This case raises questions concerning the power of States to regulate the terms and conditions of marine insurance contracts.
Glenn, Frank and Henry Wilburn, merchants in Denison, Texas, bought a small houseboat to use for commercial carriage of passengers on nearby Lake Texoma, an artificial inland lake between Texas and Oklahoma. The respondent Fireman's Fund Insurance Company insured the boat against loss from fire and other perils. While moored on the lake the boat was destroyed by fire. Following respondent's refusal to pay for the loss, this suit was brought in a Texas state court by the Wilburns and by their wholly owned corporation, the Wilburn Boat Company, to which the boat's legal title had been transferred. After removal of the case to the United States District Court because of diversity, respondent answered admitting issuance of the policy, payment of premiums and destruction of the boat. Liability was denied however because of alleged breaches of printed policy terms or "warranties" providing that, without written consent of the company, the boat could not be sold, transferred, assigned, pledged, hired or chartered, and must be used solely for private pleasure purposes.
Since the insurance policy here sued on is a maritime contract the Admiralty Clause of the Constitution brings it within federal jurisdiction. Insurance Co. v. Dunham, 11 Wall. 1. But it does not follow, as the courts below seemed to think, that every term in every maritime contract can only be controlled by some federally defined admiralty rule. In the field of maritime contracts
Congress has not taken over the regulation of marine insurance contracts and has not dealt with the effect of marine insurance warranties at all; hence there is no possible question here of conflict between state law and any federal statute. But this does not answer the questions presented, since in the absence of controlling Acts of Congress this Court has fashioned a large part of the existing rules that govern admiralty. And States can no more override such judicial rules validly fashioned than they can override Acts of Congress. See, e. g., Garrett v. Moore-McCormack Co., 317 U.S. 239. Consequently the crucial questions in this case narrow down to these: (1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should we fashion one?
The only decision of this Court relied on by the Court of Appeals to support its holding that there is an established admiralty rule requiring strict fulfillment of marine insurance warranties was Imperial Fire Insurance Co. v. Coos County, 151 U.S. 452. There, because of a breach of warranty, an insurance company was relieved of liability for loss of a courthouse by fire, and this Court said it was immaterial whether the breach contributed to the loss. But no question of marine insurance was remotely involved nor was there any reliance on a marine insurance rule. Writing its own "general commercial law," as was the custom in diversity cases prior to Erie R. Co. v. Tompkins, 304 U.S. 64, this Court in the Coos County case simply followed a general doctrine commonly applied to warranties in all types of insurance.
The whole judicial and legislative history of insurance regulation in the United States warns us against the judicial creation of admiralty rules to govern marine policy terms and warranties. The control of all types of insurance companies and contracts has been primarily a state function since the States came into being. In 1869, this Court held in Paul v. Virginia, 8 Wall. 168, that States possessed regulatory power over the insurance business and strongly indicated that the National Government did not have that power. Three years later, it was first authoritatively decided in Insurance Co. v. Dunham, supra, that federal courts could exercise "jurisdiction" over marine insurance contracts. In 1894, years after the Dunham holding, this Court applied the doctrine of Paul v. Virginia and held that States could regulate marine insurance the same as any other insurance. Hooper v. California, 155 U.S. 648. Later, the power of States to regulate marine insurance was reaffirmed in Nutting v. Massachusetts, 183 U.S. 553. This constitutional doctrine carrying implications of exclusive state power to regulate all types of insurance contracts remained until 1944 when this Court decided United States v. South-Eastern Underwriters Assn., 322 U.S. 533. Thus it is clear that at least until 1944 this court has always
Not only courts, but Congress, insurance companies, and those insured have all acted on the assumption that States can regulate marine insurance. In the Merchant Marine Act of 1920, Congress recognized that marine insurance companies were operating under state laws.
The hearings on the McCarran Act reveal the complexities and difficulties of an attempt to unify insurance law on a nationwide basis, even by Congress. Courts would find such a task far more difficult. Congress in passing laws is not limited to the narrow factual situation of a particular controversy as courts are in deciding lawsuits. And Congress could replace the presently functioning state regulations of marine insurance by one comprehensive Act. Courts, however, could only do it piecemeal, on a case-by-case basis. Such a creeping approach would result in leaving marine insurance largely unregulated for years to come.
