Phœnix Insurance v. Parsons — 41 N.Y. St. Rep. 505

Majority

p. 505

The Phœnix Ins. Co., Resp’t, v. William H. Parsons, Survivor, App’lt.^[1]

(Court of Appeals,

Filed December 1, 1891.)

Headnote

1. Insurance (Marine)—Construction op policy,

.A clause in a cargo policy, which subjects freight and advances insured thereunder “to the terms and conditions of freight policy attached hereto ” means that, to the terms and conditions of the cargo policy such are added of the annexed freight policy as are pertinent and might concern the risk, and does not import an exception of the terms of the cargo policy from the contract of insurance.

2. Same—Insurable interest.

Defendants in New York procured a charter for the owners of a bark on which they claimed a commission, and afterwards accepted and paid a draft by the captain and effected an insurance with the plaintiff without any instructions from the owners. Subsequently the owners requested defendants to insure “so that they would not call on the owners for reimbursement.” They replied that they had “ covered the amount by insurance out only to Buenos Ayres.” The vessel being lost, the plaintiffs paid the insurance to defendants, taking an assignment of the latter’s claim against the owners for $1,500. In an action to recover back the sum paid, after failure to recover of the owners, Held, that the insurance effected for advances became one for the owners’ benefit and released them from personal liability, and that the condition in the cargo policy relating to any release of irght of recovery against the owners was clearly broken by the defendants, and plaintiff, having paid in ignorance of such breach, was entitled to recover back the amount so paid for advances and defendants’ commission thereon, with interest.

p. 506

Appeal from judgment of the New York superior court, general term, affirming judgment in favor of plaintiff, entered upon verdict of jury.

The defendants, Parsons and Loud, were shipping and commission merchants in New York city, and they procured, in March, 1884, for the owners of the bark “Elliott Eitchie,” a charter upon which they claimed a commission of $341.63. Subsequently, on March 25, 1884, they accepted and paid a draft by the captain, at Brunswick, Gra., for $1,125, expenses incurred for the vessel. At the time defendants held an open policy of insurance, issued by the plaintiff company, consisting of a cargo policy, to which was annexed, in a separate sheet, a freight policy. By the cargo policy the plaintiff made insurance and caused defendant to be insured “on cargo, freight and advances.” It also contained a clause that “it is understood that freight and advances insured under this policy are subject to the terms and conditions of freight policy attached hereto.” The cargo policy also contained the following clause: “In case of any agreement or act, past or future, by the insured, whereby any right of recovery of the insured against any persons or corporations is released or lost, which would, on acceptance of abandonment or payment of loss by this company, belong to this company but for such agreement or act; or in case this insurance is made for the benefit of any carrier or bailee of the property insured, other than the person named as insurer, the company shall not be bound to pay any loss, but its right to retain or recover the premium shall not be affected.”

On March 31, 1884, the defendants effected insurance, under their open policy, for the sum of $1,500, “ on advances on board the bark Elliott Eitchie, at and from Brunswick, Gra., to Buenos Ayres.”

On March 27, 1884, the defendants had written to the owners that the captain had drawn upon them and requested advice whether the owners would remit the amount or would have defendants advance it. Under date of April 1, 1884, the Boston owners replied to that letter, and instructed defendants, in the following language, to “ please get the advances insured, if you have not already done so, so that in case of loss you will not call upon th.e owners for the advances.” On April 2, defendants acknowledged the receipt of the Boston letter, and say : “We have covered the amount by insurance out only to Buenos Ayres.”

The bark was lost upon the voyage, by perils insured against, and in August, 1884, the plaintiff paid to the defendants the amount of their insurance of $1,500, taking from them an assignment of $1,500 of their “claim of $1,570, which.we have against bark 1 Elliott Eitchie,’ and owners for advances, commissions, etc., etc.” Defendants also assigned to plaintiff, by endorsement upon the captain’s draft for $1,125, all claim on account thereof “ in consideration of the amount insured as advances on the vessel being paid.” The assignment was made upon the insistence of the company and their refusal to pay otherwise. Subsequently the plaintiff company sued the owners in the United States district

p. 507

court at Boston, to recover the amount paid to the defendants in New York; alleging the assignment of the claim against the owners. The trial was upon an agreed statement of the facts and, after hearing, the libel was dismissed. This action was then brought to recover back from the defendants the $1,500 paid to them, and the disbursements in the Boston litigation. At the circuit a verdict was directed for the plaintiff. Upon an appeal from the judgment thereupon entered, the general term modified it, by deducting from the recovery the items of sums paid for counsel fees and for copying in the Boston suit, leaving in only the costs of that suit. The defendants have further appealed to this court.

