The respondents took valued insurance, including war risks, on a cargo which was later destroyed by the Confederate cruiser Alabama. The underwriters paid to the respondents as on an actual total loss the valued amounts, which were less than the real value. Under a subsequent Act of Congress which created a compensation fund, the US paid to the respondents the difference between their real total loss and the sums received from the underwriters. Under the Act, no claim was allowed for any loss for which the party injured would have received compensation from any insurer, but if such compensation should not have been equal to the loss actually suffered, allowance might be made for the difference; and no claim was allowed by or on behalf of any insurer either in his own right or in that of the party insured.
Held: The underwriters were not entitled to recover the compensation paid by the US government from the respondents. The payment did not reduce the loss, not having been intended to do so. The English and American Governments agreed that the sums which were to be paid were to be paid not in respect of the loss, but in respect of something else, and therefore the payment could not be a reduction of the loss.
Lord Selborne LC said: ‘Now it appears to me that for every other purpose collateral to the contract [of insurance] for the purpose of every question as to whether a particular claim to something which has arisen aliunde is or is not within those rights which result in law from the contract, there is no more reason for holding the valuation to be conclusive between the parties or to operate by way of estoppel than there is in the case in which it is admitted that in England it does not so follow. The title to a particular indemnity granted in particular terms out of a particular fund at the disposal of the United States of America by an Act of the supreme legislature of the United States is not a title which I think can possibly result in law from the contract itself. If such a right exists, it must exist by the combined effect of the contract between the assurer and the assured, and the Act of Congress. It cannot follow from the contract of insurance alone without the Act of Congress.
If the Act of Congress is consistent with such a right, having regard to the contract of insurance, still more if the Act of Congress fairly and equitably interpreted confers such a right, there is no reason whatever why the right should not receive full effect. But how is it possible that such an effect can be produced as to a right which could have no existence apart from the Act of Congress, if the Act of Congress itself expressly excludes it? I cannot for a moment understand the doctrine of moral right and obligation or implied trusts affecting supreme governments and independent states, as applied to a question of this kind. The rights resulting from the contract must be such as in point of law the contract makes: the rights resulting from the Act of Congress must be such as according to its true construction and legal effect the Act of Congress makes; and the rights resulting from both together must be such as are consistent with and flow from the legitimate operation of the whole. Here it is admitted that there is in the Act of Congress everything said and done which a supreme legislature could possibly say or do for the purpose of excluding the present claim and attributing that fund which has been appropriated in this case to the sufferers by the capture, not to the valued part but to the unvalued part of the loss. That distinction, which in my opinion does exclude for this purpose the part covered by the valuation of the policy of insurance, is made by the Act of Congress. It was a true and bona fide valuation but it did not cover the actual loss. The fund awarded by the Act of Congress of the United States is only for that part of the actual loss which the valuation did not cover and which the insurers have not paid.
Whatever views of moral obligation may be entertained with regard to the Act of Congress, I think it is correctly described by Brett L.J. as an act of pure gift from the American Government. We cannot go behind it and inquire into the motives for an act of a supreme legislature on a matter within their legislative powers; and that being so, I am entirely unable, for any practical purpose, to distinguish this case – in which the supreme Government of the United States having absolute power of disposition over this fund have by a solemn Act of their Congress declared that it should be given, not in respect of the loss which had been indemnified as between the assurers and the assured but in respect of the loss which the assured had suffered beyond that amount – from the case of a voluntary gift by an individual in the same terms. Mr. Butt, in his able argument, which was as candid I think as it was able, admitted that if a member of the family of the shipowner who had suffered the loss, or the owner of the cargo, had, after the insurers had paid the loss, made a will in the precise terms of this Act of the Congress of the United States, and had given a fund, over which he had absolute control, for the purpose of indemnifying his relatives or his friends for that portion of the loss which the insurance had not covered, the insurers could not have claimed the gift. I am unable to see, for any legal purpose, a distinction between such a case and the present.’
Lord Blackburn said: ‘The general rule of law (and it is obvious justice) is that where there is a contract of indemnity (it matters not whether it is a marine policy, or a policy against fire on land, or any other contract of indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back.
The first question is this. There had been a policy of insurance and a total loss by capture and destruction of the property insured and a payment of the full value insured – a payment of the total loss under that policy. Subsequently to that payment there came the Treaty of Washington; and afterwards, in consequence of an Act of Congress, a sum of money was paid to the persons who had received payment under the policy; and the question, I apprehend, comes to be, Was that sum or was it not paid so as to be a reduction or diminution of their loss? . . In the present case the government of the United States did not pay it with the intention of reducing the loss. Lord Coleridge says in his judgment, and says very truly, that the Government of the United States cannot by any action of theirs deprive a man suing in this country of any right which he has. I quite agree in that; but I think that Lord Coleridge, if he had taken the same view as I do of the matter, would have seen that an Act of Congress of the United States might effectually prevent any such right arising. If once the right had vested to recover any such sum, of course an Act of Congress could not take it away; but when Congress in express terms say, ‘We do not pay the money for the purpose of repaying or reducing the loss against which the insurance company have indemnified, but for another and a different purpose,’ it effectually prevents the right arising. Bramwell L.J. in his judgment has used the phrase, ‘It was not given as salvage’. I should myself prefer to use my own phrase expressing the same idea and to say that it was not paid in such a manner as to reduce the loss against which the plaintiffs had to indemnify the defendants; it is the same thing but rather differently expressed.’
Judges:
Lord Selborne LC, Blackburn, Watson and Fitzgerald LL
Citations:
(1882) 7 App Cas 333
Jurisdiction:
England and Wales
Cited by:
Cited – Colonia Versicherung A G and others v Amoco Oil Company CA 20-Nov-1996
. .
Cited – Morgan Grenfell Development Capital Syndications Ltd etc) v Arrows Autossports Ltd ChD 11-May-2004
Liability under indemnity . .
Cited – Talbot Underwriting Ltd. v Nausch Hogan and Murray ComC 31-Oct-2005
. .
Cited – St Paul Travelers Insurance Company Ltd v Dargan and Another; Re Ballast plc ChD 15-Dec-2006
. .
Lists of cited by and citing cases may be incomplete.
Insurance
Updated: 02 May 2022; Ref: scu.291887