Phoenix Insurance Company of Brooklyn v. Erie Western Transportation Company/Opinion of the Court

It being found as matter of fact that the lading of the goods on board the propeller was not completed until the evening of the twenty-fourth of July, that she departed on her voyage about midnight, and that the bills of lading were not delivered by the carrier to the shippers until after her departure, it is clear that the bills of lading were not actually delivered until the 25th. But it being also found that oral agreements for the carriage were made on the 24th, with the understanding that bills of lading would be subsequently issued, and that the shippers, having often before shipped goods by this line under similar bills of lading, knew or had every opportunity of knowing their terms and conditions, it is also clear that the bills of lading were but a putting in form of the oral agreements made on the 24th, and took effect as if they had been delivered and accepted on that day. The certificates of the agent of the insurance company, without which the policy of insurance did not attach to these goods, were also made on that day, and described the goods as on board the propeller. The contract of carriage and the contract of insurance must therefore be treated as substantially contemporaneous, and both made before the loss of the goods. There is nothing to show any misrepresentation or intentional concealment by the assured in obtaining the insurance, or that the insurer had or had not knowledge or notice of the usual form of the bills of lading. The policy of insurance contains no express stipulation for the assignment to the insurer of the assured's right of action against third persons. In the bills of lading, it is expressly stipulated that the carriers whose railroad or vessels form part of the line of transportation shall not be liable for loss or damage by fire, collision, or dangers of navigation; and that each carrier shall be liable only for a loss of the goods while in its custody, 'and the carrier so liable shall have the full benefit of any insurance that may have been effected upon or on account of said goods.'

The question is whether under these circumstances the insurer, upon payment of a loss, became subrogated to the right to recover damages from the carrier.

When goods insured are totally lost, actually or constructively, by perils insured against, the insurer, upon payment of the loss, doubtless becomes subrogated to all the assured's rights of action against third person who have caused or are responsible for the loss. No express stipulation in the policy of insurance, or abandonment by the assured, is necessary to perfect the title of the insurer. From the very nature of the contract of insurance as a contract of indemnity, the insurer, when he has paid to the assured the amount of the indemnity agreed on between them, is entitled, by way of salvage, to the benefit of anything that may be received, either from the remnants of the goods, or from damages paid by third persons for the same loss. But the insurer stands in no relation of contract or of privity with such persons. His title arises out of the contract of insurance, and is derived from the assured alone, and can only be enforced in the right of the latter. In a court of common law it can only be asserted in his name, and, even in a court of equity or of admiralty, it can only be asserted in his right. In any form of remedy, the insurer can take nothing by subrogation but the rights of the assured. Comegys v. Vasse, 1 Pet. 193, 214; Fretz v. Bull, 12 How. 466, 468; The Monticello, 17 How. 152, 155; Garrison v. ''Memphis Ins. Co.'', 19 How. 312, 317; Hall v. Railroad Cos., 13 Wall. 367, 370, 371; The Potomac, 105 U.S. 630, 634, 635; Mobile & M. Ry. v. Jurey, 111 U.S. 584, 594; S.C.. 4 Sup. Ct. Rep. 566; Clark v. Wilson, 103 Mass. 219; Simpson v. Thomson, 3 App. Cas. 279, 286, 292, 293. That the right of the assured to recover damages against a third person is not incident to the property in the thing insured, but only a personal right of the assured, is clearly shown by the fact that the insurer acquires a beneficial interest in that right of action, in proportion to the sum paid by him, not only in the case of a total loss, but likewise in the case of a partial loss, and when no interest in the property is abandoned or accrues to him. Hall v. Railroad Cos., The Potomac, and Simpson v. Thomson, above cited.

The right of action against another person, the equitable interest in which passes to the insurer, being only that which the assured has, it follows that if the assured has no such right of action none passes to the insurer; and that if the assured's right of action is limited or restricted by lawful contract between him and the person sought to be made responsible for the loss, a suit by the insurer, in the right of the assured, is subject to like limitations or restrictions. For instance, if two ships, owned by the same person, come into collision by the fault of the master and crew of the one ship, and to the injury of the other, an underwriter who has insured the injured ship, and received an abandonment from the owner, and paid him the amount of the insurance as and for a total loss, acquires thereby no right to recover against the other ship because the assured, the owner of both ships, could not sue himself. Simpson v. Thomson, above cited; ''Globe Ins. Co. v. Sherlock'', 25 Ohio St. 50, 68.