Wm. W. Goodrich, for app’lt; Geo. A. Black, for resp’t.

Upon these facts two of the" questions which arise may be briefly disposed of. In the first place, I entertain no doubt concerning the effect of the clause in the so-called cargo policy, which subjects freight and advances insured thereunder “ to the terms and conditions of the freight policy attached thereto.” The insurance of the defendants' advances was effected in or by the instrument called the cargo policy. It so reads, and it would be straining after construction to import into the language of the added clause referred to a meaning that the freight policy controlled alone as to the terms and condition of that insurance. The insertion of the clause must be taken to mean, naturally,.that, to the terms and conditions of the cargo policy, such are added of the annexed freight policy as were pertinent and might concern the risk. The importance given to the clause grows out of the defendants' effort to avoid the effect of the condition of the cargo policy against any past or future action of the assured whereby the right of recovery of the assured against the owners had been, or might be, released or lost. The value of that condition in the contract of insurance, to the insurer, was in the warranty or agreement of the assured that the right of subrogation of the insurer had not been, and would not be, released or lost by any action of the assured. Nothing in the language of the clause we are at present considering imported an exception of the terms of the cargo policy from the contract of insurance.

In the next place, the condition in this cargo policy relating to any release or loss of the right of recovery against the owners, was clearly broken by the defendants. When, after acceptance of the captain’s draft for disbursements upon the bark, the defendants effected the insurance for their advances with the plaintiff, they were without any instructions from the owners. Those instructions came a day or two afterwards in the letter of April 1st, and requested the defendants to insure their advances, so that in case of loss they would not call upon the owners for reimbursement They replied that they had “ covered the amount by insurance out only to Buenos Ayres.”

This was a plain advice to the owners that to that extent of voyage their request as to insurance had_ been complied with. The result was that the insurance effected became one for the

p. 508

owners’ benefit and in case of the loss of the bark any moneys received from tBe insurer would go in discharge of the indebtedness of the owners; or, if none were recoverable from the insurer, for any cause attributable to the defendants or not, the claim against the owners was, nevertheless, gone. They were thenceforth estopped from asserting any claim against the owners for advances to the bark; for the owners were justified in relying upon the defendants’ representations in reply to their instructions to insure and in believing their personal liability released and the claim transferred to the insurance. It is of no consequence that the insurance was effected before the owners wrote their letter of instruction. By the correspondence of the parties the agreement was established that the insurance should be for the owners’ benefit and their personal liability released. Mor is it material that the defendants may not have realized the effect of their reply to the- owners’ letter of instruction. The question is, what had the owners in Boston the right to believe and act upon. As the right of the defendants to recover against the owners of the bark was lost by their own act, a material condition of the agreement to insure them was broken, and that brings us to the question of what effect the breach had upon the relative rights of the parties to that contract

Unquestionably, had the insurer known of this violation of the condition of the contract by the defendants, it could have defended against the claim upon the policy. As it was, the breach of the conditions had operated to relieve the insurer from the obligation of its contract. And here another question, which suggests itself, may be referred to, and that is that besides a defence to any liability upon the policy for indemnity as to advances, the insurer could have defended against a claim for the payment of so much of the amount of insurance as would not be included within the advances to the bark. Of the $1,500, written under this policy, only the sum of $1,125, was actually for advances to the captain, and the balance, to make up the whole sum of $1,500, which was paid over under the arrangement between the parties, was composed of items of a commission for procuring a charter of the bark for the owners, of a commission on advances, of premium for insurance on the advances and interest on the aggregate of all the items.

The insurable interest of the defendants in the vessel, I suppose, might fairly extend so far as to include the commission for lending the money, and interest on the money; but it could not extend to the claim for a commission for procuring a charter. The law merchant has always given to the lenders of money borrowed by the master of a vessel for its necessities, a maritime lien upon the vessel. They have that security, as well as the liability of the owner, and their lien on the vessel constitutes an insurable interest. See Cowper, 636; Insurance Company v. Baring, 20 Wall., 159 .

