Republic of China v. National Union Fire Insurance Co.

• Decision Date: 09 July 1956
• Docket Number: No. 3507,3508,3510-3514.,3507
• Citation: 142 F. Supp. 551
• Parties: The REPUBLIC OF CHINA, China Merchants Steam Navigation Company, Limited, and The United States of America, Libellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, and American International Underwriters, Limited, Respondents.
• Court: U.S. District Court — District of Maryland

142 F. Supp. 551

The REPUBLIC OF CHINA, China Merchants Steam Navigation Company, Limited, and The United States of America, Libellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, and American International Underwriters, Limited, Respondents.

Nos. 3507, 3508, 3510-3514.

United States District Court D. Maryland, Admiralty Division.

July 9, 1956.

Ober, Williams, Grimes & Stinson, Baltimore, Md. (William A. Grimes, Baltimore, Md., of counsel), and Kirlin, Campbell & Keating, New York City (Ronald A. Capone, Washington, D. C., of counsel), for libellants, the Republic of China and China Merchants Steam Nav. Co., Limited.

George Cochran Doub, Asst. Atty. Gen. of U. S., Civil Division, Leavenworth Colby, Chief Admiralty Section, Dept. of Justice, Thomas F. McGovern, Atty., Admiralty Sec., Dept. of Justice, Washington, D. C., and Walter E. Black, Jr., U. S. Atty., and James H. Langrall, Asst. U. S. Atty., Baltimore, Md., for libellant, United States.

Lord, Whip & Coughlan, Baltimore, Md. (George W. P. Whip, Baltimore, Md., of counsel), and Bigham, Englar, Jones & Houston, New York City (Vincent L. Leibell, Jr., New York City, of counsel), for respondents.

THOMSEN, Chief Judge.

The libel in each of these seven suits was filed by the Republic of China and China Merchants Steam Navigation Company, Ltd., referred to collectively herein as "Chinese libellants", and by the United States, to recover on policies of marine and war risk insurance issued by respondents. Each policy covered a vessel sold by the United States to the Republic of China during 1946 and 1947, on which the United States received and now holds an hypothecation or preferred ship mortgage to secure deferred payments of the purchase price. The officers and crew of each ship, except the master of the Hai Hsuan, defected to the Chinese Communist regime in January, 1950, in Singapore or Hong Kong, ran up the red flag, and took and kept possession of the ship from Chinese libellants. The efforts made by Chinese libellants and by the United States to recover the vessels have been unsuccessful.

The cases are before the court on respondents' motion for an order under Supreme Court Admiralty Rule 32, 28 U.S.C.A.: (1) dismissing the "libels of the United States"; and/or (2) holding that respondents' separate defense setting up the sue and labor clause be deemed proved as against the United States; and/or (3) barring the United States from offering evidence in connection with the sue and labor issue at the trial; and/or (4) barring the United States from further prosecution of these suits until it has fully answered eight interrogatories served on it under Rule 31; all because of the alleged failure of the United States to answer said interrogatories fully. At the hearing on the motion the number of interrogatories which respondents claim have not been fully answered was reduced from eight to one, as the result of additional information supplied by the United States.

The interrogatories dealt with the question whether the United States ever requested the British Government to grant a special order in council to permit a suit in the High Court of the Colony of Singapore, involving one of the vessels, to be decided without regard to the sovereign immunity of the Chinese Communist Government. The United States has answered the interrogatories, stating that the request was made orally and in writing, attaching copies or excerpts, satisfactory to respondents, of (a) the written request for an order in council, which would have covered all of the ships, (b) the two letters of instructions from the Secretary of State to the American Embassy in London, (c) the two British replies, and (d) a statement by the British Foreign Office, to be discussed below; but refusing, because it would be "prejudicial to the foreign relations of the United States and contrary to the public interest" to supply any memorandum of conversations between the American and British representatives at the time the requests were made and denied. The determination that such disclosure would be prejudicial to our foreign relations and to the public interest was made by John Foster Dulles, Secretary of State, pursuant to applicable regulations, and is set out in his affidavit filed in this case.