Upon the same principle, any lawful stipulation between the owner and the carrier of the goods, limiting the risks for which the carrier shall be answerable, or the time of making the claim, or the value to be recovered, applies to any suit brought in the right of the owner, for the benefit of his insurer, against the carrier; as, for instance, if the contract of carriage expressly exempts the carrier from liability for losses by fire, (York Co. v. Central R. R., 3 Wall. 107,) or requires claims against the carrier to be made within three months, (Express Co. v. Caldwell, 21 Wall. 264,) or fixes the value for which the carrier shall be responsible, (Hart v. Pennsylvania R. Co., 112 U.S. 331; S.C.. 5 Sup. Ct. Rep. 151.) So the stipulation, not now in controversy, in the bills of lading in the present case, making the value of the goods at the place and time of shipment the measure of the carrier's liability, would control, although in the absence of such a stipulation the carrier would be liable for the value at the place of destination, as held in Mobile & M. Ry. v. Jurey, 111 U.S. 584; S.C.. 4 Sup. Ct. Rep. 566.

The stipulation in these bills of lading that the carriers 'shall not be liable for loss or damage by fire, collision, or the dangers of navigation,' clearly does not protect them from liability for any loss occasioned by their own negligence. By the settled doctrine of this court, even an express stipulation in the contract of carriage that a common carrier shall be exempt from liability for losses caused by the negligence of himself and his servants, is unreasonable and contrary to public policy, and therefore void. Railroad Co. v. Lockwood, 17 Wall. 357; Railroad Co. v. Pratt, 22 Wall. 123; Bank of Kentucky v. Adams Exp. Co., 93 U.S. 174; Railway Co. v. Stevens, 95 U.S. 655. And it may be that, as held by Judge WALLACE in a case in the circuit court, a stipulation that 'no damage that can be insured against will be paid for,' would not protect the carrier from liability for his own negligence, because that would be to compel the owners of the goods to insure against the negligence of the carrier. The Hadji, 22 Blatchf. 235; S.C.. 20 Fed. Rep. 875. But the stipulation upon the subject of insurance, in the bills of lading before us, is governed by other considerations. It does not compel the owner of the goods to stand his own insurer, or to obtain insurance on the goods; nor does it exempt the carrier, in case of loss by negligence of himself or his servants, from liability to the owner, to the same extent as if the goods were uninsured. It simply provides that the carrier, when liable for the loss, shall have the benefit of any insurance effected upon the goods.

It is conclusively settled, in this country and in England, that a policy of insurance, taken out by the owner of a ship or goods, covers a loss by perils of the sea or other perils insured against, although occasioned by the negligence of the master or crew or other persons employed by himself. Waters v. ''Merchants' Louisville Ins. Co.'', 11 Pet. 213; Copeland v. ''New England Ins. Co.'', 2 Metc. 432; ''General Ins. Co. v. Sherwood'', 14 How. 351, 366; Davidson v. Burnand, L. R. 4 C. P. 117, 121. Any one who has made himself responsible for the safety of goods has a sufficient interest in them to enable him to insure them. Contracts of reinsurance, by which one insurer causes the sum which he has insured to be reassured to him by a distinct contract with another insurer, with the object of indemnifying himself against his own responsibility, (though prohibited for a time in England by statute,) are valid by the common law, and have always been lawful in this country; and in a suit upon such a contract the subject at risk, and the loss thereof, must be proved in the same manner as if the original assured were the plaintiff. 3 Kent, Comm. 278, 289; ''Sun Ins. Co. v. Ocean Ins. Co.'', 107 U.S. 485; S.C.. 1 Sup. Ct. Rep. 582; Mackenzie v. Whitworth, L. R. 10 Exch. 142, and 1 Exch. Div. 36. So a common carrier, a warehouseman, or a wharfinger whether liable by law or custom to the same extent as an insurer, or only for his own negligence, may, in order to protect himself against his own responsibility, as well as to secure his lien, cause the goods in his custody to be insured to their full value, and the policy need not specify the nature of his interest. Crowley v. Cohen, 3 Barn. & Adol. 478; De Forest v. ''Fulton Ins. Co., 1 Hall, 94, 110; Waters v. Monarch Assur. Co.'', 5 El. & Bl. 870; London & N. W. Ry. v. Glyn, 1 El. & El. 652; Savage v. ''Corn Exch. Ins. Co., 36 N. Y. 655; Joyce v. Kennard, L. R. 7 Q. B. 78; Com. v. Shoe & Leather Ins. Co., 112 Mass, 131; Home Ins. Co. v. Baltimore Warehouse Co., 93 U.S. 527; North British Ins. Co. v. London, L. & G. Ins. Co.'', 5 Ch. Div. 569.