But the commission claimed for procuring a charter for the vessel is a personal liability of the owner and constitutes no interest in or lien upon the vessel which could make it insurable. Therefore, the policy of insurance here not only by its language

p. 509

specified the defendants’ advances as the subject for insurance, but the assured had no insurable interest in the vessel as to anything beyond what the term advances might reasonably include. That was the defendants’ only interest at risk upon the voyage. The insurer’s contract was to indemnify them against any loss in respect thereto during the voyage from the perils or sea risks specified. This plaintiff, therefore, could have defended against any claim for the $1,500 written under the policy.

How did the formal assignment by the defendants to plaintiff, with the endorsement over of the captain’s draft, affect the situation ? Obviously no claim for the advances passed. Any per- ' sonal claim for that against the owners had been released by the assured. -It was not necessary, as the general term below considered, that the right of the plaintiff to recover back the moneys paid upon the policy should rest upon any implied warranty in the defendants’ assignment to them. Its cause of action was perfect, independently; for it made the payment in ignorance of the •defendants’ breach of the condition, and the force of that condition was quite as great in aid of a recovery back of the moneys paid in ignorance of the fact that the defendants had forfeited or lost their right to the enforcement of the owners’ personal liability, as it would have been to defend against a claim for payment if the insurer had been made aware of the breach of the agreement.

The principle of the equitable right of the insurer to subrogation was discussed in the opinions delivered by the vice-chancellor and chancellor in the case of Atlantic Mutual Ins. Co. v. Storrow, 1 Edw. Ch., 627 and 5 Paige, 294, and reference to them may be had. The insurer could not be deprived of that subrogation to the right of the assured which was his in equity, and the loss of which was especially secured against here in the contract of ■insurance.

But I think the-deed of assignment did have the effect to pass ■over to the plaintiff whatever claims the defendants had against the owners growing out of the transactions disclosed here. For the $1,500 paid by the plaintiff for the assignment, it must in fact have become the owner of such of the claims specified in the deed as were still owing to the defendants. Such would be the commission for procuring a charter of the vessel. That assignment read that it “ assigned $1,500 of our claim of $1,570.47 which we have against bark * * * and owners for advances, commissions, etc.” Contemporaneously the captain’s draft was assigned over by endorsement, and that contained the information that the sum of $1,125 represented what had been advanced for disbursements upon the bark. The plaintiff, if it did not actually know, was chargeable with the knowledge, or was put upon its inquiry, that defendants claimed against the owners for other amounts than for mere advances. Of course the plaintiff supposed it was acquiring "the right to all the claims against the owners, and undoubtedly the object of the assignment was gone with the loss of the claim upon the owners for re-imbursement of the advances; but how -can it be said that the assignment was ineffectual as to the balance ■of the claims ? They became the plaintiff’s property by purchase,

p. 510

and I can see no reason why the assignment was not enforceable “pro tanto.

There was no error in admitting the record of the United States: district court in the action between this plaintiff and the owners of the bark. It proved a judgment, rendered by a court having jurisdiction of the subject matter and of the parties, dismissing the libel filed by the plaintiff here against the owners of the bark to recover the advances which the libellant had paid, and which it supposed it had acquired the right to recover from the original debtor. The record there showed a case upon the same material facts as here, and it was competent evidence of the fact of a judgment dismissing the claim which the assignment purported to' transfer to libellant. First Nat. Bank v. Fourth Nat. Bank, 89 N. Y., 412 .

The reduction by the general term of the judgment, by the dis-allowance of the counsel fees in the Boston suit, is not complained of here. Had these defendants been notified of the suit the question would have been different, and they might have been held to pay that item of damage. As it is, I somewhat doubt that any notice was due them, for the plaintiff was not defending an action, but was suing as the holder of a claim, by the right of subrogation and by virtue'of an assignment. However, the reduction has not been made the subject of an appeal. But as to the actual costs which were paid in that action, I think it right that the plaintiff should recover them. The suit certainly was the natural sequel, or consequence, of the defendant’s acts.

No other point of the appellant’s demands our consideration, and I advise that the judgment as entered upon the order of the general term should be further modified, by deducting therefrom a sum which shall be equal to the difference between the amount of the verdict of $2,358.11 and an amount made up by adding together the sum of $1,125, advanced on the captain’s draft, the commission thereon of two and a half per cent and interest on these two sums at six per cent, from March 25, 1884, to the day of the trial, and that the judgment, as so modified, be affirmed, but without costs to either party as against the other.

All concur.