American Bar Association Tort & Insurance Law Journal

ADMIRALTY AND MARITIME LAW: SELECTED TOPICS
Author(s): Graydon S. Staring

Source: Tort & Insurance Law Journal, Vol. 26, No. 3 (SPRING 1991), pp. 538-559
Published by: American Bar Association
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ADMIRALTY AND MARITIME LAW:
SELECTED TOPICS
Graydon S. Staring
I. INTRODUCTION
While the fundamental principles of marine insurance are not peculiar, its rules are
shaped by the peculiarities of the industry they serve and, in appearance if not in
substance, by the terms historically used. Probably the most important feature of
the industry that affects its insurance is the wide-ranging movement of vessels and
cargoes and their remoteness from the underwriters who insure them, both at the
time of placing and at the time of loss. Many wdl find the terms used in marine
insurance peculiar. Consider the example of assading thieves, a traditional marine
risk. If one deals with marine larceny it is useful to know that the coverage for
assading thieves does not extend to the discreet burglar who disturbs not the own
er's sleep. Coverage for furtive theft can be had under an all risks policy, which is
the popular form for yachts and other small craft, but it has not been traditional for
other vessels, possibly because furtive thefts were most likely to be committed by
crew members, and they would probably fall under the traditional coverage for
barratry, another odd term.
Three understandings are necessary in order to be alert for the distinctions in
marine insurance law : awareness of its multinational sources and its distinctive re
liance upon learned writers; developments in marine insurance cases considered in

light of the choices of law explicit or implicit in them; and the interplay of Federal
and State powers against which American marine insurance decisions have to be
read.
1. See, e.g., Opera Boats, Inc. v. La Reunion Francaise, 893 F.2d 103 (5th Cir. 1990).
Graydon S. Staring, of thefirm ofLillick & Charles in San Francisco, took his A. B. from Hamil
ton College and bis J.D.from BoaltHall, the University of California, Berkeley, in 1951. He is a past
president of the Maritime Law Association of the United States, a Fellow of the American College of
Trial Lawyers and chairman of the Standing Committee on Admiralty and Maritime Law of the
American Bar Association.
538
Admiralty and Maritime Law 539
II. CHOICE OF LAW
A. International Influences
1. The Historic International Standard
The earliest published writers on marine insurance were Continental, principal

Valin,2 writing in 1766, and Emerigon,3 writing in 1783. Other lines of insurance
were unknown or negjigible and ultimately derived their law from marine insur
ance.4 The influence of those early writers has survived in the common law, as well
as the civd law, to the present day.
The development of a body of English insurance law begins, as much else in com
mercial law, with Lord Mansfield. His insurance cases are primardy marine, with an
occasional non-marine case, probably arising from a policy written by marine under
writers.5 By 1786 the body of English cases was sufficient to produce the first English
text, that of Park,6 soon followed by Marshall,7 both of whom, along with the conti
nental writers, were treated as principal authorities in the United States.
In the nineteenth century the Supreme Court had numerous marine insurance
cases and the lower federal and state courts decided many more. Throughout the
century we find marine insurance decisions citing the English cases and Valin, Emeri
gon and other Continental writers.
When the Field Civd Code, prepared for but not adopted in New York, was
adopted in California, it included provisions on insurance contracts that are now to
be found in the California Insurance Code. The codifiers provided annotations, ex
panded by the California Commissioners, relying upon Park, Marshall, Valin,
Emerigon and the American writers referred to below.8
The Supreme Court continually cited English9 and early state decisions, many of
them founded on the continental writers, and occasionally cited those writers di
rectly.10 As recendy as 1938 and again in 1953, the court has freely mixed English
and early state decisions in deciding marine insurance cases.11
2. R. Valin, Nouveau Commentaire Sur L'Ordonnance de 1681 (La Rochelle 1766).

