US SUPREME COURT DECISIONS

HUGG V. AUGUSTA INSURANCE & BANKING CO., 48 U. S. 595 (1849)

Subscribe to Cases that cite 48 U. S. 595

U.S. Supreme Court

Hugg v. Augusta Insurance & Banking Co., 48 U.S. 7 How. 595 595 (1849)

Hugg v. Augusta Insurance & Banking Co.

48 U.S. (7 How.) 595

ON CERTIFICATE OF DIVISION FROM THE CIRCUIT COURT

OF THE UNITED STATES FOR THE DISTRICT OF MARYLAND

Syllabus

In an insurance upon freight, there is no total loss of a memorandum article as long as the goods have not lost their original character, but remain in specie, and in that condition are capable of being shipped to their destined port, no matter what may be the extent of the damage.

If, however, the articles are not capable of being carried in specie to the port of destination, arising from danger to the health of the crew or to the safety of the vessel, or the public authorities at the port of distress order the articles to be thrown overboard from fear of disease, there would be a total loss.

In construing the contract of insurance upon freight, the interest of the insured or of the underwriters of the cargo is not considered. Therefore, if the vessel is in a condition to carry on the cargo to the port of destination or another vessel can be procured for that purpose, it is the duty of the owner of the vessel to carry it on, although it may be for the interest of the insured and insurers of the cargo to sell it at the port of distress.

If so sold, the insured cannot recover for a total loss of freight.

But although it is the duty of the owner of the vessel either to repair his own or to procure another at the port of distress to carry on the cargo, yet if it should be made to appear that the repairs or procurement of another vessel would necessarily produce such a retardation of the voyage as would in all probability occasion a destruction of the article in specie before it could arrive at the port of destination, or from its damaged condition it could not be reshipped in time consistently with the health of the crew or safety of the vessel, or would not be in a fit condition, from pestilential effluvia or otherwise, to be carried on, it then became the duty of the master to sell the goods for the benefit of whom it might concern.

A policy of insurance upon

"freight of the bark Margaret Hugg at and from Baltimore to Rio Janeiro and back to Havana or Matanzas or a port in the United States, to the amount of $5,000, upon all lawful goods &c., beginning the adventure upon the said freight from and immediately following the lading thereof aforesaid at Baltimore, and continuing the same until the said goods, wares, and merchandise shall be safely landed at the port aforesaid,"

upon which a greater premium was paid than was usual for the outward voyage alone, must not be construed as a policy upon the round voyage.

The insurers were therefore not entitled to a deduction for the outward freight.

The Reporter finds the following statement prefixed to the opinion of the court, as delivered by MR. JUSTICE NELSON.

This is an action upon a policy of insurance on the freight of the bark Margaret Hugg, at and from Baltimore to Rio Janeiro and back to Havana or Matanzas, with liberty to touch and stay at any intermediate port in case of stress of weather or for the purpose of transacting business. The amount $5,000; premium, $158.25.

The policy contained the usual memorandum, enumerating various articles warranted free from average and all others that were perishable in their own nature.

About four hundred tons of jerked beef were shipped on board the vessel at Montevideo, which were to be delivered in good order at the port of Matanzas or Havana to the consignees, chanrobles.com-red

Page 48 U. S. 596

they paying freight. The bill of lading was signed 25 April, 1842.

The vessel sailed from Montevideo on 29 April, and, after being out some forty-seven days, encountered a storm and was driven on Gingerbread Ground, where she received considerable damage; the rudder was broken and unshipped, and as the extent of the damage could not be ascertained, it was deemed prudent, on consultation with the captain of a wrecking vessel and Bahama pilot, to go into Nassau for the purpose of a survey and repairs. The wind was fair for that port, but strong ahead in the direction of Matanzas. The vessel was taken in charge of one of the wreckers, and arrived at Nassau on the second day, about 20 June, and grounded on the bar while entering the harbor and under the charge of the King's pilot, and sustained a good deal additional damage.

