Schwartz v. Insurance Co. of North America

Tilghman C. J.

This is an action on a policy of insurance on the ship “Margaret” on a voyage at and from Batavia to Baltimore, warranted American property, In the order ior insurance it was mentioned, that the ship sailed under a sea letter, and that her cargo out, consisted partly or in whole of articles contraband of war.

The cause was tried before me, and the jury agreeably to my charge gave a verdict for the defendants. There was a great deal of evidence, and many points of law were discussed; but the charge and the facts necessary to explain it may be reduced to a narrow compass. [The Chief Justice then stated as much of the case as was material.]

On these facts, I directed the jury to find -for the defendants, being of opinion, that the warranty of “ American “property” was violated, and the risk of the voyage in?creased by the improper conduct of the plaintiffs’ agent.

By a warranty of American property, it is understood, not only that the ship belonged to an American citizen at the time of the insurance, but should continue s© during the voyage; and that the captain and agents of the owners should conduct themselves conformably to the laws to which neutrals are subject. A neutral may lawfully carry the goods of one belligerent, subject to the right of capture by the other. The captor takes the goods paying freight to the carrier if he has acted fairly. But where the neutral, not content with carrying, undertakes to cover the cargo by false papers and false oaths, he violates the duties of neutrality as well as morality; he takes part in the war by favouring one belligerent, and attempting to defraud the other. In answer to this, it is said that the underwriters have no reason to complain, because having been informed, that part of the outward cargo consisted of contraband articles, they knew that the ship was liable to condemnation. If they did know that she was subject to condemnation, it is strange that they should insure her at a premium of seven and an half per cent. It is more probable, that considering the length of time between the commencement of the outward voyage and the underwriting of the policy, it was supposed that the taint of contraband was purged. Bitt be that as it may, the question is not whether the underwriters were like to be injured by the breach of the warranty, but whether the warranty was broken; for if it be, the policy is vacated, though the ship were lost by a peril unconnected with the warranty.

The plaintiffs rely much on the distinction between ship and cargo. The fraud say they, was confined to the cargo, and therefore could not be visited on the ship. This is so far true, that according to modem usage, the ship is not condemned for the fault of the cargo, except in the case of articles contraband of war, which condemn the ship, if they belong to the owner of the ship. But although the ship be not condemned for the carriage of goods of an enemy, yet when the captain conducts himself fraudulently, heavy expenses may be incurred. The owner of the ship is subject to those expenses; he will be allowed no costs, and in gross cases, he will even be made to pay costs. Now if the warranty is not broken, he has aright to recover those costs and expenses of the insurer. Besides, it is probable that the ship will be subject to. more delay, when these fraudulent practices are discovered by the captor, than if all was fair. When it is found that the cargo is covered, suspiclons will arise as to the ship; hence a more strict scrutiny and rigorous prosecution may be expected. So that in fact, the risk of the insurer is increased, though the ship be not subject to confiscation. My sentiments on this subject are strengthened by the opinion of the Circuit Court of the United States for this district. The plaintiffs first commenced their action there, and suffered a non pros, at bar, after hearing the charge of the Court against them. My opinion is against a new trial.

Yeates J.

The present motion for a new trial is founded on a supposed misdirection of the Court upon the trial to the jury, that the insured had been guilty of a breach of warranty expressed in the policy, and therefore not entitled to recover in this action. AH' the circumstances of the case from the period of the ship Margarets sailing from Baltimore to the Cape of Good Hope, in March 1804, to the time of instituting the suit, have been fairly and minutely detailed by the Chief Justice in his charge, which I will not again repeat. I shall content myself with observing, that the order to make insurance on the return voyage from Batavia to Baltimore, dated 19th January 1807, stated, “that the “ ship’s cargo outwards consisted partly, or in whole of “ articles contraband of warf and that the policy on the ship, pursuant to the order, contained a warranty that “ she “ was American property, of which proof to be made in “ Baltimore and not elsewhere.”

When the plaintiffs institute their cause in this Court, and the inquiry into the observance of the warranty becomes indispensably necessary, the insured must be supposed to admit that the proof must be had here. How otherwise could the suit be tried on its merits? That the property in the vessel was in truth and in fac American, in the common acceptation of the terms, there can be little room to question; and if the case depended on that' construction of the warranty, we cannot doubt what ought to be the result. But the legal extent of this warranty, and the fair commercial import of the words used, must govern our decision in this instance.

American here means neutral property, in contra-distinctjon t0 belligerent. Now it is fully settled, that the meaning suc^ a warranty is not only that the subject insured shall be the property of neutral persons, but that it shall be neutral for all .the purposes of being protected. The vessel must be navigated according to the laws of nations, and be furnished with every document proper to evince such neutral character. No anti-neutral papers on board should compromit her asserted neutrality. The agents of the insured as well as the insured themselves, should do nothing in violation of the rules laid down by civilized nations for the conduct of neutrals. It cannot be said, that a concerted system of deception, studiously calculated to defeat the known rights of one of the belligerent nations, and false papers covering enemies’ property, sealed with perjuries, can be deemed conformable to the correct conduct of neutrals.

