Frank B. Hall &. Co. v. Jefferson Ins.

LEARNED HAND, District Judge (after stating the facts as above). Two questions arise: First. What should be the recovery of the libelants, if the owners had not paid them? Second. Does the fact of payment affect their rights? While the policy reads as an insurance of “advances,” it is clear that it was not meant to guarantee the owner’s payment, but the libelants’ interest in the schooner, which was a maritime lien. [1, 2] The form of the policy, policy proof of interest (P. P. I.), is familiar, and in this country legal. It amounts to an agreement that “in the event of loss” the insured shall be recognized without further proof to have had the interest named in the policy in the subject-matter insured. To this the insurers here answer that, while this may be true as of the time when the policy was written, it does not apply when the loss occurs. Under the proof it is impossible to say whether the loss occurred before or after the owner paid his debt and extinguished the lien. Hence they argue the libelants fail to show that there has been any loss, and must fail. This follows if the P. P. I. clause only covers the insured’s interest at the time when the risk attached. I think that it must be held to go further. The clause reads, “In the event of loss this policy is to be deemed sufficient proof of interest.” Interest at what time? Certainly “in the event of loss,” which is the only relevant time. The clause is meant to relieve the insured from showing that at that time he had an insurable interest. This, indeed, may result in a wagering contract, and so far the clause might be thought void; but, as that is not even argued, the clause must be enforced as it reads. [3] Again, I think that it must be enforced for the full value of the insurance. Is it a “valued” policy? If so, it is such by virtue of the typed words, “Full interest admitted.” These are redundant, if they refer to the libelants’ interest as lienor; they have a meaning, if they refer to the amount of the lien. It was unnecessary to show that no one else was interested in the “advances.” The policy with the P. P. I. clause effected that as it stood. Some meaning must be given them, and it seems to me that they must mean that the “advances” must be taken at their “full interest,” as stated in the policy. There was reason for this; the proof of the value of the supplies might be difficult and doubtful. An agreed valuation was a reasonable provision. [4, 5] Therefore it appears to me that, on proof of total loss of the schooner, the libelants make out a prima facie case. Such alone [894] must have been the purpose of the parties; that purpose was legal. .However, the contract was one of insurance, and insurance is indemnity for loss. If, therefore, the owner had not paid the bill for supplies, the insurer, upon paying the loss, would have been subrogated -to the insured’s rights. The reason for this is clear; otherwise, the insured could collect twice, once from the insurer, and again, in part, at least, from the owner. This would ignore the fundamental postulate of all insurance, that it must not he a mere bet upon a future event. The principle of subrogation in such cases is well recognized. For example, the rule is settled that the insurer has the right of subrogation against a carrier, who may be responsible for the loss of the goods. Garrison v. Memphis Ins. Co., 19 How. 312, 15 L. Ed. 656; Clark v. Wilson, 103 Mass. 219, 4 Am. Rep. 532. This is because in this way alone can tire insured be prevented from two recoveries, turning his policy into a wager. The case at bar is not that, but it is governed by the same principle; it is the case of a lienor taking out insurance for himself on his lien, quite the same case as a fire policy taken out by a mortgagee. Carpenter v. Providence, etc., Co., 16 Pet. 495, 10 L. Ed. 1044, controls, I think. It is said that the remarks of Mr. Justice Story in that case are obiter. True the case could have been decided without them, because it was only necessary to decide that insurance taken out by the mortgagor and assigned to the mortgagee was still mortgagor’s insurance. Still they have the authority of the deliberate judgment of the great judge who uttered them. His decision in Hancox v. Fishing Ins. Co., 3 Sumn. 132, Fed. Cas. No. 6013 is consistent only with the same doctrine. There, in a case similar to that at bar, he allowed recovery upon the theory that the insurers, after payment, should be subrogated. I agree that the insured is not compelled to exhaust his other remedies first. Excelsior Fire Ins. Co. v. Royal Ins. Co., 55 N. Y. 343, 14 Am. Rep. 271. But that does not touch his right of subrogation. No other creditor with two claims is so obliged. Ulster Co. Savings Inst. v. Leake, 73 N. Y. 161, 164, 29 Am. Rep. 115, treats as law the dictum in Excelsior, etc., Co. v. Royal, etc., Co., supra, 55 N. Y. 359, 14 Am. Rep. 271, that the insurer is entitled to be subrogated. Subrogation was allowed in Baker v. Monumental, etc., Ass’n, 58 W. Va. 408, 52 S. E. 403, 3 L. R. A. (N. S.) 79, 112 Am. St. Rep. 996, Gillaspie v. Scottish, etc., Co., 61 W. Va. 169, 56 S. E. 213, 11 L. R. A. (N. S.) 143, Norwich Fire Ins. Co. v. Boomer, 52 Ill. 442, 4 Am. Rep. 618, and Leydon v. Lawrence, 79 N. J. Eq. 113, 81 Atl. 121; Id. 80 N. J. Eq. 550, 85 Atl. 1134. 4I cannot think that the contrary opinion could have ever gained acceptance, but for the great name of Shaw, which gave it currency after King v. State, etc., Co., 7 Cush. (Mass.) 1, 54 Am. Dec. 683. That case is indeed squarely to the contrary, and without the support of other decisions I should scarcely wish to differ from it. However, it stands alone, I think, and has been now overruled by statute. Canton Co. Op. Bank v. American, etc., Co., 219 Mass. 132, 106 N. E. 635. With deference it seems to me clearly to ignore the character of the insurance [895] contract, and the control which equity will exert to effectuate the only lawful purpose which the parties might entertain. [6] If the respondent had the right of subrogation, then it would, of course, be entitled to treat as a defense the owner’s payment of the debt, by which the debt was discharged. It may be argued that this result is the same as though the P. P. I. clause were ignored; but that is not true. If the clause were ignored, there could be no recovery at all, since it would be impossible to show that the lien was in existence when the schooner sank. The combination of that clause and the “valued insurance” clause together assure the lienor of a total recovery of $6,000 from one source or another, which is what the parties bargained for. Those provisions in the agreement must be enforced in some fashion, but they cannot disguise the general character of the transaction. Formally, the proper way to regard the case is to treat the policy as indisputable, and to permit a decree for the full amount, but in equity to enjoin its collection to the extent that the insured has profited by the discharge of those rights to which the insurer would have been entitled. In the admiralty, all this may all be done in one decree. Decree accordingly; no costs.