A part of the beef had been thrown overboard to lighten the vessel while on the Gingerbread Ground, and a much larger quantity while on the bar at Nassau. She had leaked while on the ground in the former place, so that it was necessary to work the pumps every half hour, and at the latter there was seven or eight feet of water in the hold, with some fourteen men at the pumps.

The beef was so much damaged by the sea water that the board of health at Nassau refused to allow but about one hundred and fifty tons to be landed. The rest was ordered to be carried outside the bar and thrown into the sea for fear of disease; it was wet and very much heated, some of it so changed as to become green, and all emitting an offensive stench. The portion allowed to be landed was wet and heated, and not in a fit condition to be shipped, and the board of health recommended to the authorities that it should be removed as soon as conveniently could be.

The vessel was surveyed after the cargo was discharged, and it was found that the rudder was entirely broken off, the forefoot gone, and the keel greatly shattered and damaged, and it appears to be conceded that she could not have been repaired at that port so as to have carried on the cargo, and that, if she could, it would have cost more than half her value. She was repaired sufficiently to bring her home in ballast. It also appears that there was no vessel in port that could be procured to forward on the remaining cargo even if it had been in a condition to be shipped.

The salvors libeled the vessel and cargo for salvage services in the Vice-Admiralty Court of the Bahamas on 30 June, 1842, to which the master put in an answer on 7 chanrobles.com-red

Page 48 U. S. 597

July, insisting that the libellants were entitled to compensation for pilotage only, and not for salvage.

The court, on 18 July, decreed $2,100 salvage to the libellants for services rendered to the vessel and cargo. Appraisers of the vessel and cargo taken on shore had been previously appointed, and on an examination of the cargo it was found to be so much damaged and in such a condition that they advised an immediate sale, as it was deteriorating in value daily.

The master assented to a sale accordingly, which was ordered by the court on his application on 1 July. The net proceeds amounted to $2,664.92. The time occupied in an ordinary voyage from Nassau to Matanzas is three days, and to Baltimore ten.

It was proved by several masters of vessels that the navigation at the place where the Margaret Hugg first grounded and was visited by the pilots was very hazardous, and that under similar circumstances they would have considered it their duty to have carried their vessel into the harbor at Nassau.

The regular premium for insurance of freight of the cargo covered by the policy for the outward voyage was about one and one eighth percent

Upon this state of facts appearing at the trial, the following questions were raised, and presented to the court, viz.:

1. It being admitted that the loss is to be adjusted according to the terms of the Baltimore Insurance Company, if the jury find that jerked beef was a perishable article within the meaning of the policy, are the defendants liable as for a total loss of freight unless the entire cargo was so totally destroyed that no part of it could have been carried to the port of destination even in a deteriorated and valueless condition?

2. If the jury find that from the condition of that portion of the cargo sold at Nassau (occasioned by the disasters stated in the testimony), it was for the interest of the insured and insurers upon the cargo that it should be so sold, and not transported to Matanzas, is the plaintiff entitled to recover for a total loss of freight, provided his own vessel could have been repaired in a reasonable time, so as to perform the voyage in safety, or he could have procured another vessel, and have transmitted to the port of destination, in its deteriorated state, the portion sold at Nassau? And

3. Assuming that the plaintiff is entitled to recover, is the policy on the amount mentioned for one entire voyage round, from Baltimore out and home again?, and are the defendants entitled to deduct from the amount insured the freight earned in the voyage from Baltimore to Rio upon the outward cargo? chanrobles.com-red

Page 48 U. S. 604

MR. JUSTICE NELSON delivered the opinion of the Court after reading the statement prefixed to this report.

The first point certified, upon the assumptions stated, involves the question whether the underwriter of a policy upon freight of goods warranted free from average is liable as for a total loss unless the goods be actually destroyed by one of the perils insured against, so as to be incapable of shipment to the port of destination, or whether a total loss may result at the port of distress from the goods having been so much damaged that, if sent on, they would become of no value at the time they reached the port of destination, and hence, instead of being sent on, may be sold for the benefit of whom it may concern.

