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

• Decision Date: 12 March 1940
• Citation: 32 F. Supp. 251
• Parties: NEW YORK & CUBA MAIL S. S. CO. v. CONTINENTAL INS. CO. OF CITY OF NEW YORK.
• Court: U.S. District Court — Southern District of New York

32 F. Supp. 251

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

District Court, S. D. New York.

March 12, 1940.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Burlingham, Veeder, Clark & Hupper, of New York City (Roscoe H. Hupper, Chauncey I. Clark, Ray Rood Allen, and Eugene Underwood, all of New York City, of counsel), for libelant.

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

GODDARD, District Judge.

This is a libel by the New York and Cuba Mail Steamship Company, charterer, owner and operator of the Steamship Morro Castle to recover from the Continental Insurance Company of New York, its protection and indemnity underwriter, $1,114,267.12 with interest as reimbursement for the losses and expenses sustained by libelant as the result of a fire on board the Steamship Morro Castle on September 8, 1934. The suit is based on respondent's insurance policy P. & I. No. C 2336, dated March 1, 1934 which covered the Morro Castle in the amount of $4,600,000 from February 20, 1934 to February 20, 1935.

The Morro Castle was a twin screw turbo-electric passenger and freight steamship 508 feet long, 70 feet 9 inches beam, built in Newport News, Virginia, in 1930. At 7:45 o'clock in the evening of September 7, 1934 while she was on one of her scheduled voyages from New York to Havana and return, and proceeding from Havana to New York, her master Robert R. Willmott died of heart disease and her chief officer, Warms, took command. At 2:10 the following morning while she was coming up the coast a fire of undetermined origin was discovered by a passenger in a locker in the writing room port side forward of B deck. At this time Warms, acting master, and the second officer were on the bridge in charge of navigation; the quarter master was at the wheel and an A. B. was standing lookout on the bridge. Although the fire was discovered at 2:10 it was not reported to the bridge until shortly before 3 o'clock. Apparently some members of the crew had attempted to extinguish it without calling for aid and when the crew were called on deck the fire had made such headway it is doubtful if it could have been extinguished. Hose was broken out on the starboard sides of A and B decks; also on C deck. The passengers were ordered aft to the lower decks to get them away from the fire. By the time it was realized that the fire was out of control it had spread to such an extent that it had cut off many of the passengers from access to the boats, many of whom were compelled to jump into the sea to escape the fire. Notwithstanding this serious situation no radio distress signal was sent out until 3:15 and then only a "stand by" signal and not until 13 minutes later was an "S. O. S." sent, although there were several vessels in the vicinity — one, the Andrea Luckenbach within 3 miles. Six life boats having a capacity of 408 passengers were launched, but after the boats were lowered into the water their crews had great difficulty in maneouvering the boats so as to keep them near the ship or to pick up those in the water. Ten passengers and 87 of the crew escaped in the Morro Castle life boats. Other passengers and members of the crew, who jumped overboard, were saved by life boats from other vessels which came to the rescue.

The result of the disaster was that of the 318 passengers on board, 81 were dead and missing and 34 members of the crew of 231 were dead or missing, and the Morro Castle became a total wreck.

At the time of the fire the Morro Castle was equipped with modern fire-fighting equipment, which included 42 fire hydrants located in various parts of the ship. These were served by three pumps — two electrically driven and a steam pump, capable of a total discharge of 600 gallons of water a minute, which, when operated at capacity, could supply any six hydrants with full pressure at the same time. She also was equipped with 105 fire extinguishers which, in number and type, conformed to the regulations. Usually these were distributed in various places on board which had been selected by the United States Local Inspectors, but at the time the fire was discovered and in violation of the regulations there were no extinguishers on B deck, for on the day previous, on orders from the boatswain, the extinguishers belonging on B deck had been removed for polishing and instead of returning them to B deck, as they should have been, they were wrapped in cloths and placed in the crew's companionways so that they would be protected from the salt air and be bright when they were returned to their proper places before the vessel docked. She carried the requisite number of life boats on Malachlan davits. These boats were properly equipped, in good condition, and had been inspected and tested by the United States Local Inspectors in February, May and August, 1934. Her required crew under certificate of inspection was 67, but she was allowed 170 additional crew, and at the time of the fire carried a crew of 231.

The policy which is admitted to have been issued includes the following provisions now pertinent:

"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:

"(I) Liability for loss of life of, or personal injury to, or illness of, any person, * * *.

"(2) Liability for hospital, medical, or other expenses necessarily and reasonably incurred in respect of loss of life of, personal injury to, or illness of any member of the crew or any other person. * * *

"(8) Liability for loss of, or damage to, or in connection with cargo or other property, including mail and parcel post, including baggage and personal effects of passengers, * * *.

"(14) Costs, charges, and expenses, reasonably incurred and paid by the assured in defense against any liabilities insured against hereunder in respect of the vessel named herein, * * *.

"General Conditions and/or Limitations.

"* * * that in respect of any occurrence likely to give rise to a claim under this policy, the Assured are obligated to and shall take such steps to protect his (and/or the assurers') interests as would reasonably be taken in the absence of this or similar insurance.

* * * * * *

"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".

In its 1933-4 policy, also in its 1934-5 policy, the one sued on, "actual"* appears, but not in previous policies. "Managing"* in typewriting was inserted first in its 1931-2 policy and was continued in the other two policies. Therefore, at the time of the fire the scope of "fault or privity" was limited by the insertion of "actual" and those officers whose act or neglect might charge the corporation with privity was limited by the insertion of "Managing".

The libel alleges that claims for about $13,500,000 were made against libelant in a limited liability proceeding for loss of lives, personal injuries, and loss of property as a result of the fire, and that a settlement of these claims was effected for $890,000 after notice to respondent, and that other proper expenses and legal costs amounting to $229,817.12 were paid by libelant, and that there is due the libelant from respondent the total sum of $1,114,267.12 with interest, which claim with proofs of loss were duly presented to the respondent in accordance with the policy; that respondent has refused payment and repudiated all liability.

The answer admits the policy, the fire and loss therefrom, and the fact that the claims were settled for $890,000; also that claim and proofs of loss with pay orders and demands for payment were made and refused. The answer denies various items in the sixteen articles of the libel, but these need not be discussed now in view of the stipulation entered into at the trial that consideration of the amount of any recovery by libelant, if any, shall be postponed until after this trial on the merits. The substance of the answer is contained in the affirmative defense portion which sets forth the description of risks clause in the policy and the privity clause, followed by the allegation that the loss "was due to, occasioned or brought about by or arose from the act or neglect of the assured and the managing officer or officers of its organization, and was a loss, damage or expense to which the assured or the managing officer or officers of its organization were privy."

The contention of the respondent is —

First — That the policy issued by the respondent was not an all-risk policy; that the policy did not insure any loss, damage or expense occasioned by actual fault or privity or by the act or neglect of any libelant's managing officers.

Second — That the libelant has the burden of proving — (I) That it became liable to pay the sums which it claims to have paid, and (2) that it became liable to pay without "actual fault or privity" and without the "act or neglect" of any of its managing officers, and that libelant has not met this burden of showing why it could not limit its liability or that it became liable to pay without its "actual fault or privity" and without the "act or neglect" of any of its managing officers.

Third — That the criminal conviction of libelant and its Vice-President, Henry E. Cabaud ("Managing Officer") in the United States District Court under § 282 of the United States Criminal Code, 18 U.S. C. § 461, 18 U.S.C.A. § 461, bars any...