In this very case, should we attempt to fashion an admiralty rule governing policy provisions, we would at
Under our present system of diverse state regulations, which is as old as the Union, the insurance business has
The judgments of the Court of Appeals and the District Court are reversed and the cause is remanded to the District Court for a trial under appropriate state law.
It is so ordered.
MR. JUSTICE FRANKFURTER, concurring in the result.
This case concerns a marine insurance policy covering a small houseboat yacht, inappropriately named The Wanderer, plying the waters of Lake Texoma, an artificial inland lake between Texas and Oklahoma. The coverage of the policy was specifically restricted to The Wanderer's trip to and use on that lake "solely for private pleasure purposes."
There is no doubt that as to some matters affecting maritime affairs the States are excluded from indulging in variant state policies. E. g., Chelentis v. Luckenbach S. S. Co., 247 U.S. 372; The Lottawanna, 21 Wall. 558. Equally, there is no doubt that some matters are so predominantly restricted in the range of their significance that a uniform admiralty rule need not be recognized or fashioned. E. g., Madruga v. Superior Court, 346 U.S. 556; C. J. Hendry Co. v. Moore, 318 U.S. 133; The Hamilton, 207 U.S. 398. Therefore the question, and the only question now to be decided, is whether the demands of uniformity relevant to maritime law require that marine insurance on a houseboat yacht brought to Lake Texoma for private recreation should be subject to the same rules of law as marine insurance on a houseboat yacht "confined," after arrival, to the waters of Lake Tahoe or Lake Champlain. The provision of the policy whereby the insured warranted "that the vessel be confined to Lake Texoma" conveys the emphasis of the situation—the essentially localized incidence of the transaction despite the interstate route followed in reaching the circumscribed radius within which the yacht was to move. It is reasonable to conclude that the interests concerned with shipping in its national and international aspects are substantially unconcerned with the rules of law to be applied to such limited situations. I join in a result restricted within this compass.
It is appropriate to recall that the preponderant body of maritime law comes from this Court and not from Congress. Judicial enforcement of nationwide rules regarding marine insurance is, as my brother REED cogently shows, deeply rooted in history. What reason is there for abruptly turning over, pending action by Congress, to the crazy-quilt regulation of the different States what so long has been the business of the courts?
As is true of other maritime interests, however, the demand for uniformity is not inflexible and does not preclude
Under the distribution of power between national authority and local law, admiralty has developed for more than a hundred years by rulings of the Court, but not by absolutes either of abstention or extension. While not able to join the dissenters, I can only hope that what are essentially dicta will not be found controlling when situations which have not called them forth, and to which they are not applicable, come before the Court for adjudication.
MR. JUSTICE REED, with whom MR. JUSTICE BURTON joins, dissenting.
The opinion of the Court states that "the crucial questions in this case narrow down to these: (1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should we fashion one?"
The Court concludes that the literal performance rule has not been established by statute or by judicial decision. It acknowledges that a maritime insurance policy is a maritime contract brought under federal jurisdiction by the Admiralty Clause of the Constitution. Insurance Co. v. Dunham, 11 Wall. 1. And so it recognizes that the power "to fashion controlling federal rules" rests in the Federal Government—in Congress and the federal courts. However, the Court determines that in the absence of congressional action it will leave the formulation of rules governing marine insurance policies to the States. It applies this conclusion to the effect of a breach of warranty in a maritime insurance policy.
I disagree with both conclusions. Our admiralty laws, like our common law, came from England. As a matter of American judicial policy, we tend to keep our marine insurance laws in harmony with those of England. Queen Ins. Co. v. Globe Ins. Co., 263 U.S. 487, 493; Calmar Steamship Corp. v. Scott, 345 U.S. 427, 442-443. Before our Revolution, the rule of strict compliance with maritime insurance warranties had been established as the law of England.