The contract of insurance upon freight is that the goods shall arrive at the port of delivery notwithstanding the perils insured against, and that if they fail thus to arrive and the owner is thereby unable to earn his freight, the underwriter will make it good.

It does not undertake that the goods shall be delivered in a sound or merchantable state, or that the vessel in which they are shipped shall be safe against the dangers of the sea, but that it shall be in the power of the insured to earn his freight; that is that the perils insured against shall not prevent the ship from earning full freight for the assured in that voyage. If the ship and cargo remain, notwithstanding the disasters, in a condition to continue the voyage, it is in his power to earn freight, and he is bound to proceed; but if damage happens to either and the voyage is broken up, so that no freight can be earned, the owner is entitled to recover, as for a total or partial loss, according as he may or may not have earned freight pro rata itineris.

If the damage happens to the vessel and that can be repaired at the port of distress in a reasonable time and at a reasonable expense, it is the duty of the owner to make the repairs and to continue the voyage and earn his freight, and, on the other hand, if the damage happens to the goods and the ship be in a capacity to proceed, or, if disabled, another can be procured upon reasonable terms, the owner of the ship will still be entitled to perform the voyage and recover his freight unless the goods have been totally destroyed. In every case, before he can recover of the underwriter, he must show that he chanrobles.com-red

Page 48 U. S. 605

was prevented by one of the perils insured against from completing the voyage, and, for that reason, had failed to entitle himself to freight from the shippers.

The first point certified to us assumes that the ship was capable of carrying on the cargo to the port of delivery notwithstanding the injuries received, and the only question is whether the cargo was so much damaged and in such a condition as to have dispensed with that duty.

In the case of memorandum articles, the exception of particular average excludes a constructive total loss, and of course the principle which allows an abandonment where the loss exceeds half the value does not apply. There must be an actual total loss of the goods. The object of the clause is to protect the underwriter from any partial loss on articles of a perishable nature, which are liable to inherent decay and damage, independently of the damage occasioned by the perils insured against, and where it would be difficult, if not impossible, to distinguish between them. In case of a total loss consequent upon the happening of one of the perils, the whole damage is presumed to have arisen from that cause, and thus all dispute is avoided as to the origin or nature of the loss.

What constitutes a total loss of a memorandum article has been the subject of frequent discussion both in the courts of England and this country, and in the former of some diversity of opinion; but in most of the cases the decisions have been uniform and the principle governing the question regarded as settled, and that is so long as the goods have not lost their original character, but remain in specie, and in that condition are capable of being shipped to the destined port, there cannot be a total loss of the article, whatever may be the extent of the damage, so as to subject the underwriter. The loss is but partial. The cases are numerous on the subject, and will be found collected in Park on Marine Ins., ch. 6, subd. 13, 247; 2 Phillips on Ins., ch. 18, 483; and 3 Kent's Com. 295, 296. It would be useless to refer more particularly to them.

The only doubt that has been expressed in respect to the soundness of this rule is whether a destruction in value for all the purposes of the adventure, so that the objects of the voyage were no longer worth pursuing, should not be regarded as a total loss within the memorandum clause, as well as a destruction in specie. But although this has been suggested in several cases in England as a proper qualification and as coming within the obligation of the underwriter, there is no case to be found in which the suggestion has received the sanction of judicial authority.

In this country, the rule has been uniform that there must chanrobles.com-red

Page 48 U. S. 606

be a destruction of the article in specie, as will be seen by a reference to the following authorities. Maggrath v. Church, 1 Caines 196; Neilson v. Col. Ins. Co., 3 Caines 108; Le Roy v. Gouverneur, 1 Johns.Cas. 226; Griswold v. New York Ins. Co., 1 Johns. 205, Livingston, J.; S.C., 3 id. 321; Saltus v. Ocean Ins. Co., 14 id. 138; Whitney v. N.Y. Firemen Ins. Co., 18 id. 208; Brooke v. Louis. state Ins. Co., 4 Martin N.S. 640; S.C. 5 id. 530; Morean v. U.S. Ins. Co., 1 Wheat. 219; McGaw v. Ocean Ins. Co., 23 Pick. 405; 3 Sumner 544; 1 Story 342.

