Smith v. Northwestern Fire & Marine Ins. Co.

• Decision Date: 22 November 1927
• Citation: 159 N.E. 87,246 N.Y. 349
• Parties: SMITH v. NORTHWESTERN FIRE & MARINE INS. CO.
• Court: New York Court of Appeals Court of Appeals

246 N.Y. 349

159 N.E. 87

SMITH

v.NORTHWESTERN FIRE & MARINE INS. CO. ^*

Court of Appeals of New York.

Nov. 22, 1927.

Actions by Edwin Smith against the Northwestern Fire & Marine Insurance Company. Judgments for plaintiff were affirmed by the Appellate Division (218 App. Div. 858, 219 N. Y. S. 917, 918), and defendant appeals.

Judgment in one action affirmed, and judgment in the other action reversed, and complaint dismissed.Appeals from Supreme Court, Appellate Division, Second Department.

William F. Purdy and Thomas A. McDonald, both of New York City, for appellant.

Thomas J. Brennan, of Brooklyn, for respondent.

CARDOZO, C. J.

The plaintiff in each of these actions is the assignee of the insured under a contract of marine insurance. One action is brought upon a binder covering a hull; the other action is brought upon a certificate covering a cargo. The facts as to each contract must be separately stated.

On March 7, 1925, Joseph F. O'Boyle agreed to sell his steam lighter, the Traffic, to Neptune Trading Company, which was to make a payment of cash and give a purchase-money mortgage. A bill of sale was signed, but never delivered; the buyer refusing to complete the purchase. While the contract was still in force, application was made to the defendant for insurance on the hull. The binder, signed by the defendant on March 10, 1925, calls for a time policy in what is known as the inland form, with watchman's clause added. The insured is stated to be Neptune Trading Company; loss payable to O'Boyle, as mortgagee. The term of the insurance is stated to be from March 10, 1925, to March 10, 1926. The vessel is privileged to navigate the waters of the port, bays, and harbor of New York, East and North or Hudson rivers, and inland waters of New York and New Jersey, Long Island Sound, and waters as far east as Boston, Mass.

At the date of this binder, the Traffic was already beached in New London harbor with several feet of water in her hull. She had been arrested on March 9 by a United States revenue cutter and compelled to proceed to New London because of her unseaworthy condition. There she settled and sank. On being hauled to dry dock she was partially repaired. Thereupon she received a temporary permit, allowing her to go to New York, where the repairs were to be completed. She was inspected by the underwriters on April 10, and then reported to be sound.

In the meantime the Neptune Trading Company had withdrawn from its bargain and rejected title to the boat. On April 9, 1925, O'Boyle made a new sale to Gurney, the plaintiff's assignor. This sale was reported to the defendant, which struck from the binder the name of the Neptune Trading Company, and substituted Gurney's, adding after his name the figures ‘4/9/25,’ to indicate the date of change. A completed policy in the inland form was made out to the new owner on April 23, 1925, though never, it seems, delivered.

We pass now to the application for insurance on the cargo. This application was made on April 24, 1925, in the name of Anthony O'Boyle, account of whom it might concern. The defendant thereupon issued its certificate of insurance covering a cargo of hardware on board the Traffic, subject to the clauses of the New York lighterage form, ‘at and from New York to Boston.’

The Traffic left New York for Boston on April 29, 1925. Her certificate of inspection, issued by the United States local inspectors under section 4463 of the United States Revised Statutes (46 USCA § 222; U. S. Comp. St. § 8225), fixed the complement of the crew in case the vessel was operated not more than 13 hours out of the 24, and another complement when she was operated longer. In the one case she was to have one master and pilot, two able seamen, one chief engineer, one fireman, and one person in steward's and other departments when needed, a total of six men. In the other case, she was to have one master and pilot, one pilot, two able seamen, one chief engineer, one first assistant engineer, two firemen, and one person when needed in steward's and other departments, a total of nine. The Traffic set out on her voyage with only four men on board, a master, an engineer, a fireman, and a deckhand. She moored for the night at City Island, under orders to pick up a pilot in the morning and two other members of the crew, who were expected to come aboard. During the night the boat took fire, and with its cargo was destroyed.

