National Union Fire Ins. Co. v. Republic of China

• Decision Date: 08 April 1958
• Docket Number: No. 7550.,7550.
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pennsylvania, Respondent, Appellant and Cross-Appellee, and Appellee. v. The REPUBLIC OF CHINA, China Merchants Steam Navigation Company, Limited, and the United States of America, Libellants, Appellees and Cross-Appellants, and Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

254 F.2d 177 (1958)

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pennsylvania, Respondent, Appellant and Cross-Appellee, and Appellee. v. The REPUBLIC OF CHINA, China Merchants Steam Navigation Company, Limited, and the United States of America, Libellants, Appellees and Cross-Appellants, and Appellants.

No. 7550.

United States Court of Appeals Fourth Circuit.

Argued January 15, 1958.

Decided April 8, 1958.

Martin P. Detels, New York City (Lord, Whip & Coughlan, Baltimore, Md., Bigham, Englar, Jones & Houston, New York City, George W. P. Whip, Baltimore, Md., Vincent L. Leibell, Jr., and Joseph J. Magrath, 3rd, New York City, on brief), for Nat. Union Fire Ins. Co. of Pittsburgh.

Thomas F. McGovern, Atty., Dept. of Justice, Washington, D. C. (George Cochran Doub, Asst. Atty. Gen., Leon H. A. Pierson, U. S. Atty., Baltimore, Md., and Leavenworth Colby, Atty., Dept. of Justice, Washington, D. C., on brief), for U. S.

Ronald A. Capone, Washington, D. C. (Kirlin, Campbell & Keating, New York City, Ober, Williams, Grimes & Stinson, Baltimore, Md., Robert E. Kline, Jr., Washington, D. C., and William A. Grimes, Baltimore, Md., on brief), for The Republic of China and China Merchants Steam Navigation Co., Ltd.

Before PARKER, Chief Judge, and SOPER, and HAYNSWORTH, Circuit Judges.

SOPER, Circuit Judge.

These suits in admiralty were brought to recover the value of seven vessels which had been sold by the United States to the Nationalist Government of China and subsequently lost by the defection of their masters, officers or crew to the Communist Government of China. Each vessel is the subject of a separate suit but all of the suits were tried concurrently in the District Court. The libellants are the Republic of China, China Merchants Steam Navigation Company, which operated the ships as a governmental corporation of the Republic of China, and the United States, the holder of purchase money preferred mortgages on the ships. The respondent is the National Union Fire Insurance Company of Pittsburgh, Pennsylvania, which had issued marine policies and war risk policies on each ship to the Government of the Republic of China, insuring it against the loss of the vessel resulting, in addition to other causes, from perils of the seas, barratry of the master and mariners or the consequences of civil war, excepting however, capture and seizure. The principal question in each case is whether the loss of the vessel was caused by barratry, which was covered by the policy, or by capture and seizure, which were excluded from coverage by the policy, or by both.

The District Judge filed a carefully considered opinion and exhaustive findings of fact to which reference may be made for detailed information. 151 F. Supp. 211. He held that six of the vessels were lost by barratry of the master and awarded damages to the libellants in the sum of $2,995,270.87, the face amount of the policies, with interest at 3 per cent from the date liability was denied to the date of the decree, and interest at 6 per cent from the latter date until paid. As to the seventh vessel the Judge dismissed the libel since he found that the loss was due to seizure of the ship by the crew which, in his judgment, was excluded from coverage by the terms of the policies. The insurance company has appealed from the adverse judgment as to the six vessels; and the libellants have appealed from the award of interest at 3 per cent to the date of the decree, claiming that they are entitled to 6 per cent for this period, and have also appealed from the judgment dismissing the libel as to the seventh vessel.