Whether the test of liability is made to depend upon the destruction in specie, or in value, would, we are inclined to think, as a general rule, make practically very little, if any, difference; for while the goods remain in specie, and are capable of being carried on in that condition to the destined port, it will rarely happen that on their arrival they will be of no value to the owner or consignee. The proposition assumes a complete destruction in value, otherwise the uncertainty attending it would be an insuperable objection; and, in that view, it may be a question even if the degree of deterioration would not be greater to constitute a total loss than is required under the present rule.

The rule as settled seems preferable, for its certainty and simplicity, and as affording the best security to the underwriter against the strong temptation that may frequently exist, on the part of the master and shipper, to convert a partial into a total loss.

Mr. Park, in speaking of the case of Cocking v. Fraser, 4 Doug. 295, a leading one in the establishment of the rule, observes that the wisdom of the decision is apparent; for, otherwise, it would be a constant temptation to the assured, whenever a cargo of this description was likely to reach the port of destination in an unsound state, to throw the loss upon the underwriters, by voluntarily giving up the further prosecution of the voyage, to which they were not liable by the terms of the memorandum. 1 Park 249.

The rule, it will be observed, as we have stated it, contemplates the arrival of the goods, or some part of them, in specie at the port of delivery, or that they were capable of being shipped to that port in specie. And hence, if the commodity be damaged so that it would not be allowed to remain on board consistently with the health of the crew or safety of the vessel, or if permission be refused to land the same by the public authorities at the port of distress for fear of disease, and, for these and like causes, should from necessity be destroyed by being thrown overboard notwithstanding the article existed chanrobles.com-red

Page 48 U. S. 607

in specie and might have been carried on in that condition, there would still be a total loss within the meaning of the policy. In the cases supposed, it is as effectually destroyed by a peril insured against, as if it had gone to the bottom of the sea from the wreck of the ship. The same result follows also if the goods be so much damaged as to be incapable of reaching the port of destination in their original character.

These principles are either stated in or are fairly deducible from several cases, but especially from the cases of Dyson v. Rowcroft, 3 Bos. & Pul. 474, and Roux v. Salvador, 3 Bing. 266, and S.C. 1 Bing. 526.

In Roux v. Salvador, in the Exchequer, it was observed that the argument rested upon the position that if at the termination of the risk, the goods remained in specie, however damaged, there was not a total loss, and it was admitted that the position might be just if by the termination of the risk was meant the arrival of the goods at their place of destination, but that there was a fallacy in applying those words to the termination of the adventure before that period by a peril of the sea, as the object of the policy is to obtain an indemnity for any loss that the assured might sustain by the goods being prevented by the perils of the sea from arriving in safety at the port of destination.

It was also remarked that if the goods once damaged by the perils of the sea and necessarily landed before the termination of the voyage were by reason of that damage in such a state, though the species be not utterly destroyed, that they could not with safety be reshipped into the same or any other vessel -- or if it was certain that before the termination of the original voyage the species itself would disappear -- in any of these cases, the circumstance of their existence in specie at the forced termination of the risk was of no importance.

The jury had found in that case that the hides were so far damaged by a peril of the sea that they never could have arrived at the port of destination in the form of hides, and as the destruction was not complete when they were taken out of the vessel at the port of distress, they became, in their then condition, a salvage for the benefit of the party who was to sustain the loss.

In respect to the first point, therefore, the court direct that it be certified to the circuit court that if the jury find that the jerked beef was a perishable article within the meaning of the policy, the defendant is not liable as for a total loss of the freight unless it appears that there was a destruction in specie of the entire cargo, so that it had lost its original character at Nassau, the port of distress, or that a total destruction would chanrobles.com-red

Page 48 U. S. 608

have been inevitable from the damage received, if it had been reshipped before it could have arrived at Matanzas, the port of destination.

The second point certified assumes that the vessel, notwithstanding the disaster, was in a condition to carry on the cargo, or that another could be procured, and the question is whether the plaintiff is entitled to recover as for a total loss of freight if it appeared that it was for the interest of the insured and insurer of the cargo, on account of the damaged condition of the portion sold, that it should have been sold and not carried on to Matanzas, the port of delivery.