The defense of breach of warranty set up in each of the two actions makes it necessary to quote some of the provisions of the policies. The policy on the hull, following the so-called inland form, includes a warranty:

That the vessel is ‘free of capture, seizure, arrest, restraint, pre-emption or detainmentand the consequences thereof or any attempt thereat, at, and whether as an act of war or by civil authority or by any person or persons whatsoever, lawless or otherwise.’

It also includes a warranty as to the condition of the vessel:

‘Warranted by the insured that the said vessel shall at all times during the continuance of this policy be tight and well found in anchors, cable, rigging, tackle and apparel, as is usual and customary; also in all other things and means necessary and proper for safe navigation according to the usage and custom; that she shall at all times have a competent watchman on board; and that whenever said vessel shall be at anchor in the nighttime she shall show one or more lights in a conspicuous place so as to warn and give notice to approaching vessels.’

By another provision:

‘The watchman's warranty in this policy is in full force and effect, except that when this vessel is tied up or moored it shall be in charge of a competent watchman, but a breach of this warranty shall void this insurance only as to claims occurring during such breach or arising subsequently as a result of such breach.’

By still another provision:

‘Any deviation beyond the limits named in this policy shall void this policy, but upon the return of said vessel within the limits named herein, this policy shall reattach and continue in full force and effect, but never beyond the date hereinbefore set for the termination of this policy, and provided only, no disaster has occurred during said deviation.’

The cargo policy, following the New York lighterage form, omits the special provisions quoted from the policy on the hull, but contains the following warranty as to the condition of the vessel:

‘Warranted by the insured that the said lighter or vessel shall at all times during the continuance of this policy be tight, and well found in anchors, cables, rigging, tackle, and apparel, as is usual and customary; also properly manned and equipped in all other things and means necessary and proper for the safe navigation thereof, according to the usage and custom; and that whenever said lighter or vessel shall be at anchor in the nighttime, she shall show the proper lights as required by law, so as to warn and give notice to approaching vessels; and that the said lighter and vessel, when loaded with cargo, shall at all times have a competent watchman on board.’

1. The defendant insists that the arrest of the boat and her unseaworthy condition at the delivery of the binder vitiates the contract for the insurance on the hull, though the boat had been released and repaired when Gurney, plaintiff's assignor, was substituted in the binder as the party insured.

There is no doubt that the boat was under arrest on March 10, 1925, when the binder was delivered. There is none, we think, that at that time she was in an unseaworthy condition, though warranted to be tight and sound. We assume that for breach of these warranties the insurance would never have attached if the binder had not been changed. The binder, however, was changed by the substitution on April 9 of a new party to the contract. We think the warranties of Gurney, the new insured, must be read as of that time. He did not take the risk of past breaches of warranty by former owners of the vessel. He was answerable only for his own. The situation was the same in legal effect as if the company had issued a new binder, or had noted upon the old one a waiver of any previous breach of warranty, known or unknown. There is no difference in that regard between policies of marine insurance and policies of insurance against fire. The common practice is, when property is sold, to substitute the name of the buyer without issuing another policy. Very likely, the insurance company loses something in premiums by this abbreviated form, since the first policy, if surrendered, would have been canceled at short rates. It gains, however, in convenience, and often by securing a new customer, who might otherwise go elsewhere. It must abide by its choice, whether the result be gain or loss.

Unquestionably the insurer will not be heard to insist upon earlier breaches, if it accepts the new owner after notice of the cause of forfeiture. Steen v. Niagara Fire Ins. Co., 89 N. Y. 315, 42 Am. Rep. 297;Benninghoff v. Agricultural Ins. Co. of Watertown, 93 N. Y. 495, 506;Shearman v. Niagara Fire Ins. Co., 46 N. Y. 526, 7 Am. Rep. 380;Hooper v. Hudson River Fire Ins. Co., 17 N. Y. 424. We think the consequence of substitution is the same whether it acts with notice or without. The result is a new contract between underwriter and owner. The insured may reasonably infer, in the absence of inquiry as to earlier grounds of forfeiture, that the insurer is indifferent as to their existence, and is content to make a fresh start as if a new policy were written. The fault is the insurer's, if it chooses to approve the change without adequate inquiry. Hooper v. Hudson River Fire Ins. Co., 17 N. Y. 424, 426. Some of the cases put the stress of the argument upon the theory of a second contract independent of the first one. Others find in the situation the necessary elements of waiver or estoppel. Upon one ground or the other, and not infrequently...