency has long been recognized.
See testimony of Ira A. Campbell for American Steamship
Owners' Association at Hearings before House Committee on Merchant
Marine and Fisheries on H.R. 4550, 74th Cong., 1st Sess. 91, 125,
131.
[
Footnote 2/2]
Of course, if the ship is a total loss, and assuming no privity
or knowledge, the owner's liability would be nothing under the
federal Act. All the insurance would then be available to claimants
in the direct actions, if liability is present under Louisiana
law.
MR. JUSTICE BLACK, with whom THE CHIEF JUSTICE, MR. JUSTICE
DOUGLAS and MR. JUSTICE MINTON concur, dissenting.
The towboat
Jane Smith hit a railroad bridge and sank
in Louisiana waters of the Atchafalaya River. Five crew members
were drowned. Petitioners, Maryland Casualty Company and Home
Insurance Company, had previously sold insurance policies to the
boat's owner and its charterer agreeing to repay them for any money
they had to pay on account of injury or death caused by the boat.
These policies were issued and delivered in Louisiana. A Louisiana
statute authorizes injured persons or their heirs to sue insurance
companies directly on such policies. Under this law, the widows of
the drowned crewmen brought these diversity actions in federal
court against petitioners. A majority of the Court holds that
permitting these suits to go forward to judgments against the
insurance companies prior to completion of limitation of liability
proceedings under an 1851 Act of Congress would bring this state
statute into conflict with that Act. But the 1851 Act was passed to
help shipowners by limiting the damages they must pay on account of
wrongs inflicted by their agents. I see no possible reason for
making insurance companies the beneficiaries of this shipowners'
relief act. Neither can I understand why this Court should feel
called on to relieve shipowners from even the light financial
burden that the 1851 Act left them to bear. Nor do I think the
Louisiana Act is subject to any of the
Page 347 U. S. 428
constitutional objections the insurance companies urge against
it. I agree with the Court of Appeals for the Fifth Circuit that
the insurance companies' contentions "over-inflate a relatively
simple proposition with apparent, but unreal, technical problems."
198 F.2d 536, 539. For that reason, without more, I would affirm
this judgment. But because of the confused state in which this case
goes back to the District Court, I think it desirable that all
questions be discussed. I shall first take up the constitutional
objections.
I
(a) The insurance companies argue that the Louisiana law impairs
the obligation of "maritime contracts." The implication is that
maritime contracts have more constitutional protection than other
kinds of contracts. But Art. I, § 10 of the United States
Constitution, which forbids states to impair the obligations of
contracts, draws no such distinction. And while, in general, this
provision protects valid contracts from impairment by subsequent
legislation of states, it does not forbid states to pass laws
regulating contracts thereafter to be made.
Munday v. Wisconsin
Trust Co., 252 U. S. 499,
252 U. S. 503.
Cf. Home Building & Loan Assn. v. Blaisdell,
290 U. S. 398.
Hence, the Louisiana law, passed before these insurance policies
were issued, does not violate the impairment of contract clause
and, unless invalid for some other reason, the state's "direct
action" statute became a part of the contract when it was made,
just as though written into each policy by the companies.
New
York Life Ins. Co. v. Cravens, 178 U.
S. 389,
178 U. S.
395-400.
Cf. Farmers' and Merchants' Bank v. Federal
Reserve Bank, 262 U. S. 649,
262 U. S.
660.
(b) Article III, § 2 of the Constitution provides that "The
judicial Power shall extend . . . to all Cases of admiralty and
maritime Jurisdiction. . . ." It is contended
Page 347 U. S. 429
that this provision not only gives the Federal Government
supreme power over maritime affairs, but that it also denies any
power in states to legislate in this field. This complete denial of
state power is said to have been established by
Southern
Pacific Co. v. Jensen, 244 U. S. 205, and
Knickerbocker Ice Co. v. Stewart, 253 U.
S. 149. The opinions in those cases did lend some
support to a constitutional doctrine that the Admiralty Clause
requires rigid national uniformity in maritime legislation. But
this Court rejected that doctrine in
Red Cross Line v. Atlantic
Fruit Co., 264 U. S. 109. Mr.
Justice Brandeis, speaking for the Court in that case, made it
absolutely clear that the Admiralty Clause does not deprive states
of power to make different regulations in regard to maritime
affairs unless a state attempts to modify or displace essential
features of the substantive maritime law or to modify the remedial
law of admiralty courts.
See also Standard Dredging Corp. v.
Murphy, 319 U. S. 306.
These cases but reaffirmed a power that states have always
exercised. When the Constitution was adopted, the Government found
state regulatory systems governing local maritime affairs
throughout the country.
Gibbons v.
Ogden, 9 Wheat. 1,
22 U. S. 207.
Congress has never attempted to supplant all local maritime
regulations, but has left many in effect as useful aids in carrying
out national maritime policies.