Many of the considerations stated in our examination of the first point certified have a direct application to this one, as it there appears that the interest of the insured or of the underwriter of the cargo is not taken into the account nor in any way regarded in determining whether or not a total loss of the freight has happened from any of the perils insured against, but whether there has been a destruction of the entire cargo in specie or such damage received as would inevitably prevent the arrival of any portion of it in specie at the destined port.

The interest of the owner of the cargo may frequently be adverse to that of the owner of the ship, for although the goods remain in specie and in that condition capable of being carried on, it may be for the interest of the owner or of the insurer of the cargo to have it sold in its then damaged state at the intermediate port, instead of taking the risk of further deterioration. But in that case the owner or those representing him must act upon their own responsibility, for if he elects to receive the goods voluntarily at a place short of the port of destination, he is responsible for the freight. The loss cannot be total or partial at his will or as his interest may dictate.

It was said in Griswold v. New York Ins. Co., which was an action on a policy on freight, that whether it would have been wise or foolish in the shipper to have sent on the flour in the condition it was in was a question not to be put to the plaintiffs. It was none of their concern. The risk of the value of the cargo at the port of delivery lay with the owners of the cargo. All that the plaintiffs had to do by their contract was to provide the means to take on the cargo by repairing their ship or procuring another.

Other considerations may arise as between the owner and insurer of the cargo, but it is not important now to go into them.

On looking into the facts in this case, it will be seen that the portion of the beef landed at Nassau and sold was wet and heated, and that the board of health had recommended to the chanrobles.com-red

Page 48 U. S. 609

authorities that it should be removed as soon as it conveniently could be without too great a sacrifice of the property. It is obvious, therefore, that the perishable condition of the article must be taken into consideration in deciding upon the obligation of the master, in the emergency, to repair his vessel or to procure another for the purpose of sending it on to the port of delivery. If it should be made to appear that the repairs or procurement of another vessel would necessarily produce such a retardation of the voyage as would in all probability occasion a destruction of the article in specie before it could arrive at the port of destination or from its damaged condition could not be reshipped in time consistently with the health of the crew or safety of the vessel, or would not be in a fit condition from pestilential effluvia or otherwise to be carried on, it then was the duty of the master to sell the goods for the benefit of whom it might concern.

The cargo being in a perishable condition, the extent of the repairs, or difficulty of procuring another vessel, and consequent delay attending the same, are material considerations influencing his judgment in deciding upon the necessity of a sale, for it would be unreasonable to require him to subject his owner to this expense when, at the same time, a strong probability existed that the cargo would not be in a condition to be reshipped. 18 Johns. 208; 6 Cow. 270; 1 Bing. 526; 3 id. 266; 3 Brod. & Bing. 97; S.C., 6 Moore 288; 6 Taunt. 383; 1 Holt, 48; 3 Kent's Com. 212, 213; 2 Phillips, 331 et seq.

The quantity and value of the portion saved are also material circumstances to be considered in exercising a sound discretion in respect to the extent of the repairs required to be made, or of expense in the procurement of another vessel, with a view to the earning of salvage for the benefit of the underwriter on freight. The owner of the cargo is liable for any increased freight arising from the hire of another vessel, and unless it can be procured at an expense not exceeding the amount of the freight to be earned by completing the voyage, the underwriter on freight has no right to insist upon this duty of the master. Beyond this it becomes a question between him and the owner or underwriter of the cargo. 3 Kent's Com. 212; Shipton v. Thornton, 9 Adolph. & Ellis 314; Searle v. Scovel, 4 Johns.Ch. 218; American Ins. Co. v. Center, 4 Wend. 45; 2 Phillips 216.