It has however been contended by the plaintiffs’ counsel, that the acts of captain Heard, however exceptionable as to the cargo, could not increase the risk of the underwriters on the ship, inasmuch as they were fully informed that she sailed from Baltimore on her outward voyage with contraband goods on board, which was a sufficient ground of condemnation both of ship and cargo, whatever change the original goods underwent in the course of her different voyages', under the modern doctrine of continuity. I answer that it is not material whether the breach of the warranty conduced to the loss, or not. The warranty is a condition precedent, which not being complied with, the contract of indemnity is thereby dissolved; and the correct conduct of neutrals being precisely ascertained by many judicial decisions, it is equivalent to that line of conduct being particularly expressed in the policy. In the case of the Phoenix Insurance Company v. Pratt Clarkson, 2 Binney 324, it was held by this Court unanimously, that an attempt to mask goods under a neutral cover, was a breach of neutrality, and that the owners of-a ship were responsible for the conduct of their captain who must be considered as their agent. Admitting that the carrying goods contraband of war into an enemy’s port, would condemn the ship and cargo, and that the cover-in'g of belligerent property by the neutral vessel under false papers, would only condemn the property of the enemy, when .it can be separated from what is bona fide neutral, what follows from hence? Shall the. insured or his agents multiply hazards on the underwriters, which they never agreed to run? Shall the latter be subjected to other risks than those expressed in their contract of insurance, although of an inferior grade? The taint of contraband had infected tjre outward cargo so early as March 1804; but there would be no reasonable grounds to suspect the existence of that fact, when the Margaret was taken by the Dominica Packet on the 8th of July 1807. Unless some suspicious circumstances occurred, which tended to awaken the recollection of the ‘first illicit voyage, it might have passed into oblivion so far as respected the captors. This appears not only probable to me, but to be the very truth of the case. The Margaret arrived at Port d’Espagne, in the island of Trinidad, on the 19th of July 1807. Within three days afterwards it appears by the record of the Court of Vice Admiralty, that certain depositions were taken by Archibald Gloster Esq. commissioner of the Prize Court'of Barbadoes resident in Trinidad. Upon the 22d of July, James Cowill, commander of the Dominica Packet, made oath, that he boarded the Margaret, and detained her on suspicion of the cargo on board being Dutch property, and belonging to the enemies of the United Kingdom of Great Britain and Ireland. Andrew Arenstep chief mate of the Margaret, on the 24th of the 'same July, in answer to the third interrogatory, made oath that the Margaret was captured on suspicion of being Dutch property; and captain Samuel Heard on the day following, made the like answer to the same interrogatory, and to the thirteenth interrogatory he said, that the bills of lading for the cargo then on board, in asserting it to be American property, were not true, inasmuch as part of it belonged to Christian Louis Arnold. In his deposition taken in the action in the Circuit Court on the 1st of November 1808, and read by consent in this cause, captain Heard swore, that after the capture and detention of his ship, information was given to the British by the crew and people on board, that they had carried out contraband, and that they believed the ship and cargo to belong to Arnold. These particulars satisfy my mind, that unless the vessel and cargo had been suspected, in the first instance to have been enemy’s property, she would not have been sent in for adjudication, and therefore t]ie maske¿ property materially tended to the injury of the underwriters.

I desire to be understood as concurring throughout in the charge of the Chief Justice* I adopt his expressions; “ although it be granted that it is not usual to condemn a “ ship, even where the cargo has been covered by fraudulent papers, yet the fraud is punished by withholding “ freight and costs, and in gross cases by payment of costs. “ If costs are paid or even withheld, the risk is plainly in- “ creased, because if the insurance stands good, the assurer “ must indemnify the assured against such costs.” Independently however of the increase of risk, I have already said, that if the' defendants had either by themselves or their agents, been güilty of a breach of their warranty of neutrality, they are not entitled to recover.

I am of opinion that the motion for a new trial be denied, and the judgment be entered for the defendants on the verdict*

Bracicenridge J.

It seems to have been made out by the counsel for the plaintiff, so far as I can see without further examination, that hypothecation does not affect the neutral character of a' ship; that it would not be a breach of a warranty of neutrality; and that the carrying belligerent property does not affect the neutral character of the ship. If so, that could not be a breach of the warranty of neutrality. It seems also to have been made out, that covering belligerent property can affect the cargo only, not the ship. But the discovering the covering might lead to a stricter examination, and produce a discovery of something else, that might be a cause of the condemnation of the ship. But that cause to which such examination might lead was ■ known to the assured, and the risk of it was taken on themselves. This was the having carried contraband of war on a voyage out, and before the voyage insured had commenced. This was the cause of the condemnation of the ship in question. The question then will be, the insurers having taken the risk of the carrying out contraband of war, it being known to them, and therefore to be considered as excepted out of the insurance, was the voyage insured to be considered stript of this circumstance, and to be as if it had not existed? I cannot say that I can otherwise construe it. If the carrying belligerent property or covering it, even though it did increase the risk of discovering this taint of the vessel, yet it did not increase the.stain for which the vessel ■was condemned. A great' deal has been said, and much may be justly arguecl on the subject. But the inclination of my mind on hearing the argument of counsel, and which I thought very able on both sides, was for the plaintiff. I am shaken doubtless, by the opinion of others against me^but I am not prepared to concur in an opinion for the defendant.

New trial refused.

(b ) 4 Rob. 282.