See
Cooley v. Board of
Wardens, 12 How. 299;
The Hamilton,
207 U. S. 398;
Kelly v. Washington, 302 U. S. 1,
302 U. S. 14-16.
For example, states can even create liens on vessels which may be
enforced either in state courts or in courts of admiralty, despite
the lack of uniformity brought about by "intricate and conflicting
State laws creating such liens. . . ."
The
Lottawanna, 21 Wall. 558,
88 U. S. 581.
In declining to invalidate these state lien laws this Court there
pointed out that Congress could terminate the effectiveness of such
state legislation at any time it desired to assume control.
Page 347 U. S. 430
The uniformity which the Admiralty Clause of the Constitution
requires is limited to one indefinitely defined area -- that
involving "the essential features of an exclusive federal
jurisdiction."
Just v. Chambers, 312 U.
S. 383,
312 U. S. 391.
Except in instances falling clearly within this area, states are
free to make laws relating to maritime affairs. Thus, in
Just
v. Chambers, Florida was permitted to provide a remedy for
death due to maritime torts in Florida waters, even though such a
remedy was not permissible under maritime law and not available in
other states. Here, Louisiana has provided a remedy for death due
to maritime torts in Louisiana waters, and it is therefore
difficult for me to see how the present case can be distinguished
from
Just v. Chambers. Neither Congress nor this Court has
provided or forbidden suits against insurance companies in cases
like these, or attempted to establish uniform rules for the
regulation of maritime insurance to the exclusion of the states.
Indeed, it was not until 1870 that this Court finally decided that
the regulation of marine insurance was within the jurisdiction of
admiralty at all.
Insurance Co. v.
Dunham, 11 Wall. 1. Prior to that time, there was
strong support for the belief that the states alone could regulate
marine insurance. No act of Congress and nothing this Court has
said since the
Dunham decision in 1871 has taken away the
concurrent jurisdiction of states over maritime insurance policies.
[
Footnote 3/1] No reason has been
advanced why marine insurance, long the province of the states, so
imperatively requires uniformity that we should now hold that
Congress
Page 347 U. S. 431
alone can regulate it. [
Footnote
3/2] Consequently, to enforce the Louisiana law would not
impair the uniformity of maritime law, but would once again
"illustrate the alacrity with which admiralty courts adopt
statutes granting the right to relief where otherwise it could not
be administered by a maritime court. . . ."
Workman v. New York City, 179 U.
S. 552,
179 U. S. 563.
See also The Hamilton, 207 U. S. 398.
Louisiana's statute, as sought to be applied here, would further
the equitable aims of admiralty by providing relief not otherwise
available for maritime wrongs. For behind this "direct action"
statute lies a long history of state attempts to protect the public
interest by ensuring that liability policies furnish adequate
protection to persons injured. At one time, insurance companies
were commonly able to avoid payment of a single dollar on their
policies whenever the insured was insolvent, and therefore
judgment-proof. The insurance, although bought and paid for, would
remain untouched while valid claims went entirely unsatisfied. To
prevent this injustice, many states passed laws of one kind or
another which required insurance companies to pay injured persons
even though the insured had paid out no money. The Massachusetts
Supreme Judicial Court took the lead in sustaining a law of this
type, Chief Justice Rugg suggesting its need to prevent liability
insurance from becoming a "snare to the insured and a barren hope
to the injured."
Lorando v. Gethro, 228 Mass. 181, 189,
117 N.E. 185, 189. And,
Page 347 U. S. 432
despite the fact that these state statutes wrote compulsory
terms and obligations into all insurance contracts, this Court
sustained such a statute applying to automobile insurance. Chief
Justice Taft said that
". . . it would seem to be a reasonable provision by the state,
in the interest of the public, whose lives and limbs are exposed,
to require that the owner in the contract indemnifying him against
any recovery from him should stipulate with the insurance company
that the indemnity by which he saves himself should certainly inure
to the benefit of the person who thereafter is injured."
Merchants' Mutual Automobile Liability Ins. Co. v.
Smart, 267 U. S. 126,
267 U. S.
129-130. The Louisiana statute is an application of this
same principle. It expresses the public policy of Louisiana that
liability insurance exists for the protection and benefit of the
injured as well as the insured.
Davies v. Consolidated
Underwriters, 199 La. 459, 475-476, 6 So. 2d 351, 357. Under
Louisiana's law, an individual purchases liability insurance not
for himself alone but also for those whom he may injure. This
bargain is advantageous to the purchaser because claims against him
can be satisfied in suits against the insurer.
There can be no constitutional barrier to this Louisiana law
passed to protect persons injured within its borders. Consequently,
unless Congress has specifically forbidden states to protect seamen
this way, Louisiana's statute is valid and should be enforced.
