443 F.2d 250

ALCOA STEAMSHIP COMPANY, Inc., Plaintiff-Appellee Cross Appellant, v. CHARLES FERRAN & CO., Inc. and Glens Falls Insurance Company, et al., Defendants-Appellants Cross Appellees.

No. 28944.

United States Court of Appeals, Fifth Circuit.

April 26, 1971.

Rehearing Denied and Rehearing En Banc Denied June 23, 1971.

*251George B. Matthews, Lemle, Kelleher, Kohlmeyer, Matthews & Schumacher, New Orleans, La., for Charles Ferran & Co., Inc., and Glens Falls Insurance Co.

Leon Sarpy, James G. Burke, Paul A. Nalty, New Orleans, La., Proctors for Excess Underwriters of Charles Ferran & Co., Inc.; Chaffe, McCall, Phillips, Burke, Toler & Sarpy, New Orleans, La., of counsel.

Benjamin W. Yancey, Edward S. Bagley, Francis Emmett, New Orleans, La.,

for Alcoa Steamship Co., Inc.; Terriberry, Carroll, Yancey & Farrell, New Orleans, La., of counsel.

Before JOHN R. BROWN, Chief Judge, and GEWIN and THORNBERRY, Circuit Judges.

JOHN R. BROWN, Chief Judge:

Now on its second voyage here1 the case presents a rehash of the Louisiana Direct Action and Red Letter Clause problem, one concerning interest on the limited liability figure, an intramural controversy between the Shiprepairer’s 2 primary and excess underwriters as to interest, and a tag end complaint by Shipowner 3 with respect to the amount of interest which has accumulated in one year between the date of the casualty and the first judicial demand. We affirm in part and reverse in part.

After remand following Op [iii] the parties never got around to proving Shipowner’s total damages or the reduction thereof under the doctrine of avoidable consequences. About the time it seemed likely that the Special Master and District Court would adhere to our holding in Op [iii] p. 56, that the Red Letter Clause4 limitation of $300,000 *252extended to the underwriters under the Louisiana Direct Action Statute,5 the Primary Underwriter (Glens Falls) threw in the towel by paying the full $300,000 into the Registry. The Master entered (and the District Court approved) an order limiting liability of Shiprepairer and its Underwriters to $300,000, but he allowed interest against Shiprepairer and its Primary Underwriter on that sum, from the date of judicial demand (October 1957), rather than the date of the loss (October 1956). Shipowner by its appeal wants to recover the full loss from the Underwriters under the Direct Action Statute, plus interest for the additional year. The Primary Underwriter continues to join hands with its long time but now-sometime-ally, the Excess Underwriters (Lloyds), as both resist that awful prospect, but soon fall out as each takes the generous view that the other, not it, American Fidelity & Casualty Company, Inc. v. St. Paul-Mercury Indemnity Company, 5 Cir., 1957, 248 F.2d 509, should bear the loss of interest.

Red Letter and Direct Action

In Op [iii] we affirmed the earlier decisions of the District Court upholding the validity of the Red Letter Clause (see note 4, supra) and extending that dollar limitation to the Underwriters under the Direct Action Statute. Ordinarily that would be an end to it under the law of the case doctrine. Lincoln National Life Insurance Company v. Roosth, 5 Cir., 1962, 306 F.2d 110 (en banc), cert. denied, 1963, 372 U.S. 912, 83 S.Ct. 726, 9 L.Ed.2d 720. But we agree that the matter deserves another look-see in view of the long awaited answer to the Jane Smith 4-1-4 riddle6 *253which came 15 years later in our celebrated Nebel Towing.7

Whatever else might be said by the protagonists about Nebel Towing, or what else it may portend, neither our holding therein that the statutory limitation of shipowner’s liability is a defense personal to the assured shipowner nor the elucidation of it, transfers to a contractual limitation contained in the agreement which is the principal (if not whole) source of rights and obligations.

The problem of course is an amphibious one which is the result of mixing the Louisiana codal provision concerning debtors in solido 8 — as the Direct Action Statute (note 5, supra) expressly characterizes the liability- — -into a maritime case. In the context of a Direct Action situation the cases, as did Nebel Towing, turn on whether the particular defense is “personal to some of the other codebtors.” 9 And until rejected in Nebel Towing, none involved directly the affirmative provision of Art. 2098 (note 8, supra,) extending to all codebtors the defenses “resulting from the nature of the obligation.”