In respect to the second question, therefore, we direct it to be certified to the circuit court if the jury find that from the condition of that portion of the cargo sold at Nassau it was for the interest of the insured and insurers of the cargo that it chanrobles.com-red

Page 48 U. S. 610

should have been so sold and not transported to Matanzas, still the plaintiffs are not entitled to recover as for a total loss of freight, provided their own vessel could have been repaired in a reasonable time and at a reasonable expense so as to perform the voyage or they could have procured another at Nassau, the port of distress, and have transshipped the portion sold in specie to the port of destination.

The third question is, assuming that the plaintiffs are entitled to recover, is the policy on the amount mentioned for one entire voyage round from Baltimore out and home again, and are the defendants entitled to deduct from the amount insured the freight earned in the voyage from Baltimore to Rio upon the outward cargo.

The policy provides that the defendants, in consideration of $156.25, agree to insure the plaintiffs &c., on freight of the bark Margaret Hugg at and from Baltimore to Rio Janeiro and back to Havana or Matanzas, or a port in the United States &c., to the amount of $5,000 upon all kinds of lawful goods &c., beginning the adventure upon the said freight from and immediately following the lading thereof aforesaid at Baltimore and continuing the same until the said goods, wares, and merchandise shall be safely landed at the port aforesaid.

It is insisted on the part of the defendants that the voyage insured is one entire voyage from Baltimore out to Rio Janeiro and then to Matanzas or home, and that they are entitled to a deduction of the freight earned on the outward cargo from Baltimore to Rio.

The Court is of opinion that upon a true construction of the policy, the insurance was upon every successive cargo that was taken on board in the course of the voyage out and home, and is to be applied to the freight at risk at any time, whether on the outward or homeward passage. This was the construction given to these terms in a freight policy in Davy v. Hallett, 3 Caines 16, and The Columbian Ins. Co. v. Catlet, 12 Wheat. 383. The insurance was regarded as in effect covering freight upon separate voyages out and home, to the amount of the valuation, and in the former case the payment of double premium was deemed a pretty sure index to the intent of the parties that the policy should attach on the outward or homeward freight according to events, and was to be valid and operative as long as there was aliment to keep it alive. All the considerations urged in favor of this construction in the cases referred to apply with equal force to the policy in question.

The Court directs, therefore, that it be certified to the circuit chanrobles.com-red

Page 48 U. S. 611

court that assuming the plaintiffs are entitled to recover, the defendants are not entitled to deduct from the insured the freight earned on the voyage from Baltimore to Rio upon the outward cargo, as the policy is not for one entire voyage round from Baltimore out and home.

Order

This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Maryland, and on the points and questions on which the judges of the said circuit court were opposed in opinion, and which were certified to this Court for its opinion agreeably to the act of Congress in such case made and provided, and was argued by counsel. On consideration whereof it is the opinion of this Court:

1st. That if the jury find that the jerked beef was a perishable article within the meaning of the policy, the defendants are not liable as for a total loss of the freight unless it appears that there was a destruction in specie of the entire cargo, so that it had lost its original character at Nassau, the port of distress, or that a total destruction would have been inevitable from the damage received if it had been reshipped before it could have arrived at Matanzas, the port of destination.

2d. If the jury find that from the condition of that portion of the cargo sold at Nassau, it was for the interest of the insured and insurers of the cargo that it should have been so sold and not transported to Matanzas, still that the plaintiffs are not entitled to recover as for a total loss of freight, provided their own vessel could have been repaired in a reasonable time and at a reasonable expense, so as to perform the voyage, or they could have procured another at Nassau, the port of distress, and have transshipped the portion sold in specie to the port of destination.

And 3d. That assuming the plaintiffs are entitled to recover, the defendants are not entitled to deduct from the insured the freight earned on the voyage from Baltimore to Rio upon the outward cargo, as the policy is not for one entire voyage round from Baltimore out and home.

Whereupon it is now here ordered and adjudged, that it be so certified to the said circuit court.



























chanrobles.com



ChanRobles Legal Resources:

ChanRobles On-Line Bar Review

ChanRobles Internet Bar Review : www.chanroblesbar.com

ChanRobles MCLE On-line

ChanRobles Lawnet Inc. - ChanRobles MCLE On-line : www.chanroblesmcleonline.com