New York, New Haven and Hartford Railroad Company, Libelant-appellant, v. William Stanger Gray, One of the Lloyd's Underwriters, Andorion Insurance Company, Ltd., Insurance Company Member of the Institute of London Underwriters, Respondent-appellees, 240 F.2d 460 (2d Cir. 1957)

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US Court of Appeals for the Second Circuit - 240 F.2d 460 (2d Cir. 1957) Argued December 7, 1956
Decided January 16, 1957

The appellees, underwriters, issued to appellant two policies of marine insurance, identical in form, covering railroad cars and their contents while afloat on appellant's carfloats. The printed portion of each policy stated the coverage in part as follows: "Touching the Adventures and Perils which we the Assurers are contented to bear and do take upon us in this Voyage, they are, of the Seas * * * and all other Perils, Losses and Misfortunes that have or shall come to the Hurt, Detriment or Damage of the said goods and Merchandises and Ship, &c., or any Part thereof * * *"

A typewritten rider read in part as follows: "$500,000 in all any one accident with limits as below on all goods, wares, merchandise, baggage, and other property; including articles excepted in the printed part of this policy; and on advanced charges and on freight charges up to point of occurrence of loss; belonging to the assured or held by it in trust or custody as carrier or forwarder, and for which it may be liable, while same is in or on cars on Floats owned or employed by said Railroad Company, and/or while said cars are being hauled on or off said vessels; and on cars belonging to the assured or in its use or possession, while the same are on said floats or being hauled on or off of said vessels. While said floats are conveying said cars in and through the waters of New York Harbor, or to and from Mott Haven on the Harlem River and, to and from Oak Point on the East River, or to and from Jersey City on the North River, or while lying in said harbor, or in any of said waters, or while being loaded or unloaded. * * * This policy covers accidents occurring between 1st January, 1951 and the 31st September, 1951, both days inclusive, Eastern Standard Time."

Appellant brought suit against appellees in admiralty on the policies. After a trial, the judge entered a decree dismissing the libel. His findings of fact and legal conclusions and opinion read as follows: "On February 9, 1951 libelant's steel Carfloat No. 60, a three track float, approximately 327 feet long, with a depth of 10 feet 6 inches, a draft (light) of 3 feet and divided into 17 separate compartments, was located in the Harlem River Basin off libelant's Mott Haven Yard. On the carfloat were fastened thirteen empty gondola cars, five on the starboard side, five on the portside and three in the middle track. On the morning of February 9th libelant's employees commenced loading the gondola cars with steel concrete reinforcing rods. Sometime after 2:00 P.M. libelant's employees became aware that the bow of the carfloat was settling and libelant's Assistant Marine Superintendent and Marine Supervisor, among others, were duly informed.

"Sometime after 3:00 o'clock the Marine Supervisor inspected the float and found water in the various compartments as follows: Compartments No. 1 — 4 feet; No. 2 — 1½ feet; No. 4 — 2 feet; No. 7 — 1 foot; No. 8 — 2½ feet; No. 12 — 2 feet. The carfloat was needed the next day in its regular transfer business and the loading operation was continued until 6:00 P.M. at which time 801 tons of steel had been loaded into twelve of the thirteen cars on the float. One of the cars located on the portside of the stern end of the float was empty, and the one alongside of it was only partly filled. Libelant's Marine Supervisor and Assistant Marine Superintendent, when loading operations ceased, knew the carfloat was down at the bow with a freeboard of less than ten inches with a list to the port; had water in four of its compartments and that it was scheduled to be towed to Oak Point sometime during the night.

"Libelant's Marine Supervisor and Assistant Marine Superintendent went home for the day at 6:00 P.M. leaving instructions that the carfloat was to be towed stern end first. During the course of the evening the carfloat's bow continued to settle and this fact was reported to libelant's office.

"Sometime after 11:00 o'clock a floatman (from libelant's tug Transfer II which had been dispatched to move the float) discovered that the forward end of the float was under water which was pouring through the ventilators into the No. 3 compartment. The tug did not attempt to move the float in this condition. At about 12:30 A.M. on February 10th the gondola cars on the starboard side of the float broke their chains and rolled forward off the float into the river and five cars on the portside fell off the side of the float by reason of the backlash. According to stipulation the damage to the cargo and railroad cars amounted to $42,438.85. An examination of the float after the accident revealed a small hole in the port bow corner and a number of loose rivets in the lower bow angle.

"Conclusions of Law.

"Libel is dismissed.

