New York & Cuba Mail SS Co. v. Continental Ins. Co.

• Decision Date: 27 January 1941
• Docket Number: No. 116.,116.
• Citation: New York & Cuba Mail SS Co. v. Continental Ins. Co., 117 F.2d 404 (2nd Cir. 1941)
• Parties: NEW YORK & CUBA MAIL S. S. CO. v. CONTINENTAL INS. CO. OF CITY OF NEW YORK.
• Court: U.S. Court of Appeals — Second Circuit

117 F.2d 404 (1941)

NEW YORK & CUBA MAIL S. S. CO. v.CONTINENTAL INS. CO. OF CITY OF NEW YORK.

No. 116.

Circuit Court of Appeals, Second Circuit.

January 27, 1941.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

Roscoe H. Hupper, of New York City(Burlingham, Veeder, Clark & Hupper, Chauncey I. Clark, Ray Rood Allen, and Eugene Underwood, all of New York City, on the brief), for libellant-appellee.

Cletus Keating, of New York City(Kirlin, Campbell, Hickox, Keating & McGrann, Tompkins, Boal & Tompkins, Arthur M. Boal, and James H. Herbert, all of New York City, on the brief), for respondent-appellant.

CLARK, Circuit Judge.

Early in the morning of September 8, 1934, libellant's chartered steamship Morro Castle, en route from Havana to New York, was destroyed by fire under circumstances at once poignant and dramatic.She was then under command of her Chief Officer Warms, who had only assumed this responsibility when her captain, Willmott, died of heart failure at 7:45 the previous evening.About 2:10 A.M., a passenger discovered a small fire in a closet in the writing room.He immediately reported it to a steward.Several other passengers knew of the fire.What, if any, actions were then taken to combat it does not appear; for some unexplained reason it was not reported to the acting captain until 3 A.M., by which time it had become so great as to be visible to another ship three to four miles away.No radio distress signal was sent out until 3:15, and then only a stand-by signal.Not until thirteen minutes later was there an S.O.S. sent out, although several vessels were in the vicinity.The crew launched six life-boats having a capacity of 408 passengers, but only 10 passengers, together with 87 of the crew, escaped in them.Others were rescued by lifeboats from other vessels which came to the rescue.The result of the disaster was that 89 of the 316 passengers and 34 of the 231 members of the crew were dead or missing, and the Morro Castle was a total wreck.

Thereafter an indictment was returned in the district court under 18 U.S.C.A. § 461 against libellant and Henry E. Cabaud, its managing officer, together with Warms and Abbott, the chief engineer of the ship.Under this statute"every captain, engineer, pilot, or other person employed on any steamboat or vessel, by whose misconduct, negligence, or inattention to his duties on such vessel the life of any person is destroyed, * * * shall be fined not more than $10,000, or imprisoned not more than ten years, or both."Like penalties are then provided for owners and charterers, and for their executives, though on a somewhat different basis of fault, viz., owners and charterers "through whose fraud, neglect, connivance, misconduct, or violation of law the life of any person is destroyed"; and any executive officer of a corporate owner or charterer, charged with control of the operation of the vessel, "who has knowingly and willfully caused or allowed such fraud, neglect, connivance, misconduct, or violation of law, by which the life of any person is destroyed."After a lengthy trial the jury found all the defendants guilty, and judgments of conviction were entered.Libellant was sentenced to pay a fine of $10,000, while Cabaud was sentenced to pay a fine of $5,000 and to serve a year in jail, the jail sentence being suspended.All appealed; eventually libellant and Cabaud withdrew their appeals and paid their fines.The convictions of Warms and Abbott were reversed by this court, United States v. Abbott, 2 Cir., 89 F.2d 166, in substance because, so far as statutory violations affecting the ship's officers were concerned, they involved Willmott, the dead master, and not the accused, his mere subordinates.

This proceeding is a libel brought by the ship's charterer to recover, under a protection and indemnity insurance policy issued by respondent on the vessel, for the losses which it has been forced to pay as a result of the disaster.Libellant, being faced with many claims for damages for loss of life and injury to person and property, started proceedings for limitation of liability, which, when contested, it eventually settled for the sum of $890,000.Although respondent was notified, it refused to participate in or advise as to the settlement.The decree from which this appeal is taken referred the cause to a master to ascertain damages to the libellant.The court concluded that, in view of the several violations of statutes and regulations, libellant could not secure limitation of liability as to passengers, because 46 U. S.C.A. § 491 limits to that extent 46 U. S.C.A. §§ 183, 189 — a conclusion which respondent, while denying all liability, challenges as its alternative ground of appeal.The court held, however, that no recovery could be had for cargo claims, since libellant was not liable therefor, and only partial recovery for the claims of the crew, since liability for those might have been limited under the statute.By cross-appeal libellant raises the question whether it should not recover in full for all losses paid by it.