The libel in No. 3507, involving the Hai Hsuan, alleges the sale and hypothecation of that vessel, and the following facts, important on this motion; essentially similar facts are alleged in the other libels.

Respondents insured the Hai Hsuan in the total amount of $550,000 under policies which named the Government of the Republic of China as the assured, for account of whom it may concern, and provided that loss, if any, be payable to the United States Maritime Commission for distribution by it to itself and to the Government of the Republic of China, as their interest may appear, or order. The marine policy insured against loss of the vessel resulting, inter alia, from barratry of the master and mariners. The war risk policies insured against loss of the vessel due, inter alia, to the barratry of the master and mariners, and against loss due to piracy, civil war, revolution, rebellion, or insurrection, or civil strife arising therefrom.

The libel then alleges in detail facts showing the defection of the officers and crew of the Hai Hsuan and the fruitless efforts made by Chinese libellants and the United States to recover possession of the vessel in Singapore. On April 13, 1950, libellants jointly notified respondents of the loss of the vessel Hai Hsuan, abandoned to respondents all their right, title and interest in and to the vessel, and claimed from respondents as a total loss the full amount for which the vessel was insured. On April 28, 1950, respondents notified the Republic of China that they declined to accept abandonment of the vessel.

The libel in the Hai Hsuan case alleges that libellants sued, labored and traveled for, in and about the defense, safeguard and attempted recovery of the vessel; the other libels allege that libellants labored and traveled for those purposes. Each libel claims recovery for expenses so incurred, as well as for the face amount of the policies, with interest.

Respondents' answers deny most of the allegations of the libels and set up as separate and complete defenses: (1) that all the alleged acts of the masters, officers and crews of the respective vessels were done at the request and for the benefit of and pursuant to instructions, orders and directions from the Chinese Communist Government, which at all material times was engaged in civil war and was the de facto government of China, except Formosa, and which, from mid-night of January 5/6 , 1950, was recognized by the British Government as the de jure government of the Republic of China; that the claim is excluded from the marine coverage on hull and increased value by the F. C. & S. (Free of Capture and Seizure) warranty thereon, which excluded, inter alia, coverage from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom; (2) that any such claim was excluded from the war risk coverage by the clause "excluding capture and seizure"; (3) that libellants failed to exercise due diligence or make reasonable efforts for the recovery of the vessel, as required by the sue and labor clause in said policies.

Other papers admitted in evidence for the decision of this motion show the following facts. The British Government recognized the Chinese Communist Government at midnight on January 5/6 , 1950, despite the opposition of the United States Government. On January 16, 1950, the six ships other than the Hai Hsuan were in Hong Kong; the masters and the crews defected and ran up the Chinese Communist flag. On January 17 declarations of default under the hypothecations and mortgages were made by the United States Maritime Commission and the other agencies involved; notice of those declarations was served on the Republic of China, with a demand for payment of the entire mortgage debt; and American officials at various Far Eastern ports were instructed to make representations to local authorities to prevent the vessels from sailing until legal action could be commenced. On or about January 24 the officers and crew of the Hai Hsuan defected and ran up the red flag in Singapore. On January 31 the American Consul General in Hong Kong received an opinion from solicitors whom he had consulted that a suit to recover the ships would be unsuccessful unless the Chinese Communist Government would waive its immunity to suit in the Hong Kong court. This opinion was confirmed by a decision of the Chief Judge of the Supreme Court of Hong Kong, Civil Air Transport, Inc. v. Chennault, Willauer & Wang, et al., 34 Hong Kong Law Reports 358, affirmed by the full court, exercising appellate jurisdiction, on May 13, 1950, 34 Hong Kong Law Reports 386, and by the decision in Singapore referred to in the next paragraph.

The United States filed a proceeding in the High Court of the Colony of Singapore against the acting captain and third officer, respectively, of the Hai Hsuan to recover possession of that ship. The defendants therein moved to have the writ and...