"It is our view that this case is determined by the fact that the losses incurred were not caused by `Perils of the Sea.' On the facts in this case it is the Court's opinion that the immediate cause, and the only cause of the accident, was libelant's gross negligence. On February 9th, as early as 3:00 P.M., libelant's managing agents had full knowledge of a situation which merely had to continue to exist in order to result in the accident which eventually did occur and could have been worse. Libelant's Marine Supervisor and Assistant Marine Superintendent with full knowledge of the facts, and in the face of a series of warnings, apparently in the interest of speed deliberately continued to load a listing carfloat with a heavy cargo of steel. The only order which we believe they gave in the interest of safety was that the carfloat was to be towed stern first.

"The libelant in this case went to great pains to show that a certain amount of leakage in a vessel of the Carfloat No. 60 type was usual and to be expected. There is not a scintilla of evidence that anything happened other than this leakage from the time the loading of the steel ceased and the time when the vessel lost its cargo, which could properly be described as a `Peril of the Sea.' Libelant, by 6:00 P.M., through the gross negligence of its managing employees had rendered the Carfloat No. 60 unseaworthy and had placed the railroad cars and the goods insured by respondents in such a perilous position that loss was inevitable in the absence of remedial action. Libelant's failure to take any action in the face of repeated warnings from 6:00 P.M. to 12:30 A.M. was a continuation of the same type of negligent conduct which created the situation.

"Although it is the tendency of the courts to construe insurance policies strictly against the insurer, Henjes v. Aetna Ins. Co. [2 Cir.], 132 F.2d 715, the insured cannot, by their own wilful misconduct, enlarge the insurers' risk to include the ordinary and inevitable action of the sea with respect to an unseaworthy vessel. Union Insurance Co. v. Smith, 124 U.S. 405, 8 S. Ct. 534, 31 L. Ed. 497; Western Assurance Co. of Toronto, Canada v. Shaw, 3 Cir., 1926, 11 F.2d 495."

Kirlin, Campbell & Keating, New York City, Edward L. Smith, New York City, for libelant-appellant.

Dow & Symmers, New York City, for respondent-appellees, Daniel L. Stonebridge and Raymond W. Mitchell, New York City, of counsel.

Before CLARK, Chief Judge, and FRANK and LUMBARD, Circuit Judges.

FRANK, Circuit Judge.

The trial judge denied recovery because he held that the loss incurred was not caused by any "peril of the seas." As his findings show, the loss occurred as follows: The "sea" (i.e., water from the river) leaked into the carfloat; this caused the vessel to list and settle; this, in turn, caused some of the railroad's cars and their cargo to slide into the river; then the vessel lurched and other cars and their cargo also fell into the river. The judge held that railroad's employees had been guilty of "gross negligence" which was "the immediate cause and the only cause of the accident." The "gross negligence" consisted of taking a chance that the carfloat could be towed in spite of its known condition.

The loss resulted from a "peril of the seas." "It is enough that damage be done by the fortuitous action of the sea. For instance, where cargo was damaged by the incursion of seawater through a hole in a pipe gnawed by rats, the House of Lords held this to be a peril of the seas."1  That the sea is calm makes no difference.2  Negligence, whether or not "gross,"3  but for which the accident would not have occurred, will not serve as a defense to such a policy. Only "wilful misconduct," measuring up to "knavery" or "design," will suffice; and neither the evidence nor the judge's findings of fact show such conduct. True, the judge, in the last paragraph of his opinion, referred to the gross negligence as if it constituted wilful misconduct. There we think he erred. In Orient Insurance Co. v. Adams, 123 U.S. 67, 8 S. Ct. 68, 31 L. Ed. 63, the master, before his vessel had steam up, negligently gave orders to cast off into the current of a river; as a result, the vessel was carried over a waterfall and sank. In affirming a judgment, on a verdict in favor of the plaintiffs, under a policy insuring them against "perils of the seas," the Court said, 123 U.S. at page 73, 8 S. Ct. at page 71: "But it is insisted that the court should have granted the request of the company, to the effect that it was not liable if the accident and loss were caused by the `misconduct' of the master. Had that request been granted, in the form asked, the jury might have supposed that the company was relieved from liability if the master was chargeable with what is sometimes described as gross negligence, as distinguished from simple negligence. Hence the court properly said, in effect, that the misconduct of the master, unless affected by fraud or design, would not defeat a recovery on the policy. The principle upon which the court below acted was that expressed by Chief Justice Gibson in American Ins. Co. v. Insley, 7 Pa.St. 223, 230, when he said that `public policy requires no more than that a man be not suffered to insure against his own knavery, which is not to be protected or encouraged by any means;3a for though the maxim respondent superior is applicable to the responsibility of a master for the acts of his servants, yet the insured, so long as he acts with fidelity, is answerable neither for his servants nor for himself.'" See also Dudgeon v. Pembroke, 2 A.C. 284; Trinder, Anderson & Co. v. Thames and Mersey Mar. Ins. Co. (1895), 2 Q.B. 114; Waters v. Merchants' Louisville Ins. Co., 11 Pet. 213, 221-223, 9 L. Ed. 691.