On various dates in 1946 and 1947, the United States sold to the Government of the Republic of China a number of Liberty ships, including the seven covered by the policies in suit. In each instance the buyer executed and delivered to the United States, represented in some instances by the Maritime Commission and in others by the Export-Import Bank of Washington, a note and a preferred ship mortgage to secure the unpaid balance of the purchase price. Defaults in these mortgages occurred in October 1949, and were declared by the United States on or about January 17, 1950, whereby it acquired the right to retake the vessels.¹

The Republic of China, the named insured in all of the policies, was proclaimed in 1911 and in the middle 1920's established a strong national government at Nanking. Following World War II, Taiwan, which had been surrendered to Japan in 1904, was reincorporated into China as a province. In 1937, the Chinese communist movement actively organized resistance to Japan in northern China. After World War II Communist Armies dominated northern China and in 1949 drove southward so that as of April 19, 1949, a state of civil war existed. The Nationalist Government, under increasing pressure, moved its capital from Nanking to Canton in April, 1949; thence to Chungking and to Chengtu and, finally, to Taipei, Taiwan, on December 9, 1949, by which time the mainland was largely in control of the communist forces. Since that date it has continued to operate on Taiwan as a sovereign entity. It is recognized by the United States as the only proper and lawful government of China and its officials are the accredited representatives of the Republic of China in the United Nations.

On October 1, 1949, the Communist Government was proclaimed under the name of the Central People's Government of the People's Republic of China. On October 14, 1949, it occupied Canton, which is close to the port of Hong Kong, a Crown Colony of the United Kingdom. On January 5, 1950, the British Government recognized the Communist Government as the de jure government of China and ceased to recognize the Nationalist Government as a de jure government. A number of other nations extended de jure recognition to the Communist Government.

After the ships were acquired they were operated by the Nationalist Government through an agency which, in September, 1948, was organized as a government-owned corporation called the China Merchants Steam Navigation Company, Ltd. The head office of the company was located at Shanghai until May, 1949, when it was transferred to Taipei, Taiwan, with a branch office at Hong Kong. The port of registry of each of the vessels was transferred to a port on Taiwan in the latter part of 1949. The respondent insurance company recognized this government agency as the representative of the Nationalist Government in the operation of the ships and transacted with it the insurance business relating to vessels owned by the Nationalist Government, including the seven vessels in this suit. The insurance company accepted premiums on the policies, which were paid out of the funds of the Republic of China, and recognized the Republic of China as the owner of the fleet which it had insured against loss.

The insurance policies covering the seven vessels were issued at various dates in 1949.² The named insured in all of the policies is "The Government of the Republic of China represented by Universal Trading Corp." and the loss, if any, was made payable to the United States Maritime Commission, or the Export-Import Bank, for distribution to itself and to the Government of the Republic of China as their interest might appear. The total amounts for which the vessels were insured were: Cheng Kung $470,000; Chiao Jen $470,000; Hung Chang $470,000; Lin Shen $342,375; Teng Keng $372,075; Tsai Er $342,375; Hai Hsuan $550,000. The policies were valued policies.

The marine risk policies are in the customary form with a Free of Capture and Seizure clause or warranty added. The terms of these policies with which we are particularly concerned insure against loss of the vessel resulting, in addition to other considerations, from "Barratry of the Master and Mariners and all other like Perils, Losses and Misfortunes," but exclude claims for loss, damage or expenses "resulting from capture, seizure, arrest, restraint or detainment or the consequences thereof or of any attempt thereat, or any taking of the Vessel, by requisition or otherwise; whether in time of peace or war and whether lawful or otherwise; also from all consequences of hostilities or warlike operations * * Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or piracy."

The war risk policies cover the risks, including barratry, which would be covered by the marine risk policy in the absence of the above quoted "free of capture and seizure" exclusionary warranty. Originally the war risk policies did not exclude capture and seizure but contained certain trading warranties, which were modified from time to time, to limit the ports in China at which the ships could touch, so as to avoid the danger of capture by the communists. In June 1949, when the communist armies were rapidly extending their area of conquest, the clause "excluding capture and seizure" was added to the war risk policies, obviously to avoid capture by the communist forces.

Against this background we come to consider whether the loss of the vessels under the circumstances set out below should be ascribed to the barratry of the master or crew within the coverage of the policies or to capture and seizure which is excluded therefrom. The relevant findings of fact of the District Judge, which are supported by the evidence, may be summarized as follows:

The six vessels first listed above were among thirteen vessels, owned by the Nationalist Government and managed by China Merchants, which were in the port of Hong Kong during November and December, 1949. For convenience the six vessels have been designated as the "Hong Kong vessels" in this opinion.

China Merchants maintained its head office, under a general manager, in Taipei and a branch office in Hong Kong where a branch manager and marine superintendent were located. From November 13, 1949 to January 16, 1950, when the...