No rule of law or of public policy is violated by allowing a common carrier, like any other person having either the general property or a peculiar interest in goods, to have them insured against the usual perils, and to recover for any loss from such perils, though occasioned by the negligence of his own servants. By obtaining insurance, he does not diminish his own responsibility to the owners of the goods, but rather increases his means of meeting that responsibility. If it were true that a ship-owner, obtaining insurance by a general description upon his ship and the goods carried by her, could, in case of the loss of both ship and goods, by perils insured against, and through the negligence of the master and crew, recover of the insurers for the loss of the ship only, and not for the loss of the goods, some trace of the distinction would be found in the books. But the learning and research of counsel have failed to furnish any such precedent. On the contrary, in one of the earliest cases in which the rule that a policy of insurance covers losses by perils insured against, though occasioned by the negligence of the servants of the assured, was judicially affirmed, the assured, being the owner of a ship, had chartered her for a West India voyage, and by the usages of trade bore the risk of bringing the cargo from the shore to the ship. The policy was upon the boats of the ship, and upon goods in them; and the amount recovered of the insurer was for goods being carried from the shore to the ship in her boats, and lost by the wrecking of the boats in consequence of the misconduct and negligence of some of the ship's crew. Such was the state of facts to which Lord Chief Justice ABBOTT applied the language, cited and approved by Mr. Justice STORY in Waters v. ''Merchants' Louisville Ins. Co.'', 11 Pet. 222, and by Chief Justice SHAW in Copeland v. ''New England Ins. Co.'', 2 Metc. 442: 'In this case the immediate cause of the loss was the violence of the winds and waves. No decision can be cited where, in such a case, the underwriters have been held to be excused in consequence of the loss having been remotely occasioned by the negligence of the crew. I am afraid of laying down any such rule; it will introduce an infinite number of questions as to the quantum of care which, if used, might have prevented the loss. Suppose, for instance, the master were to send a man to the mast-head to look out, and he falls asleep, in consequence of which the vessel runs upon a rock, or is taken by the enemy, in that case it might be argued, as here, that the loss was imputable to the negligence of one of the crew, and that the underwriters were not liable. These and a variety of other such questions would be introduced, in case our opinion were in favor of the underwriters.' Walker v. Maitland, 5 Barn. & Ald. 171, 174, 175. So, in the recent case of ''North British Ins. Co. v. London, L. & G. Ins. Co.'', it was assumed as unquestionable that insurance obtained by a wharfinger would cover a loss by his own negligence. 5 Ch. Div. 584.

As the carrier might lawfully himself obtain insurance against the loss of the goods by the usual perils, though occasioned by his own negligence, he lawfully stipulate with the owner to be allowed the benefit of insurance voluntarily obtained by the latter. This stipulation does not, in terms or in effect, prevent the owner from being reimbursed the full value of the goods; but, being valid as between the owner and the carrier, it does prevent either the owner himself, or the insurer, who can only sue in his right, from maintaining an action against the carrier upon any terms inconsistent with this stipulation.

Nor does this conclusion impair any lawful rights of the insurer. His right of subrogation, arising out of the contract of insurance and payment of the loss, is only to such rights as the assured has, by law or contract, against third persons. The policy containing no express stipulation upon the subject, and there being no evidence of any fraudulent concealment, or misrepresentation by the owner in obtaining the insurance, the existence of the stipulation between the owner and the carrier would have afforded no defense to an action on the policy, according to two careful judgments rendered in June last, and independently of each other, the one by the English court of appeal, and the other by the supreme judicial court of Massachusetts. Tate v. Hyslop, 15 Q. B. Div. 368; Jackson Co. v. ''Boylston Ins. Co.'', 139 Mass. 508; S.C.. 2 N. E. Rep. 103.

In Tate v. Hyslop owners of goods, insured against risks in crafts or lighters, had previously agreed with a lighterman that he should not be liable for any loss in crafts except loss caused by his own negligence, and did not disclose this agreement to the underwriters at the time of procuring the insurance. The sole ground on which it was held that the owners could not recover on the policy was that this agreement was material to the risk, because the underwriters, as the assured knew, had previously established two rates of premium, depending on the question whether they would have recourse over against the lighterman. Lord Justice BRETT observed that, but for the two rates of premium established by by the underwriters and known to the assured, the omission of the assured to disclose their agreement with the lighterman could only have affected the amount of salvage which the underwriters might have, and would have been immaterial to the risk, and consequently to the insurance. 15 Q. B. Div. 375, 376.

In Jackson Co. v. Boylston Ins Co. it was adjudged that, in the absence of any fraud or intentional concealment, the undisclosed existence of a stipulation between the assured and the carrier, like that now before us, afforded no defense to an action on the policy.

It may be added that our conclusion accords with the decision of Judge SHIPMAN in Rintoul v. ''New York Cent. R. R.'', 21 Blatchf. 439, S.C.. 17 Fed. Rep. 905, as well as with those of Judge DYER in the district court, and Judge DRUMMOND in the circuit court, in the present case. 10 Bass. 18, 38. See, also, Carstairs v. ''Mechanics' & Traders' Ins. Co., 18 Feb. Rep. 473; The Sidney'', 23 Fed. Rep. 88; ''Mercantile Ins. Co. v. Calebs'', 20 N. Y. 173.

Decree affirmed.

BRADLEY, J. dissented.