Continental Ins. Co. v. Sabine Towing Co.

• Decision Date: 20 March 1941
• Docket Number: No. 9547.,9547.
• Citation: 117 F.2d 694
• Parties: CONTINENTAL INS. CO., Inc., v. SABINE TOWING CO., Inc.
• Court: U.S. Court of Appeals — Fifth Circuit

117 F.2d 694 (1941)

CONTINENTAL INS. CO., Inc., v. SABINE TOWING CO., Inc.

No. 9547.

Circuit Court of Appeals, Fifth Circuit.

February 7, 1941.

Rehearing Denied March 20, 1941.

H. C. Hughes, of Galveston, Tex., and Arthur M. Boal, of New York City, for appellant.

M. A. Grace, Edwin H. Grace, and Daniel H. Grace, all of New Orleans, La., opposed.

Before SIBLEY, HUTCHESON, and McCORD, Circuit Judges.

HUTCHESON, Circuit Judge.

The suit was on two insurance policies to recover, up to the policy limits, $40,000 on the two, losses and expenses incurred by the insured in connection with the loss of the steam tug Coney, and in addition, for the costs of prosecuting and defending suits brought on account thereof.

The defense to the whole recovery was, that as settled by the judgment and decision in the proceeding, Sabine Towing Company brought to limit its liability,¹ the loss of the tug was with fault and privity on the part of the assured² and was not embraced in, but was excluded from, the coverage of the policies. The defense to the recovery for attorneys' fees, costs, and other disbursements in connection with the prosecution and defense of suits brought on account of the Coney loss was that the limiting provision of the policy, "liability hereunder in respect of any one accident, is limited to the amount declared and insured," included the costs of prosecuting and defending suits; and that costs, attorneys' fees, etc., incurred in connection therewith, could not be recovered as additional to the $40,000 so limited.

The district judge agreed with plaintiff, that the words of the policy provision "without fault or privity on the part of the assured" must be taken as having application only to willful, deliberate and intentional acts or to negligence so gross as in law to amount to willfulness and intention. He agreed too, that the limitation of recovery under the policy was with reference to the loss itself and had no application to costs of prosecuting or defending suits growing out of it. He therefore gave judgment for $40,000, since plaintiff had been compelled to pay that much and more, and for $32,311.98 in addition as costs of prosecution and defense. The insurer is here complaining of the judgment as entirely erroneous, and in the alternative, as erroneous in allowing recovery in excess of $40,000.

It is conceded by appellee that on the trial of the proceeding to limit liability, the district judge found: (1) that the sinking of the Coney was due to negligence in making repairs to it and that that negligence rendered the vessel unseaworthy; (2) that all of the repairs were made by and through plaintiff's executive officers and its port superintendent and engineer, all of whom personally superintended the repairs and changes made on the vessel; (3) that none of the officers having exclusive charge of and superintending the repairs on the Coney, had any expert knowledge of ship stability and that petitioner did not employ or consult any stability expert or naval architect in making the said repairs and adding to the Coney the extra weight which increased her instability and made her unseaworthy; (4) that Sabine Towing Company was guilty of negligence in failing to have the Coney in seaworthy condition before it set out on its voyage and that this negligence directly and proximately was the cause of the sinking of the Coney and the death of all the crew; (5) that each and every of the above mentioned negligences existed with the privity and knowledge of the petitioner and its executive officers; (6) and that he concluded as a matter of law, that upon all the facts found, petitioner was not entitled to limit its liability. It is conceded too that these findings and the judgment based thereon were approved and affirmed in this court in an opinion in which, reviewing and summing up the evidence upon the question of privity, this court said: "We think it plain, in fact, the record leaves no room for question, that whatever may be said in favor of exoneration altogether, because of failure to prove negligence, this is not a case for limitation of liability. Whatever was done with the tug or about it was the act of the owner through its managing officers, and, if there was negligence, the owner was privy to it. All of those who testified for appellant make this clear. While they testified positively that Guy was the port engineer and in charge of repairs, they testified too that he made no serious repairs without consulting the officers, and that everything that was done by him in actually equipping this vessel was done under their supervision and with their approval. Under these circumstances, if there was negligence, the officers were privy to it, and appellant, present in the presence of its managing officers, was privy to it too." Finally, it is conceded that if as contended by appellant, the words "fault or privity as used in the policy" are the substantial equivalents of the words "privity or knowledge" as used in the limitation of liability act,³ that is, mean as those do, negligence for which the owner is personally blameworthy, the judgment below was wrong. But appellee contended below and contends here that those words as used in the policy, have a wholly different meaning; that they have no application to cases of simple negligence or fault, though the negligence was the personal negligence of the assured, that is, though the owner was personally to blame for the condition causing the loss; that they have application only to willful, deliberate and intentional acts, or negligence so gross as in law to amount to willful, deliberate and intentional acts. They prevailed below upon this theory and there obtained a finding that the negligence of the assured as found in the limitation of liability proceedings and upon which it was denied the right to limit its liability, was not deliberate or intended nor was it gross in character; and that plaintiff had become liable to pay and did pay for loss of life on the Coney without fault or privity on its part within the meaning of the two policies of insurance on which it sued.

