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AETNA INSURANCE CO. v. UNITED FRUIT CO. *FN*

decided: May 23, 1938.

AETNA INSURANCE CO
v.
UNITED FRUIT CO.*FN*



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

Hughes, McReynolds, Brandeis, Butler, Stone, Roberts, Black, Reed; Cardozo took no part in the consideration or decision of this case.

Author: Stone

[ 304 U.S. Page 432]

 MR. JUSTICE STONE delivered the opinion of the Court.

The question for decision is how far hull insurers upon a valued marine insurance policy are entitled, in case of total loss, to participate by way of subrogation in a recovery by the insured against a tortfeasor responsible for the loss.

In 1918 petitioners, with several other underwriters, insured the hull of respondent's vessel, the "Almirante," by policies in which it was agreed that the value of the hull was $632,610, materially less than its true value. The policies provided for a stipulated indemnity to the owner "irrespective of the value of the vessel," and that the owner was free to effect other insurance to any amount and without disclosure of the amounts so insured. As the total of the valued policies was $582,002.25, respondent was co-insurer for about $50,000; and so far as the valued hull policies were concerned it was uninsured, to the extent of any loss, in excess of the stipulated value. As protection against these risks, respondent procured from English underwriters additional P. P. I. (policy proof of interest) insurance, aggregating $: 65,105, partly upon hull and partly against other losses incidental to total loss of the vessel. The P. P. I. policies waived all rights of subrogation and were "honor" policies, concededly payable only at the option of the insurers because unenforceable under the Act of Parliament of December 31, 1906, § 4. Edwards & Co. v. Motor Union Ins. Co., [1922] 2 K. B. D. 249.

[ 304 U.S. Page 433]

     In 1918 the "Almirante" became a total loss as the result of a collision with the S. S. "Hisko," a vessel belonging to the United States Government. The underwriters of both the valued policies and the P. P. I. policies paid them in full. The former joined with respondent in retaining attorneys to press the claims for collision damages against the United States. Suit brought against the United States under a special act of Congress, resulted in a recovery which included $1,750,000 as the value of the vessel, but without interest since the act did not authorize allowance of interest. Compare Boston Sand & Gravel Co. v. United States, 278 U.S. 41, 47. Distribution of the proceeds of the suit was made in accordance with a computation by insurance adjusters who apportioned the expenses of the suit among respondent and the underwriters, and allotted to the latter the amounts they had paid on their policies without interest, less their respective shares of the expenses.

Petitioners, who are underwriters on some of the valued hull policies, brought the present suit in the district court for southern New York to participate in respondent's recovery against the United States. Relying on the valuation clause of their policies as conclusively fixing the value of the vessel for all purposes of the adjustment, they contest the allotment, insisting that they should bear no part of the expenses, and that they are entitled to interest on the amounts of their policies from the several dates on which they were paid. They also make, but do not stress here, the point that the hull insurers are entitled to the whole recovery. The district court gave judgment for the full amount which petitioners had paid on their policies without deduction for expenses, but without addition of interest. 18 F.Supp. 441. On appeal by both parties, the Court of Appeals held that petitioners were entitled to neither

[ 304 U.S. Page 434]

     interest nor expenses, and modified the judgment accordingly. 92 F.2d 576. We granted certiorari, 303 U.S. 631, because of the admitted conflict of the decision below with that of the Court of Queen's Bench in North of England Iron S. S. Ins. Assn. v. Armstrong (1870) L. R. 5 Q. B. 244. See Queen Insurance Co. v. Globe & Rutgers Fire Ins. Co., 263 U.S. 487, 493; Gulf Refining Co. v. Atlantic Mutual Ins. Co., 279 U.S. 708, 715.

Petitioners' argument turns upon their contention that the valuation clause, either by estoppel or by contract, is conclusive between the parties for all purposes and that as respondent has recovered from the Government more than the stipulated value of the vessel, petitioners are entitled to the benefit of the recovery, at least to the full extent of the payments on their policies with interest. We think that the valuation clause in its usual form does not operate as an estoppel or by agreement to foreclose proof that actual value exceeds agreed value when the question is of the insurer's right to subrogation. The application of the agreed value to the insurance adjustment does not depend upon estoppel, Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, 712; British & Foreign Marine Ins. Co. v. Maldonado & Co., 182 F. 744, and there can be no basis for an estoppel at least where, as here, the policy provisions undertake to indemnify the insured irrespective of the value of the vessel and contemplate that the insured may effect other insurance. The valuation stipulation fixes in advance of loss the value of the vessel, so as to avoid the necessity of proof of value in order to establish the extent of the liability assumed on the policy. The agreed value, honestly arrived at, thus stands in the place of prime value under an open marine policy, Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, 711; St. Paul Fire & Marine Ins. Co. v. Pure Oil Co., 63 F.2d 771, and resembles, in its practical operation, a stipulation for liquidated damages.

[ 304 U.S. Page 435]

     But beyond its controlling effect in determining the insurance liability, the clause does not operate to exclude proof of actual value when relevant. Even in an action on the policy the actual rather than the agreed value has been held to be controlling for the purpose of determining whether there is a constructive total loss. Bradlie v. Maryland Ins. Co., 12 Pet. 378, 399; Irving v. Manning, 6 C. B. 391 (H. of L.). In the case of partial insurance of cargo under a valued policy the insured is treated as a co-insurer and is allowed to recover on the policy only such proportion of the loss as the insured value bears to the actual value, a computation which necessarily requires proof of the actual value in order to establish the co-insurance relationship. Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, 710-711; see International Navigation Co. v. Atlantic Mutual Ins. Co., 100 F. 304, 318, aff'd per curiam 108 F. 987; Arnould on Marine Insurance, 11th Edition, § 340; Eldridge on Marine Policies, 2nd Edition, p. 90. It is true, as was pointed out in Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, that in case of valued hull policies losses resulting in repairs are customarily paid in full, not because of agreement or estoppel but because partial losses to hull usually result in repairs without any valuation of the hull and the rule that the recovery shall be measured by repairs has been found more convenient in practice than one requiring determination of the sound value of the ship. See Lohre v. Aitchison, L. R. 2 Q. B. D. 501, 507. The same rule as in the case of cargo insurance has been ...


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