Luckenbach v. Cahan Sugar Refining Co

• Decision Date: 09 December 1918
• Docket Number: No. 51,51
• Citation: 248 U.S. 139,39 S.Ct. 53,1 A.L.R. 1522,63 L.Ed. 170
• Parties: LUCKENBACH et al. v. W. J. McCAHAN SUGAR REFINING CO. et al
• Court: U.S. Supreme Court

248 U.S. 139

39 S.Ct. 53

63 L.Ed. 170

LUCKENBACH et al.

v W. J. McCAHAN SUGAR REFINING CO. et al.

No. 51.

Argued Nov. 18, 1918.

Decided Dec. 9, 1918.

Messrs. Peter S. Carter, Charles C. Burlingham, and Roscoe H. Hupper, all of New York City, for petitioners.

[Argument of Counsel from pages 140-143 intentionally omitted] Mr. J. Parker Kirlin, of New York City, for respondent Insular Line.

Mr. Lawrence Kneeland, of New York City, for respondent W. J. McCahan Sugar Refining Co.

Mr. Justice BRANDEIS delivered the opinion of the Court.

The W. J. McCahan Sugar Refining Company shipped a cargo of sugar from Porto Rico to Philadelphia by the Julia Luckenbach which was under charter to the Insular Line, and the cargo suffered severe damage. In the District Court of the United States for the Southern District of New York, a libel seeking damages was filed in the name of the shipper in personam against the Insular Line and in rem against the steamer. It alleged that the damages resulted from unseaworthiness of the hull, existing at the commencement of the voyage. The petitioners, owners of the ship, were impleaded. The bills of lading sued on contained a clause relieving the carrier from liability for damages arising from——

'any latent defect in hull. * * * or by unseaworthiness of the ship, even existing at the time of shipment or sailing on the voyage, but not discoverable by the exercise of due diligence by the ship owner or manager. * * *'

The libel alleged that the unseaworthiness would have been discovered, had due diligence been exercised. The District Court so found and held that the libelant was entitled to recover. The damages were agreed to be $87,526.65, with interest, and the value of the ship and pending freight was found or agreed to be $66,600. The owners duly moved for limitation of liability. The District Court found that the damages sustained were occasioned without the privity or knowledge of the owners; held that they were entitled to limit their liability, both as against the shipper and as against the charterer, who claimed indemnity; and ordered that the owners should pay the shipper's claim to the extent of the value of the ship and pending freight, and that the balance should be paid by the Insular Line. 235 Fed. 388, 148 C. C. A. 650. Both the owners and the Insular Line appealed to the Circuit Court of Appeals. That court modified the decree, so as to award that payment of the full amount be made to the shipper primarily by the steamer and the owners, and that the charterer should be called upon to make payment only of the deficiency, if any. 235 Fed. 388, 148 C. C. A. 650. The case comes here on writ of certiorari granted on the petition of the owners. 242 U. S. 638, 37 Sup. Ct. 111, 61 L. Ed. 540.

It is urged, on three grounds, that the decision of the Circuit Court of Appeals should be reversed and that the District Court should be directed, either to dismiss the libel or to limit the owners' liability to the value of the ship and pending freight.

First. The owners contend that both lower courts erred in holding that the steamer was unseaworthy at the commencement of her voyage and that due diligence to make her seaworthy had not been exercised. The issue involved is one of fact; and no reason appears why the general rule should not apply, that concurrent decisions of the two lower courts on an issue of fact will be accepted by this court unless shown to be clearly erroneous. The Wildcroft, 201 U. S. 378, 387, 26 Sup. Ct. 467, 50 L. Ed. 794; The Carib Prince, 170 U. S. 655, 658, 18 Sup. Ct. 753, 42 L. Ed. 1181.

Second. The owners (and also the charterer) contend that the libel should be dismissed, because the shipper had already been compensated for the loss by insurance which it effected; and that the carrier is entitled to the full benefit of this insurance.

The shipper had effected full insurance. The bills of lading sued on contain the following clause:

'In case of any loss, detriment or damage done to or sustained by said goods or any part thereof for which the carrier shall be liable to the shipper, owner or consignee, the carrier shall to the extent of such liability have the full benefit of any insurance that may have been effected upon or on account of said goods.'

Such a clause is valid, because the carrier might himself have insured against the loss, even though occasioned by his own negligence; and if a shipper under a bill of lading containing this provision effects insurance and is paid the full amount of his loss, neither he nor the insurer can recover against the carrier. Phoenix Insurance Co. v. Erie & Western Transportation Co., 117 U. S. 312, 6 Sup. Ct. 750, 29 L. Ed. 873; Wager v. Providence Insurance Co., 150 U. S. 99, 14 Sup. Ct. 55, 37 L. Ed. 1013. In the case at bar, the shipper has received from the insurance companies an amount equal to the loss; but it is contended that the money was received as a loan or conditional payment merely, and that, therefore, the carrier is not relieved from liability. The essential facts are these:

The policies under which the shipper was insured contained the following, or a similar, provision:

'Warranted by the assured free from any liability for merchandise in the possession of any carrier or other bailee, who may be liable for any loss or damage thereto; and for merchandise shipped under a bill of lading containing a stipulation that the carrier may have the benefit of any insurance thereon.'

The situation was, therefore, this: The carrier (including in this term the charterer, the ship, and the owners) would, in no event be liable to the shipper for the damages occasioned by unseaworthiness, unless guilty of negligence. The insurer would, in no event, be liable to the shipper, if the carrier was liable. In case the insurer should refuse to pay until the shipper had established that recovery against the carrier was not possible prompt settlement for loss (which is essential to actual indemnity and demanded in the interest of commerce) would be defeated. If, on the other hand, the insurers should settle the loss, before the question of the carrier's liability for loss had been determined, the insurer would lose the benefit of all claims against the carrier, to which it would be subrogated in the absence of a provision to the contrary in the bill of lading (The Potomac, 105 U. S. 630, 634, 26 L. Ed. 1194), and the carrier would be freed from liability to any one. In order that the shipper should not be deprived of the use of money which it was entitled to receive promptly after the loss, either from the carrier or from the insurers, and that the insurer should not lose the right of subrogation, agreements in the following (or similar) form were entered into between the insurers and the shipper:

'New York, Aug. 15, 1912.

'Received from the Federal Insurance Company. twenty-three hundred four and 16/100 dollars, as a loan and repayable only to the extent of any net recovery we may make from any carrier, bailee or others on account of loss to our property (described below) due to damage on S/S Julia Luckenbach from Porto Rico/Philadelphia, Philadelphia, on or about _____ _____, 19__, or from any insurance effected by any carrier, bailee or others on said property, and as security for such repayment we hereby pledge to the said Federal Insurance Company, the said...