There was a further finding; that plaintiff having paid, on account of judgments for loss of life on the Coney, more than the $40,000 limited under the policy, it should recover that sum; and that having conducted the litigation and incurred costs necessary therefor with the written consent of defendant as provided in the policy, plaintiff was entitled to recover in addition, $32,311.98, paid by plaintiff as costs of prosecuting and defending suits. Appellant on these undisputed, indeed, conceded facts, insists that the judgment was wrong, appellee that it was right.

It is the settled rule that fault in legal literature is the equivalent of negligence⁴ and that privity in the same literature means partaking of, having part or interest in or cognizance of any action, matter or thing,⁵ while under statutes English⁶ and American,⁷ providing exemptions from, or limitations of, liability in connection with carriage by sea, privity means some fault or negligence of which the owner of a vessel is personally cognizant or in which he personally participates.⁸

Appellee's burden, therefore, to show that as used in the policy they mean not simply the negligence of the owner as distinguished from that of its servants and agents but willfulness or negligence on his part so gross as to amount to willfulness, is a heavy one, if indeed it is not too heavy to be borne.

Appellee realizes that this is so. It seeks to meet its burden by (1) offering oral testimony as to the understanding among underwriters of the meaning and effect of the words as used in the policy, (2) reliance on three Federal cases, George A. Moore & Co. v. Eagle Star Ins. Co., D.C., 5 F.2d 358, affirmed 9 Cir., 9 F.2d 296; Hanover Fire Ins. Co. v. Merchants' Transportation Co., 9 Cir., 15 F.2d 946; Sorenson v. Boston Ins. Co., 4 Cir., 20 F. 2d 640 (3) and the claim that English decisions give support to the meaning it contends for. Its reliance on oral testimony will not do, for in the case of the use in insurance policies, or other contracts, of words like these, having a plain and settled meaning in both popular and legal usage, oral testimony is inadmissible to contradict or vary that meaning.⁹ But if the proffered evidence be considered admissible, it would not help appellee, for it does not show a uniform business or trade usage of the words different from their ordinary meaning. On the contrary it is agreed that the words are of English origin, and the testimony of appellant's witnesses, all English insurance men, is that they are taken from the English statutes, and have in the English clubs, the meaning ascribed to the statutory words by the English decisions, while none of appellee's witnesses, all Americans, in any manner dispute this. They do say that in settling losses, the clubs they have represented have considered the question of intent and have settled the losses though there was negligence on the part of owners where there was no willfulness or bad faith. But they do not say that the words have a settled meaning or a settled usage, they say that each group they represent or know about, has a different form of statement of the limitation, and that they are all put in for the purpose of giving the clubs an opportunity to settle or reject the loss on the basis of the insured's good or bad faith. All of their testimony was directed to provisions in the rules of insurance clubs, none of it to a clause in a policy, and all of it recognized that the words in their natural and ordinary meaning embraced negligence. Their position was that though the words did embrace negligence, the clubs had made it a practice not to apply them to negligence where there was no bad faith or fraud. Such evidence not only does not show a universal trade custom or usage sufficient to overcome the plain meaning of words in the policy, it...