In Olympia Canning Co. v. Union Marine Ins. Co., 9 Cir., 10 F.2d 72, 74, the court said: "In Davidson v. Burnand, L. R. 4 C.P. 117, the policy included perils of the sea. While the vessel was loading in the harbor her draft was increased by the weight of cargo until the discharge pipe was brought below the surface of the water. The cock of that pipe had been negligently left open. Water flowed into the hold causing injury to cargo. Willes, J., could find no distinction between loss from an accident happening through the negligence of the crew of another vessel and loss from accident happening from the negligence of the crew of the vessel on which the loss was occasioned, all such distinction having been swept aside by Dixon v. Sadler, 5 M. & W. 405. Keating, J., was of the same opinion, as was also Brett, J., who, speaking of the manner in which the injury occurred said: `The water got in, not by the happening of any ordinary occurrence in the ordinary course of the voyage, but by the accidental circumstances of some cock having been left open by the negligence of the crew. This is, in my opinion, sufficient to make the underwriter liable. Cases of like purport are Devaux v. J'Anson, 5 Bing. (N.C.) 515, and Walker v. Maitland, 5 Barn. & Ald. 171.' We find no case which overrules or calls in question the doctrine of the foregoing authorities. Guided thereby, we reach the conclusion that by the maritime laws and customs of England the loss in the case at bar was proximately caused by the overturning of the vessel under the impulse of tidal and river currents, although the accident would not have occurred, but for the negligent loading of cargo taken on board at Tacoma; that the overturning of the vessel was a peril of the sea, within the provisions of the insurance contract; and that the action of the sea was the immediate cause of the accident. In Smith v. Scott, 4 Taunt. 125, Lord Mansfield said: `I do not know how to make this out not to be a peril of the sea. What drove the Margaret against the Helena? The sea. What was the cause that the crew of the Margaret did not prevent her from running against the other? Their gross and culpable negligence; but still, the sea did the mischief.'"

A determination by a trial judge of the existence of negligence is not a finding of fact but a legal conclusion.4  So, too, is a determination as to "wilful misconduct." Accordingly, the judge's statement as to such conduct is not binding on us. And, as this is not a tort action, the horrendous niceties of the doctrine of so-called "proximate cause," employed in negligence suits,5  apply in a limited manner only to insurance policies.6 

We do not agree with the trial judge that the libelant's gross negligence was the sole cause of the accident. Nor do we agree with his conclusion that the "loss was inevitable" because of the way the carfloat was loaded and of her condition.7  The evidence shows a concatenation of fortuitous circumstances (including misunderstanding by the dispatcher of some of the reports made to him about the vessel's listing).

Cases cited by appellees are inapposite: Union Ins. Co. v. Smith, 124 U.S. 405, 8 S. Ct. 534, 31 L. Ed. 497, related to a policy which expressly excepted perils "consequent upon" and "arising from" or "caused by incompetency of the master" or "want of ordinary care and skill in navigating said vessel," and "all unseaworthiness."8  Diethelm & Co. v. The Flying Trader, D.C.S.D.N.Y., 141 F. Supp. 271, involved no insurance policy; it was a suit against an ocean carrier which defended on the ground that bills of lading excluded damage due to perils of the sea (and which was nevertheless required to pay for damage to cargo injured in a moderate gale). In Chicago S.S. Lines v. U. S. Lloyds, D.C.N.D. Ill., 2 F.2d 767, affirmed, 7 Cir., 12 F.2d 733, the policy contained an express warranty against the master's negligence.9  Henjes v. Aetna Ins. Co., 2 Cir., 132 F.2d 715, 720, also related to a breach of an express warranty.

Western Assur. Co. of Toronto, Canada v. Shaw, 3 Cir., 11 F.2d 495, a case cited by the trial judge, concerned a policy expressly excepting all claims arising "from the want of ordinary care and skill in loading and stowing the cargo." Such, or related cases, we need not consider, since appellees close their brief with the statement: "It has never been maintained by the insurers that the policies in suit contain an express or implied warranty of seaworthiness; neither has it been maintained that they contain an express `due care' warranty."