Although we have found little in the way of Court decisions or the preferred .legal literature of the Civil Law10 to guide us through the sometime quaint codal language, we are of the clear view that the Red Letter Clause defense is not [i] personal to the *254Shiprepairer11 and is [ii] one resulting from the nature of the obligation.

Obviously the defense is not “personal” to Shiprepairer, so the pivotal question is: what is the nature of the transaction. The nature of the transaction was, of course, a ship repair contract which expressed rights and duties, but which — perhaps even more important— created the relationship out of which the law would impose implied duties, rights, and obligations. Typical would be the implied obligation (in the absence of contract terms) not to cause damage by negligence, and for amphibious work, the presence of the ubiquitous, awesome WWLP.12 And if the “transaction” encompasses the litigation, it meets the test. For the action asserted both negligence and breach of WWLP.

Given the validity of the Red Letter Clause (Op [iii] pp. 55, 56), its effectiveness is proved by the result here — a ceiling of $300,000 on damages stated to have exceeded $1,000,000.13 The clause was used for the express purpose of limiting the underlying obligation in the event of foreseeable occurrences, which would be in the nature of a tort or breach of the WWLP, in which damages could run into the millions.

The District Judge was correct in stating it this way: “Here the size of the obligation was part of the obligation.” (Op [ii] p. 831).

The Red Letter Clause is valid and extends to insurers under the Direct Action Statute.

Red Letters and Interest

The Master and District Court awarded interest to Shipowner on the $300,-000. The question now is whether that is consistent with the term “aggregate liability” as used in the Red Letter Clause (see note 4, supra).

We readily answer in the affirmative. At the outset the clause describes liabilities in terms of those to whom it might become liable as the vessel’s owners, charterers, or underwriters. It is next stated therein that the “aggregate liability to all such parties” shall be limited to $300,000. There are thus both claims — in the sense of distinctive types of losses, e. g., to hull, to stores, to cargo — and persons to whom it might be liable, which could readily make the ceiling ineffective unless it is certain that all are to be lumped together so the ceiling would apply to them all.

Equally important, this was, in effect, an implied undertaking by Ship-repairer that, if it was, or became, liable for any such damage, it would have to pay up to the limit of $300,000. As with any other obligation — and in the Admiralty most torts — when the one cast fails to pay, then interest on the amount due, but withheld, is allowed as a means of making the other party whole. There is justification for that here since it took from 1956 to 1969 to get even the limited recovery. And lastly, this being a contract claiming immunity it is to be strictly construed. Herd *255& Co. v. Krawill Machinery Corp., 1959, 359 U.S. 297, 304-305, 79 S.Ct. 766, 3 L.Ed.2d 820, 1959 A.M.C. 879.

Shiprepairer (and hence its Underwriters) are liable for interest on the $300,000.

Allies Part — Whose Move — Who Pays?

Comforted by the serene knowledge that the Red Letter ceiling has been maintained, Primary and Excess Underwriters now part company, with each turning on the other for the payment of interest. From a combination of factors we think Primary Underwriters have the better of it so we fix the liability on Excess Underwriters.

The case law in non-marine policies is generally consistent in disallowing interest in excess of the dollar policy limits unless the policy contains language which provides for interest.14 We do not agree with the Master’s reliance on Maryland Casualty Co. of Baltimore, Md. v. Omaha Electric Light & Power Company, 8 Cir. 1907, 157 F. 514 and Tulare County Power Company v. Pacific Surety Company, 1919, 43 Cal.App. 315, 185 P. 399 for the holding that Primary Underwriters have a liability in excess of the dollar limit.

