United States v. Eastern Air Lines, Inc., 330

• Decision Date: 19 September 1966
• Docket Number: Docket 30264.,No. 330,330
• Citation: 366 F.2d 316
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. EASTERN AIR LINES, INC., Glens Falls Insurance Company, Byron May, as President of Associated Aviation Underwriters, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

366 F.2d 316 (1966)

UNITED STATES of America, Plaintiff-Appellee, v. EASTERN AIR LINES, INC., Glens Falls Insurance Company, Byron May, as President of Associated Aviation Underwriters, Defendants-Appellants.

No. 330, Docket 30264.

United States Court of Appeals Second Circuit.

Argued April 12, 1966.

Decided September 19, 1966.

COPYRIGHT MATERIAL OMITTED

Lawrence W. Schilling, Asst. U. S. Atty., Robert M. Morgenthau, U. S. Atty., S. D. N. Y., Alan G. Blumberg, Asst. U. S. Atty., for plaintiff-appellee.

W. Glen Harlan, W. Guy McKenzie, Jr., Gambrell, Harlan, Russell & Moye, Atlanta, Ga., for defendants-appellants.

Before WATERMAN, FRIENDLY and ANDERSON, Circuit Judges.

WATERMAN, Circuit Judge:

The United States commenced suit on May 16, 1962, against appellants Eastern Air Lines, Inc., Glens Falls Insurance Company, and Byron May, as President of Associated Aviation Underwriters, seeking a declaratory judgment that, pursuant to the provisions of an aircraft lease between it and Eastern, it was entitled to substantially all the proceeds of an insurance policy on an aircraft Eastern had leased from the United States, which policy Eastern had purchased from Glens Falls and Aviation Underwriters. On December 29, 1949, over twelve years earlier, appellant-insurers had paid Eastern $380,000, the total insurance proceeds due under the policy. Eastern moved for summary judgment, maintaining that the government claim was inappropriate under the terms of the aircraft lease, and also on the ground that the claim was time-barred by the one year limitation clause in the insurance policy. On September 20, 1965, the district court granted appellants' summary judgment motion, but entered judgment against them in favor of the United States in the amount of $126,190.19, with prejudgment interest computed at 6% per annum from December 29, 1949. The district court amended this judgment on November 29, 1965 by reducing the rate of prejudgment interest to 4%. From this judgment, as amended, the appellants have appealed.¹

On appeal, appellants first maintain that the Government's claim for any part of the insurance proceeds is time-barred by the one year limitation clause in the insurance policy, and that their motion for summary judgment should have been granted in their favor. Alternatively, they maintain that the district court, if correct in awarding $126,190.19 to the United States, erred in requiring that they pay prejudgment interest on the $126,190.19. For reasons set forth hereafter we reverse the judgment of the court below as to appellant-insurers Glens Falls Insurance Company, and Byron May as President of Associated Aviation Underwriters, and affirm as to appellant Eastern Air Lines, Inc.

I.

The issues presented on this appeal have their roots in the destruction of a DC-4 aircraft, which Eastern had leased from the United States, in a mid-air collision over Washington National Airport on November 1, 1949. The aircraft lease between Eastern and the United States, then represented by the War Assets Administrator, was executed on July 15, 1946, as of December 27, 1945. The lease was effective for five years from the latter date and provided that when this period shall have expired the aircraft covered by the lease was to be returned to the United States. Several particular paragraphs of the lease are relevant for present purposes: Paragraph 11 provided that Eastern was liable to the United States for any damage to the aircraft but that this liability should in no event exceed the value of the aircraft on the date of the damage, and there was set forth in that paragraph a specific formula whereby the value of the aircraft in case of damage could be readily computed; paragraph 15 obligated Eastern to procure and maintain insurance on the aircraft in an amount satisfactory to the United States, stating that "The proceeds of such insurance shall be made payable to Lessor for the account of all interests involved," and providing that in the event of damage to the aircraft:

(1) proceeds received by Lessor equal to the cost of repair or restoration of the Aircraft shall be made available to Lessee if Lessee shall undertake to repair and restore the Aircraft pursuant to subparagraph (a) of paragraph ELEVEN, and (2) all other proceeds shall be paid by Lessor to Lessee after first deducting any amounts for which Lessee is obligated to Lessor under this lease * * *. In the event the proceeds of insurance are not used for the repair or restoration of the Aircraft, such insurance proceeds shall be credited against any obligations of Lessee to Lessor under this lease, and the balance shall be paid to Lessee.

