Hampton Roads Carriers v. Boston Insurance Co.

• Decision Date: 12 April 1957
• Docket Number: Civ. No. 8884.
• Citation: 150 F. Supp. 338
• Parties: HAMPTON ROADS CARRIERS, Inc., a body corporate, v. BOSTON INSURANCE COMPANY and Felix R. Sullivan, Jr., & Co., Inc.
• Court: U.S. District Court — District of Maryland

150 F. Supp. 338

HAMPTON ROADS CARRIERS, Inc., a body corporate, v. BOSTON INSURANCE COMPANY and Felix R. Sullivan, Jr., & Co., Inc.

Civ. No. 8884.

United States District Court D. Maryland.

April 12, 1957.

Semmes, Bowen & Semmes, George D. Hubbard, Baltimore, Md., and David H. Batchelder Jr., Norfolk, Va., for plaintiff.

Lord, Whip & Coughlan, Baltimore, Md., George W. P. Whip, Baltimore, Md., for defendants.

R. DORSEY WATKINS, District Judge.

This suit was brought by plaintiff, Hampton Roads Carriers, Inc. (Hampton Roads) against Boston Insurance Company, (Boston) and Felix R. Sullivan, Jr. & Co., Inc. (Sullivan), defendants. The suit sought reformation of a policy of marine insurance issued by Boston to Hampton Roads and judgment thereon as so reformed for Hampton Roads against Boston, or in the alternative, for judgment against Sullivan for Sullivan's failure to obtain a policy of insurance with the coverage requested by Hampton Roads. The theory of Sullivan's liability stated in the complaint was that it had "acted without authority from defendant, Boston". During the course of the trial and at the hearing on defendant's motion for a new trial, the theory of recovery against Sullivan was changed to the claim that it was either acting as agent for both Hampton Roads and Boston or for Hampton Roads only and that as such agent, it was negligent in failing to secure the type of policy requested by Hampton Roads.¹

In January of 1956 Hampton Roads, a recently formed corporation, was negotiating with the Baltimore & Ohio Railroad Company for the purchase of car float No. 22, Hampton Roads' first piece of equipment. In the course of the negotiations for the purchase of the car float, David H. Batchelder Jr., president of and attorney for Hampton Roads, was told that he might be able to place insurance through Sullivan with whom Hampton Roads had never dealt before. On January 6, 1956 in a telephone conversation² between Batchelder in Norfolk, and Sullivan in Baltimore, Batchelder told Sullivan that he would like to get "full marine coverage" on the car float. Sullivan said that it was unable to write this type of coverage. Batchelder testified that he then said that he understood Sullivan could write a "total loss policy" and he believed that Sullivan answered in the affirmative. Batchelder further testified that he remarked that the car float was intended for use on inland waters and that if any damage were sustained, it was probable that the repairs would exceed the value of the repaired car float.

Sullivan's testimony as to the conversation was not identical with the testimony of Batchelder; but both are in agreement that only the words "total loss" were used on either side in the conversation as descriptive of the policy to be written, and there was no discussion of any "actual physical total loss" coverage.

Batchelder further testified that Sullivan agreed to cover the interest of Hampton Roads in the car float to the extent of $3,500, which Sullivan undertook to confirm by letter of the same day, the policy to follow later.

On January 6, 1956, Sullivan wrote to Batchelder, the letterhead reading "Boston Insurance Company Felix R. Sullivan, Jr. & Co., Inc. & Marine Agent". The text of the communication is as follows:

"In accordance with our telephone conversation of even date, also our talk with Mr. A. Rhodes Knight of the American Electric Welding Company, we beg to advise that we are binding $3500. Fire and Marine Coverage for total loss only, on the above Carfloat or Barge, at a rate of 3% per annum, with limits of Chesapeake Bay and inland waterways not beyond Jacksonville, Florida, as I understand from Mr. Knight that the transfer of same to your ownership takes place today.

"You can, therefore, consider this binder of the Boston Insurance Company, against Total Loss conditions only, and we will forward the policy to you as soon as same is written up.

"Thanking you very much for allowing us to handle this insurance for you and hoping to have the policy in your possession in the next few days, I am * * *."³

On January 11, 1956, Sullivan sent to Batchelder the policy in suit, the letter of transmittal reading as follows:

"In accordance with telephone conversation of the 6th instant, we now take pleasure in enclosing herewith TOTAL LOSS ONLY⁴ Fire and Marine Policy No. 446813, Boston Insurance Company, for $3500. on the above Car Float, at the rate of 3%, for one year from the 6th instant, and you will note that we have given navigation limits of the Chesapeake Bay and inland waterways not south of Jacksonville, Florida, which I think covers the situation, as you stated she would be working mainly between Charleston and Norfolk.