II
The majority hold that the Limited Liability Act of 1851, as
amended, bestows on the shipowner a right to collect all or part of
the insurance money for his profit despite Louisiana's statute
requiring insurance companies to make their payments directly to
the families of persons injured or killed. I think this
construction gives shipowners far more than Congress intended.
Page 347 U. S. 433
The Limited Liability Act provides that
"The liability of the
owner of any vessel . . . 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 . . . exceed the amount or value of the
interest of such owner in such vessel, and her freight then
pending. [
Footnote 3/3]"
(Emphasis supplied.) This Act relieves shipowners from a large
part of the liability normally imposed on employers for torts of
their employees. Under the Act, a shipowner need pay nothing to
tort claimants if the ship is a total loss. If it is not wholly
destroyed, the shipowner can simply turn a fund equal to the value
of his interest in the damaged ship over to a court in a limitation
proceeding. All claims against the shipowner must then be satisfied
out of that fund, no matter how large the claims or how small the
fund. The purpose of Congress in limiting the liability of
shipowners was to encourage investment in American ships. But
neither the Act nor its history indicates a purpose to encourage
investment in insurance companies by limiting their liabilities.
The insurance companies contend, however, that requiring them to
pay their policy obligations to these claimants will somehow compel
shipowners to pay out money in excess of the liability provided by
the Act. For the reasons that follow, I think this contention is
without merit.
(a) The majority appear to hold that, if the insurance companies
pay out the full amount of their policies in these actions and some
recovery is also had against the shipowner in limitation
proceedings, the shipowner will be unable to get reimbursement for
that recovery from the insurers, and, to that extent, will be
"deprived of his insurance." It was conceded at the bar, however,
that the
Page 347 U. S. 434
ship here is without value -- a total loss. If this is true,
there would be no fund in the limitation proceedings, and no
possibility of any recovery at all against the shipowner. Under
these circumstances, the shipowner does not stand to lose a dime if
the insurance companies are held liable for the full amount of
their policies, and there is no reason for deferring trial of these
lawsuits.
(b) Even if the ship has some value and there should be
recoveries from the limitation fund, Louisiana's statute would not
deprive the shipowner of any right given by the Limited Liability
Act. That Act was passed to help shipowners by permitting them to
escape full liability for wrongs of their agents. But not a word in
it suggests that Congress also intended to give shipowners
additional special privileges with respect to liability insurance
or to interfere with state regulation of any type of insurance. Nor
was any such expanded construction of the Act made by this Court in
The City of Norwich, 118 U. S. 468.
That case rested entirely on a holding that money from hull
insurance was no part of an owner's "interest" in his ship which
the Limited Liability Act required him to turn over to damage
claimants. The Court was concerned only with what made up the
limitation fund. The claimants here make no contention that
liability insurance is part of the limitation fund. They concede
that the shipowner can be made to pay out only the value of his
"interest" in the damaged ship. But they insist that the shipowner
should not be allowed to escape loss from even the limited
liability which Congress put on him, if the result is to deprive
injured persons of insurance bought to protect them. There is a
vital difference between liability insurance and hull insurance
with which
The City of Norwich dealt. The latter provides
recovery for loss of the shipowner's property. But liability
insurance is not bought to guarantee reimbursement for loss of a
shipowner's property. Its purpose is to pay for damage done
Page 347 U. S. 435
to others by the shipowner or his agents. The shipowner has an
insurable "interest" in his ship; if it is lost or damaged, any
insurance money collected is his own. I cannot believe he has an
insurable "interest" in his seamen which could possibly entitle him
to reduce the already limited financial obligations the Act imposes
by taking for himself insurance money which otherwise would go to
compensate seamen or their families for injuries he inflicts. The
result of holding that the Act gives the shipowner this insurance
benefit is at least in some circumstances, to leave him with more
money after a wreck if he injures people than if he does not. It is
a far cry from the decision in
The City of Norwich that a
shipowner is entitled to keep the insurance collected for loss of
his own ship to today's holding that states cannot assure seamen
that they, instead of the shipowner, can get the full benefit of
liability policies bought in order to pay their just claims for
injuries caused by the ship.
(c) It is said, however, that other shipowners might have to pay
higher premiums and also buy more insurance if recoveries are
allowed here, and that this would discourage investment in ships.
How the Limited Liability Act may be read to impose a ceiling on
premiums, over which the states normally have full power, is
difficult for me to understand. I have searched the Act's history
in vain for any support for this interpretation. Yet, 103 years
after the Act's passage, it is discovered that Congress intended to
help shipowners by preventing states from making regulations that
might raise the cost of marine insurance. But Congress decided to
help shipowners by reducing their obligations due to wrecks, not by
reducing the prices they had to pay for carrying on their business
either before or after a wreck. Construing the Act to protect
shipowners from having to pay higher prices for oil or coal would
be no less far-fetched than construing it to keep down insurance
premiums. This Court often
Page 347 U. S. 436
protests its desire to indulge every presumption in favor of the
validity of state legislation. It is hard to reconcile this
commendable judicial philosophy with use of attenuated inferences
about increased premiums as an excuse for impairing this Louisiana
law.