I am inclined to think that Congress or this Court might well consider modifying the strict rule insofar as the breached warranty does not contribute to the loss. But since the Court concludes that it will not undertake the
This brings me to the crucial phase of the Court's decision which, so the Court says, "leave[s] the regulation of marine insurance where it has been—with the States." This is the dominant issue here, and the Court's decision strikes deep into the principle of a uniform admiralty law and will have the result of unduly burdening maritime commerce. This is the issue presented by the petition for certiorari and argued in petitioners' brief on the merits.
One rule of law stands unquestioned. That is that all courts, state and federal, which have jurisdiction to enforce maritime or admiralty substantive rights must do so according to federal admiralty law.
The Court relies upon Paul v. Virginia, 8 Wall. 168; Hooper v. California, 155 U.S. 648; and Nutting v. Massachusetts, 183 U.S. 553, as holding that "States could regulate marine insurance the same as any other insurance." Those cases only approve provisions of state law that require agents and companies to take out licenses and conform to various conditions preliminary to doing business.
The Constitution, Art. III, § 2, provides that "The judicial Power shall extend . . . to all Cases of admiralty and maritime Jurisdiction . . . ." The First Congress enacted that the district courts "shall also have exclusive original cognizance of all civil causes of admiralty and maritime jurisdiction . . . saving to suitors, in all cases, the right of a common law remedy, where the
Although congressional authority over maritime trade was not expressly granted by the Constitution, the grant of admiralty jurisdiction together with the Necessary and Proper Clause has been found adequate to enable Congress to declare the prevailing maritime law for navigable waters throughout the Nation.
On the other hand, a state court was held to have jurisdiction to sell a vessel to enforce a lien in Knapp, Stout & Co. v. McCaffrey, 177 U.S. 638, where the suit was against the owner, in personam, although in equity for foreclosure of a possessory lien. "[T]he remedy chosen by the plaintiff was the detention of the raft for his towage charges." Id., at 644. As this was a state approved remedy in the common law, the use of state equity procedure to enforce the lien was held to be in accord with the reservation of a common-law remedy from the exclusive jurisdiction of admiralty.
It is not only in markings, lights, signals, and navigation that States are barred from legislation interfering with maritime operation. The need for a uniform rule is just as great when dealing with the effect to be given to marine insurance on boats which plough our navigable waters. A vessel moves from State to State along our coasts or rivers. State lines may run with the channel or across it. Under maritime custom an insurance policy usually covers the vessel wherever it may go. If uniformity is needed anywhere, it is needed in marine insurance. It is like the question of seaworthiness which must be controlled by one law. It presents the same problem as a state law controlling the operation of interstate boats. Kelly v. Washington, 302 U.S. 1, 15. For a State to require policies to be issued under its authority or to require extra-state policies to be interpreted by its laws
The Court refuses to declare the governing maritime law on warranties in this case because it could only be done "piecemeal, on a case-by-case basis." It would prefer to await congressional enactment of a comprehensive code. But questions of contract interpretation and the effect to be given to contract provisions are questions which the Court is particularly equipped to handle. A broad legislative approach might be desirable; but in its absence we could establish a rule governing the effect to be given to breaches of warranties which would be binding on every court in the land. It is certainly not desirable to defer to the legislature of Texas or any other State which, though it can enact a comprehensive code, can make it binding only in its own State. To do so destroys the essential uniformity of the maritime law.
My understanding of the facts and legal issues and the rule to be deduced from the Court's decision forbids my joining the limited concurrence of MR. JUSTICE FRANKFURTER. The policy here is not restricted to the boat's use on Lake Texoma nor to its use in any one State. In addition to its use on the lake, the policy covered a "cruise from Greenville, Mississippi via Mississippi and Red Rivers to Denison, Texas" and then to the lake. The waters of five States were navigated before reaching the lake, which is itself an interstate body of water laying between Texas and Oklahoma. The considerations which lead me to favor a uniform rule are not changed simply
This state rule of law covering the incidents of marine insurance affects not only Texas or Lake Texoma but the longest voyage within the cruising capacity of The Wanderer. As is shown by The Hamilton, 207 U.S. 398, such an exercise of state power permits the States to declare the applicable laws of marine insurance even on the high seas. The event of loss must always be local, but the coverage of the policy is general.