Appellees correctly disclaimed defense of an implied warranty of seaworthiness, since these are time policies.10  However, appellees, referring to the English Marine Insurance Act (1906) as purporting to codify the English "case law," cite Section 39(5) of that Act which provides: "In a time policy there is no implied warranty that the ship shall be seaworthy at any state of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness." Appellees contend that the emphasized words relieve them of liability here. We think not. We assume, arguendo, (1) that the evidence showed the "privity of the assured" and (2) that, in each of the numerous trips made by this busy carfloat, it was "sent to sea" when it left its moorings. Even so, we reject appellees' contention. For, when the loading occurred and when the accident happened, the carfloat had not been "sent to sea" but was still moored. The rider to the policy expressly provides that the insurance applies while the vessel is thus moored and "while being loaded."

We reverse with directions to enter a decree in favor of appellant for its stipulated loss, together with interest and costs.


2 Arnold, Marine Insurance (14th ed.) Section 812


Judge Rifkind in Compania T. Centro-Americana v. Alliance Ass. Co., D.C., 50 F. Supp. 986, 991; Olympia Canning Co. v. Union Marine Ins. Co., 9 Cir., 10 F.2d 72


For criticism of the differentiation between "negligence" and "gross negligence," see, e. g., Kelly v. Malott, 7 Cir., 135 F. 74, 76; The New World v. King, 16 How. 469, 474, 14 L. Ed. 1019

3a. Cf. P. Samuel & Co. v. Dumas (1924), A.C. 431, 446, 453, where the ship was wilfully scuttled by the direction of the owner.


Barbarino v. Stanhope S.S. Co., 2 Cir., 151 F.2d 535, 555; Kreste v. United States, 2 Cir., 158 F.2d 575, 577-578; Dale v. Rosenfeld, 2 Cir., 229 F.2d 855, 858


See discussion of "proximate cause" in Hentschel v. Baby Bathinette Corp., 2 Cir., 215 F.2d 102, 105 ff. (dissenting opinion)


See, e. g., Green, Proximate and Remote Cause, in Green, Essays on Tort and Crime (1933) 1 at 15-16


There is much to be said for the following statement made in its brief by appellant: "It was also the result of the actions of the sea upon her in that condition, the place and way she was moored, the words chosen by those reporting her trim to the dispatcher, and a thousand other circumstances. As a matter of hindsight, every happening is the inevitable result of its causes, but as a matter of foresight, no one can predict what causes will be operating at any given moment. Therein lies the element of fortuity that must form an element of a recoverable insurance loss. * * * It is against the unpredictable happenstance of loss through whatever set of circumstances * * * that men take out insurance policies. * * * Loss was not inevitable until water started pouring down Carfloat 60's ventilators less than a half hour before the loss occurred. Many unpredictable circumstances brought about the failure to restore the float to an even and level keel by pumping some water into the stern compartments or taking any of the other steps which would have prevented the accident to which the district court decision refers as a failure to take `remedial action.' An easily rectified maladjustment in trim occurring in the course of loading, failure to set brakes or the existence of controllable leakage * * * did not render the loss non-fortuitous nor bar a recovery from the underwriters therefor in the absence of a warranty of seaworthiness or against negligence. The law of insurance is not like the law of torts to be used as an instrument of coercion upon assureds to improve operating practices. Assureds do not go into the insurance market to buy themselves an overseer."


Moreover, the court affirmed a judgment for the plaintiff


The case related to an alleged abandonment and the correct interpretation of the "Inchmaree" clause in a hull insurance policy; the loss resulted from a defective condition of the hull created by a repair in drydock, a cause outside the coverage unless within an "Inchmaree" clause. The question was whether the assured had brought itself within the express condition precedent to coverage under that clause, i. e., the exercise of due diligence to guard against latent defects


There are statements in the following cases that the rule may be somewhat different in this country, i. e., that, although there may be no implied warranty of seaworthiness in a time policy, yet if the vessel is in port where repairs may be made, the insured cannot recover for any loss subsequently occurring when the vessel is at sea which is caused by the want of diligence in making the repairs; Union Ins. Co. v. Smith, 124 U.S. 405, 8 S. Ct. 534, 31 L. Ed. 497; New York & P. R. S.S. Co. v. Aetna Ins. Co., 2 Cir., 204 F. 255, 258; Henjes v. Aetna Ins. Co., 2 Cir., 132 F.2d 715, 719. However, as pointed out supra, the statement in the Union Ins. Co. case was obiter for the case involved an express warranty against unseaworthiness. That this was obiter is noted in the New York & P. R. S.S. Co. case, 204 F. 255, 258 (and had been noted by Judge Learned Hand in the district court, 192 F. 212, 214-215). The statement of the so-called American rule in 204 F. at page 258 was also obiter, since the court found no want of diligence. So too was the statement in the Henjes case supra, where there was a breach of an express promissory warranty