"In the original survey of Captain F. W. Schilpp, I understand he recommended that she be towed by a Tug of at least 200 H. P., so I presume you are familiar with this as the survey was made through Mr. A. Rhodes Knight of the American Electric Welding Company, who undoubtedly sent you a copy of Captain Schilpp's survey.

"We thank you very much for allowing us to handle the enclosed for you and presume the American Electric Welding Company will have Builders' Risk Insurance on the twelve or fourteen Barges which they will build for you, if not, I would certainly take this under consideration.

"Hoping you will be good enough to let us have an opportunity to bid on the insurance on the new Barges, as they are completed by Mr. Knight's Company, I am".

On the first page of the policy there appeared, underlined in purple, the following: "* * * this policy only covers against absolute physical total loss of the insured vessel * * *." In the fine print on the back of the policy, the following provisions are found:

"There shall be no constructive total loss under this policy * * *.

* * * * * *

"It is a condition of this insurance that any broker, person, firm or corporation who shall procure this insurance to be taken by these Insurers shall be deemed to be exclusively the agent of the Assured in any and all transactions and representations relating to this insurance, and that any notice which these Insurers may give to such broker shall be deemed to have been given to the Assured, who hereby appoints said broker his, its or their agent for that purpose and the other purposes aforesaid."

Batchelder testified that on receipt of the forwarding letter and the policy,⁵ he examined the policy only to determine that car float No. 22 was covered and that the territorial limits included the Chesapeake Bay and inland waterways not south of Jacksonville, Florida, which language appears in the upper third of the rider attached to the first page of the policy.⁶

The premium of $105.00 was paid on either January 18 or January 19, 1956. The car float was towed to the Santee River, South Carolina, within the navigational limits of the policy. On January 26, 1956, it became hung up on pilings with the falling of the tide and was badly damaged. A claim was promptly made under the policy but liability was denied. A survey was made on behalf of Boston and the surveyor reported a constructive total loss since the cost of repairs would exceed the value of the float after repair. He also found that the cost of raising and repair would equal or exceed $3,500, the face amount of the policy. Hampton Roads tendered abandonment to Boston, which refused tender on the ground that the loss was not one covered by the policy. The car float was later sold "as is" for $350.

The parties are in agreement and the court finds that "total loss only" coverage would include a constructive total loss, and that constructive total loss occurs where the vessel has lost its identity and utility or where the cost of repairs exceeds the repaired value. 42 Words and Phrases, Total Loss, pages 94-95, 97-99; 45 C.J.S., Insurance, § 954, p. 1148; Marine Ins. Co. of Alexandria v. Tucker, 1806, 3 Cranch 357, 7 U.S. 357, 2 L.Ed. 466; Patapsco Insurance Co. v. Southgate, 1831, 5 Pet. 604, 30 U.S. 604, 8 L.Ed. 243; St. Paul Fire & Marine Insurance Co. v. Beacham, 1916, 128 Md. 414, 417-418, 97 A. 708, L. R.A.1916F, 1168; Monroe v. British & Foreign Insurance Co., 1 Cir., 1892, 52 F. 777; Couch on Insurance, Sec. 1709; Arnould on Marine Insurance (13 Ed. 1950), p. 995. "Absolute physical total loss" or "absolute total loss" excludes a constructive total loss.⁷ Sullivan testified that when in the conversation with Batchelder, the words "total loss" were used, Sullivan meant "actual physical total loss" and that Sullivan had no intention or authority to write a loss policy except for actual physical total loss; that the policy which was sent was the policy Sullivan intended to send, and the premium charged was the premium applicable to actual physical total loss coverage. This is, of course, difficult to reconcile with the language in the binder agreement of January 6, 1956 and with the capitalization of the words "total loss only" in the forwarding letter of January 11, 1956. It is also difficult to reconcile with Sullivan's testimony that at the time of this telephone conversation, it had some question as to whether or not the car float might slip into deep water in Baltimore Harbor and become a "constructive total loss". Sullivan might well have contemplated that Hampton Roads would wish to receive protection against such potentiality. Sullivan might also have realized that in the relatively shallow inland waterways, the chance that the vessel would become an absolute total loss was relatively slight, while the possibility of a constructive total loss was very real.

No evidence of any correspondence between Sullivan and Boston was offered. Sullivan testified that the policy in suit was prepared in Boston, Massachusetts, and sent to Sullivan in Baltimore where it was counter-signed by Sullivan.

Under these circumstances, the court denied the motion by Hampton Roads to reform the policy so as to hold Boston liable for a ...