I would affirm.
"Warranted by the Assured that the within named vessel shall be used solely for private pleasure purposes during the currency of this Policy and shall not be hired or chartered unless permission is granted by endorsement hereon."
"The insurance in this case being general, as well for the parties named as `for all and every other person or persons to whom the vessel did or might appertain,' and containing no warranty of neutrality, belligerent as well as American property was covered by it."
Livingston v. The Maryland Ins. Co., 6 Cranch 274, 278:
"The warranty, in this case, is in these words; `warranted, by the assured, to be American property, proof of which to be required in the United States only.'
"The interest insured is admitted to be American property, in the strictest sense of the term; but it is contended, that Baruro, a Spanish subject, had an interest in the cargo, which falsifies the warranty.
"Whether Baruro could be considered as having an interest in the cargo, or not, is a question of some intricacy, which the court has not decided; and which, if determined in the one way or the other, would not affect the warranty; because, the assured are not understood to warrant that the whole cargo is neutral, but that the interest insured is neutral."
Hazard's Administrator v. New Eng. Mar. Ins. Co., 8 Pet. 557, 570; Calmar Steamship Corp. v. Scott, 345 U.S. 427, 432-436.
"(1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled."
The Reviser's Note states:
"The `saving to suitors' clause in sections 41 (3) and 371 (3) of title 28, U. S. C., 1940 ed., was changed by substituting the words `any other remedy to which he is otherwise entitled' for the words `the right of a common-law remedy where the common law is competent to give it.' The substituted language is simpler and more expressive of the original intent of Congress and is in conformity with Rule 2 of the Federal Rules of Civil Procedure abolishing the distinction between law and equity."
Compare The City of Norwalk, 55 F. 98, 105.
"The true distinction between such proceedings as are and such as are not invasions of the exclusive admiralty jurisdiction is this: If the cause of action be one cognizable in admiralty, and the suit be in rem against the thing itself, though a monition be also issued to the owner, the proceeding is essentially one in admiralty. If, upon the other hand, the cause of action be not one of which a court of admiralty has jurisdiction, or if the suit be in personam against an individual defendant, with an auxiliary attachment against a particular thing, or against the property of the defendant in general, it is essentially a proceeding according to the course of the common law, and within the saving clause of the statute . . . of a common law remedy. The suit in this case being one in equity to enforce a common law remedy, the state courts were correct in assuming jurisdiction." 177 U. S., at 648.
"The `right of a common law remedy', so saved to suitors, does not, as has been held in cases which presently will be mentioned, include attempted changes by the States in the substantive admiralty law [i. e., at p. 124, where it was said of state statutes held unconstitutional, they were "invalid, because their provisions were held to modify or displace essential features of the substantive maritime law"], but it does include all means other than proceedings in admiralty which may be employed to enforce the right or to redress the injury involved. It includes remedies in pais, as well as proceedings in court; judicial remedies conferred by statute, as well as those existing at the common law; remedies in equity, as well as those enforceable in a court of law. Knapp, Stout & Co. v. McCaffrey, 177 U.S. 638, 644 et seq.; Rounds v. Cloverport Foundry & Machine Co., 237 U.S. 303. A State may not provide a remedy in rem for any cause of action within the admiralty jurisdiction. The Hine v. Trevor, 4 Wall. 555; The Glide, 167 U.S. 606. But otherwise, the State, having concurrent jurisdiction, is free to adopt such remedies, and to attach to them such incidents, as it sees fit. New York, therefore, had the power to confer upon its courts the authority to compel parties within its jurisdiction to specifically perform an agreement for arbitration, which is valid by the general maritime law, as well as by the law of the State, which is contained in a contract made in New York and which, by its terms, is to be performed there."
See Steamboat Company v. Chase, 16 Wall. 522, 530 et seq.; Panama R. Co. v. Vasquez, 271 U.S. 557, 560-561.