The substantial issue on this appeal is whether or not the loss of the Morro Castle was due to the actual fault or privity of the libellant, and thus outside the coverage of the policy according to its terms.The important contracting clause of the policy, appearing immediately upon its face, reads as follows: "The Assurers hereby undertake to make good to the Assured or the Assured's executors, administrators and/or successors, all such loss and/or damage and/or expenses as the Assured, without their actual fault or privity, shall have become liable to pay and shall pay as shipowners or as having an interest in the vessel named herein on account of the liabilities, risks, events, happenings and/or occurrences herein set forth."Thereupon are set forth some fourteen forms of losses covered, including liability for loss of life of, or personal injury to, persons not employees of the assured or seamen.

Later on we find a similar restriction, repeated in small type in the inside of the policy as one of a great number of "General Conditions and/or Limitations," as follows: "The Assurers shall not be liable to the Assured for any loss, damage, or expense to which the Assured, or the managing officers of his organization are privy, or which arises from his or their act or neglect."The word "managing" appeared as a typewritten insert in the printed clause.

Libellant admitted that the officers and crew of the ship were guilty of various infractions of the Safety at Sea Stattutes and regulations, but claimed that these occurred without any actual fault or privity on its part.Respondent's main defense was that such actual fault or privity was shown.Supporting its main defense it also claimed that the burden of proof was on the libellant throughout and thus required the latter to show absence of privity, that the conviction of libellant and Cabaud in the criminal case showed such privity, and that the violations of law by the officers and crew had long been either known to, or carelessly overlooked by, Cabaud and the marine superintendent, Thomas Torresson, both of whom were managing officers of libellant's organization within the policy provision.The court held substantially with the respondent on the supporting defenses, though it admitted the conviction as prima facie evidence only, yielding to contrary proof.¹And on all the evidence it concluded that the statutory violations and other defaults of the master and crew were unknown to libellant, and that the disaster occurred without libellant's actual fault or privity.D.C.S.D.N.Y., 32 F. Supp. 251.

There seem to be no explicit decisions to guide us as to the meaning of the crucial words in the policy.The words "without his actual fault or privity" occur in the British limitation statute, Merchant Shipping Act, 1894, § 502.In Asiatic Petroleum Co., Ltd. v. Lennard's Carrying Co., Ltd., 1914, 1 K.B. 419, 432, affirmed, 1915, A.C. 705, it was held that this phrase conveyed the idea of something blameworthy to the owner, but it included also acts of omission, as well as commission, even where the owner himself was not the sole or next or chief cause of the loss.There limitation was denied shipowners where the managing director of the company, which, in turn, owned the shipowners, knew that the vessel's boilers were defective, but took no action and loss by fire eventually resulted.Likewise the language is substantially similar to our Limitation of Liability Statute, 46 U. S.C.A. § 183, allowing limitation to the owner's interest in the ship and her freight only for losses incurred "without the privity or knowledge of such owner or owners."Though the analogy between a statutory provision for limited liability and a contract by a paid insurer to relieve its promisee of loss should not be pressed too far, the close similarity of language and the absence of other analogies suggest the applicability of precedents under the statute on the only important point of dispute here as to the interpretation of the policy, namely, whether libellant's fault or privity extends to acts or omissions of Torresson or is limited to those of Cabaud alone.

The position of Torresson, libellant's marine superintendent, is important because Cabaud's defense was that he had intrusted actual superintendence of the ship and its equipment as it sailed each week to Torresson.Torresson, who had offices on the dock, testified that his duties were to superintend the maintenance of the ship and its equipment, and to see that the laws and regulations with respect to the seaworthiness, fire protection, and safety of passengers and crew were obeyed.Libellant claims that his duties did not bring him within the language in question, which, it asserts, extended only to the executive officers of the company, chosen by the directors to carry out their policies.Libellant also refers to certain...