But we do not make this as a choice of law for general (or Louisiana) application. We do it in the context of this situation in which the insurance was a carefully dovetailed, integrated program in which each had significant interests at stake, often regardless of the ultimate outcome of a potential claim. Primary Underwriter had the first $300,000 less a franchise (deductible) of $500.15 The excess cover was expressly based upon the named primary policy and subject to all its terms and conditions. It picked up liabilities in excess of $300,500.16

Contrary to the argument Excess Underwriter makes, which was successfully pressed on the Master, this was in no sense a situation where Primary Underwriter had the “use of this money” for 13 years. Both Underwriters were actively interested in the handling of this casualty loss, as witnessed by the vigorous arguments advanced orally and in briefs, both here and below, by these close collaborators as proctors for the Shiprepairer, without the slightest suggestion that there were differences between them. More than that, as the 15 year struggle in Jane Smith demonstrates, no one could have predicted with any assurance, until we ruled and the last bell from Washington tolled out denial of certiorari, whether the Red Letter Clause would survive or what would happen under the Louisiana Direct Action Statute. The baseless nature of the *256“money retained” theory is shown by contemplating what would have occurred had Primary Underwriter on its own and without consent of Excess Underwriters, paid into the registry its full $300,000 before liability had been adjudicated, or before the validity of the Red Letter Clause had been determined.

And to cap it all off, the insuring agreement (see note 16, infra) spells out how amounts in excess of policy limits are to be adjusted under the insurance program. It provides that “if the [Primary] Underwriters are obligated to pay a larger sum under the terms of their coverage, as to liabilities chargeable to a single accident, then [Excess Underwriters are] to pay the excess of such larger sums plus $500.”

Obviously what was in mind was what has occurred here — a Court holding that despite the fixed ceiling of $300,000 the law requires payment of interest thereon. Indeed, affirming the Master’s holding would automatically trigger this obligation, so the result is the same whether done on that basis or our approach which fixes it directly on Excess Underwriters.

Consequently the decree is reversed to put liability for interest on Excess Underwriters.17

When Does Interest Commence?

Shipowner’s attack on the lower Court’s holding that interest would commence from the date of judicial demand (October 1957) rather than from the date of casualty (October 1956) may be disposed of quickly.

Although allowance of interest is ordinarily within the discretion of the Trial Court, it is equally true that for property damage “interest from the date of loss has long been allowed, of course, in admiralty for property loss”. National Airlines, Inc. v. Stiles, 5 Cir., 1959, 268 F.2d 400. This is the general rule prevailing in admiralty. See, Petition of City of New York, 2 Cir., 1964, 332 F.2d 1006. The Court therein stated:

“It has long been held proper for admiralty courts fully to restore the injured party to his condition at the time of injury by allowing and fixing prejudgment interest from the date of the loss in proceedings involving property damage. * * * ”

Here neither the Master nor District Judge gave any reason why this rule should not be followed. We might, of course, send this back for reconsideration, but since cases should at least fade away, if not die,18 from our view we think the equities predominate in Shipowner’s favor, especially as a permissible, slight amelioration of the Red Letter immunity, Herd & Co. v. Krawill Machinery Corp., supra, and we should so state without more delay. Oil Screw Noah’s Ark v. Bentley & Felton Corporation, 5 Cir., 1963, 322 F.2d 3, at 10, 1964 A.M.C. 59, at 68.

In summary we give full application to Nebel Towing which remains undiminished in its binding force but hold that the defense of the Red Letter Clause is not personal to the Shiprepairer as it is one resulting from the nature of the obligation and consequently is available to the Underwriters. And specifically we affirm (i) extending the Red Letter Clause to the Underwriters and (ii) the allowance of interest, but we reverse by holding (iii) that Excess, not Primary, Underwriters are to pay interest and (iv) interest is to commence on the date of the loss. We remand for computation.

Affirmed in part, reversed in part and remanded.

*257ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC

PER CURIAM:

The Petition for Rehearing on behalf of Alcoa Steamship Co., Inc. is denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is denied. The Motion to Modify the Mandate on behalf of Alcoa Steamship Co., Inc, to increase the allowable interest from 5% to 7% is denied.

It is further ordered that the Petition for Rehearing on behalf of Charles Fer-ran & Co. and its Excess Underwriters be, and hereby is, denied.

Alcoa Steamship Co. v. Charles Ferran & Co.
443 F.2d 250

Case Details

Name
Alcoa Steamship Co. v. Charles Ferran & Co.
Decision Date
Apr 26, 1971
Citations

443 F.2d 250

Jurisdiction
United States

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