(d) Despite the insistence of petitioner insurance companies
that these suits must be wholly barred to save shipowners from
injury, it seems plain that the only real beneficiaries of such a
holding would be the companies themselves. They, rather than the
shipowner, would enjoy the protection sought to be written into the
Limited Liability Act. But even the most generous reading of the
Act gives no ground for believing that it was intended to help
insurance companies, directly or indirectly. And nothing in the
records of the congressional debates or reports supports such a
strained interpretation. Shipowners, not insurance companies, were
the group Congress wanted to help.
(e) For the above reasons, I think the Limited Liability Act
does not require deferring the present suits so that the shipowner
can be the direct beneficiary of these insurance policies at the
expense of the families of the deceased seamen. But quite apart
from these reasons, the same conclusion is required by specific
instructions from Congress. The McCarran Act provides that
"No Act of Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of
regulating the business of insurance . . . unless such Act
specifically relates to the business of insurance. . . ."
15 U.S.C. § 1012(b). It is unquestionably true that the McCarran
Act was passed in response to this Court's decision that insurance
was subject to the federal commerce power. [
Footnote 3/4] But that is no reason for giving the law
an
Page 347 U. S. 437
unnaturally narrow construction squarely in the teeth of the
plain, normal, everyday meaning of the language used. The Act
rather shows the strong purpose of Congress to permit states to
continue regulating insurance as they always had. Courts are
pointedly told to leave states free to regulate "the business of
insurance" in the absence of some congressional act that
"specifically relates" to the same subject. The "business of
insurance" includes marine insurance and by no stretch of
imagination can it be said that the 1851 Act "specifically relates"
to insurance. Thus the unambiguous language of the McCarran Act
forbids courts to construe federal statutes such as the Limited
Liability Act so as to impair a state law like Louisiana's. No
legislative history can justify judicial emasculation of this
language. I would not disregard its mandate.
III
Judicial expansion of the Limited Liability Act at this date
seems especially inappropriate. Many of the conditions in the
shipping industry which induced the 1851 Congress to pass the Act
no longer prevail. And later Congresses, when they wished to aid
shipping, provided subsidies paid out of the public treasury rather
than subsidies paid by injured persons. [
Footnote 3/5] If shipowners really need an additional
subsidy, Congress can give it to them without making injured seamen
bear the cost. It is significant that no shipowner has argued here
against direct recoveries from the insurance companies.
Today's decision creates unnecessary delay and doubt as to
recovery by the families of the
Jane Smith's victims. The
loss of their breadwinners is not to be shared by
Page 347 U. S. 438
the shipping industry the seamen served. It was such results
that led to efforts to spread the cost of industrial accidents and
disasters through insurance and workmen's compensation laws. Acting
consistently with this broad trend in the law, Louisiana has tried
to make certain that all liability insurance will get to those for
whose protection it was purchased. And application of Louisiana's
statute under the circumstances here is also in harmony with the
humane policy of the maritime law. Seamen have traditionally been
the wards of admiralty, and admiralty has been increasingly
solicitous to provide compensation for accidents occurring in their
dangerous work. Thus both the general trend of the law and the
specific bent of admiralty support the policy of the people of
Louisiana which permits recovery here. No language in the Limited
Liability Act forbids it; the language of the McCarran Act should
compel it.
[
Footnote 3/1]
In the Merchant Marine Act of 1920, Congress recognized that
"marine insurance companies" were operating under state laws.
Section 29 of the Act defines that term to include companies
"authorized to write marine insurance or reinsurance under the laws
of the United States or of a State. . . ." 41 Stat. 988, 1000, 46
U.S.C. § 885(a)(2).
[
Footnote 3/2]
In 1935, when Congress was considering amendments to the Limited
Liability Act, counsel for the American Steamship Owners'
Association strongly contended for continued regulation of marine
insurance by the states and against a federal regulation system
that would have been uniform in all the states. Hearings before
House Committee on Merchant Marine and Fisheries on H.R. 4550, 74th
Cong., 1st Sess. 91, 124.
[
Footnote 3/3]
R.S. § 4283, as amended, 49 Stat. 960, 1479, 46 U.S.C. §
183(a).
[
Footnote 3/4]
United States v. South-Eastern Underwriters Assn.,
322 U. S. 533.
[
Footnote 3/5]
See Springer, Amendments to the Federal Law Limiting
the Liability of Shipowners, 11 St. John's L.Rev. 14; Note, 35
Col.L.Rev. 246.