Eastern procured the insurance required by paragraph 15 of the lease from Glens Falls Insurance Company through Associated Aviation Underwriters, then headed by Byron May as President. Several of the policy's provisions are relevant and should be mentioned. As originally drawn, endorsement 1 to the policy provided in part that "Loss, if any shall be adjusted with Eastern Air Lines, Inc., but shall be payable to the Treasurer of the United States of America for the account of all interests." In 1949, shortly before the November 1, 1949 accident, the lease involved here, along with other leases, was assigned by the War Assets Administrator to the Department of the Navy. The Navy arranged for the policy to be amended by the addition of endorsement 10, which superseded endorsement 1 and provided that "loss, if any, under this policy shall be adjusted with Eastern Air Lines, Inc. and the proceeds at the election of the United States of America shall be payable to Eastern Air Lines, Inc.; any proceeds not paid to Eastern Air Lines, Inc. shall be payable to the Treasurer of the United States of America * * *." Paragraph 31 of the policy, entitled "SUIT AGAINST INSURER" provided inter alia that "No suit or action on this policy or for the recovery of any claim hereunder shall be sustainable * * * unless commenced within twelve (12) months next after the happening of the loss * * *."

On November 1, 1949, shortly after the amendment to the policy proposed by the Department of the Navy had become effective, the DC-4 that was the subject of the lease and the policy was destroyed. Eastern soon adjusted the loss with appellant-insurers and, on December 29, 1949, Eastern received payment from them of $380,000, which sum equalled the agreed insured value of $400,000 less a 5 per cent deductible that applied in the cases of losses due to accidental damage. On July 12, 1950 Eastern forwarded its check in the amount of $126,190.19 to the United States with a letter indicating that the check represented the value of the aircraft at the date of damage according to the formula provided in paragraph 11 of the lease. Eastern's letter went on to state that the "tendered payment is in full settlement and satisfaction of amounts due from Eastern Air Lines, Inc., and its insurance carrier for loss of said aircraft under the terms of the lease agreement * * *." The United States, now represented by the Navy Department, returned the check to Eastern, and by letter dated August 9, 1950, informed appellant-insurers that, pursuant to endorsement 10, the United States elected to be paid all the proceeds of the insurance policy, indicating that it believed it had a valid claim to all the proceeds, less a $38,000 adjustment in favor of Eastern. The record discloses no further action by any party until June 20, 1952 when the United States again wrote to the appellant-insurers stating in part "that payment of the proceeds of insurance is long overdue" and urging that the full $380,000 be promptly paid to the Government. Appellantinsurers replied on August 5, 1952, stating that "Eastern Air Lines claims the right to the entire proceeds of the above policy except for the amount of $126,190.19 * * *," did not inform the Government that the entire $380,000 had been paid to Eastern more than 31 months earlier, and suggested that "the first step to bring this matter to a conclusion is for the Navy and Eastern to resolve their differences." On August 25, 1952 the Government wrote again to appellant-insurers reiterating its demand for substantially all the $380,000 and specifying that from that sum $38,014.94 might be deducted and paid over to Eastern. Apparently the United States took no further action to claim the insurance proceeds or any part thereof until nearly 10 years later when this action was commenced in May of 1962.

II.

Appellants maintain that the United States has slept too long on its rights and that this action, commenced almost 13 years after the loss occurred, is now time-barred. They recognize the general rule that the "* * * statute of limitations does not run against the sovereign * * *." United States v. 93 Court Corp., 350 F.2d 386, 388 (2 Cir. 1965), cert. denied, 382 U.S. 984, 86 S.Ct. 560, 15 L.Ed.2d 473 (1966).² But they point out that this rule has not prevented courts from enforcing agreements between the United States and private parties, in which both had agreed to be bound by a period of limitations in their dealings with each other. See, e. g., Delaware, L. & W. R. Co. v. United States, 123 F.Supp. 579, 581 (S.D.N.Y. 1954). They further note that the insurance policy Eastern...