3. B. M. Emerigon, Traite des Assurances et des Contrats a la Grosse (Marselles 1783).
4. As late as the Code Napoleon of 1803, the law of insurance was treated summarily by the provi
sion in Section 1964 that the law of insurance contracts, generally, is governed by the maritime law. Since
the maritime law was not codified, the reference is to learned writers.
5. Carter v. Boehm, 97 Eng. Rep. 1162, 96 Eng. Rep. 342 (1766), involved a war risk policy against
the taking by the enemy of a fort in an overseas colony. A dictum in it is the foundation in English and
American law of the doctrine of uberrimae fidei requiring full disclosure by an assured, as to which see
III.A. infra.
6. J. Park, A System of the Law of Marine Insurance (London 1786).
7. S. Marshall, Treatise on the Law of Insurance (London 1802).
8. Cal. Civ. Code, tit. XI annotations (H. S. Crocker & Co., Sacramento, 1872).
9. E.g., in Hazard's Administrator v. New England Marine Insurance Co., 33 U.S. (8 Pet.) 557,
58 3-84 (18 34), where the court held the contract void for failure to disclose material facts, it relied chiefly
on an English decision of 1796.
10. See, e.g., The General Mutual Ins. Co. v. Sherwood, 55 U.S. (14 How.) 351, 367 (1852).
11. Lanasa Fruit Steamship & Importing Co., 302 U.S. 556, 1938 A.M.C. 1 (1938); Calmar S.S.
Corp. v. Scott, 345 U.S. 427, 1953 A.M.C. 952 (1953).
540 TORT & INSURANCE LAW JOURNAL
The first American treatise is that of Phillips in 182 3,12 which went through five
editions, up to 1867. Chancellor Kent devoted 93 pages of his Commentaries to
marine insurance.13 The authorities he cited for his exposition of the American law
included the English cases, Park, Marshall, Valin, Emerigon and Boulay-Paty.14
Duer followed in 184515 and then in 1868 Parsons,16 which was only followed by
Parks in 1987.17
All these writers built explicitly on the authority of their English and continental
predecessors and held to an ideal of uniformity in the western commercial world,
treating the law of insurance contracts as a part of the lex mercatoria, a body of com
mercial law conceived to be common to the United States and other commercial
nations.18
Phillips, Duer and Parsons were carefully parsed by English judges as late as 1984
to determine their exact views on a question of disclosure.19 Probably in no other
commercial field have the common law courts referred so much to the authority of
treatises or been so "richly endowed" with them.20
2. The Special Influence of the English Market
a. Policy Terms. The Lloyd's market dominated marine insurance in the 18th
and 19th centuries. The famous SG clause, common to Lloyd's marine policies from
1779 until 1983, read as follows:
Touching the adventures and perils which we the assurers are contented to bear and do
take upon us in this voyage; they are of the seas, men-of-war, fire, enemies, pirates,
rovers, thieves, jettisons, letters of mart and countermart, surprisals, takings at sea, ar
rests, restraints, and detainments of all kings, princes and people, of what nation, condi
tion or quality soever, barratry of the master and mariners, and of all other perils, losses,
and misfortunes, that have or shall come to the hurt, detriment, or damage of the said
goods and merchandises, and ship, etc., or any part thereof.
Modifications have been made in this clause in American policies, usually with the
intent of providing identical coverage. Similar patterns can be found in the Free of
Capture and Seizure (F.C.&S.) clauses, used to exclude war and governmental risks
12. W. P. Phillips, A Treatise on the Law of Insurance (Boston 1823).

13. 3 J. Kent, Commentaries on American Law, 203-95 (N.Y. 1828).
14. P. S. Boulay-Paty, Droit Commercial Maritime (1821-23). Oliver Wendell Holmes, Jr. re
tained and expanded the reliance on foreign writers, as editor of the Twelfth Edition of Kent in 187 3. The
Nineteenth Edition, by Gould in 1896, retained and expanded Holmes' notes.
15. J. Duer, The Law and Practice of Marine Insurance (New York 1845).
16. T. Parsons, Treatise on the Law of Insurance (Boston 1868).
17. A. Parks, The Law and Practice of Marine Insurance and Average (1987).
18. See 1 J. Duer, note 15, supra, at 2-6; Preface to W. P. Phillips, note 12, supra.
19. Container Transport International, Inc. v. Oceanic Mutual Underwriting Association (Bermuda),
Ltd., [1984] 1 Lloyd's L. Rep. 476, 507-08, 527 (C.A.).
20. Sir Michael John Mustill, Fault and Marine Losses, 1988 Lloyd's Maritime and Commercial Law
Quarterly 310, 313, n. 8: "It is remarkable that marine insurance has attracted such a wealth of scholars
who combined intellectual superiority, breadth of learning and practical acumen. In addition to other
writers mentioned in the text [Valin, Emerigon, Park and Marshall], one has to name only Phillips, Par
sons, Abbott, Arnould, Chalmers, Maclachlan and Cohen, among many others. The author believes that
no other branch of commercial law, and perhaps no legal topic of any kind, has been so richly endowed."
from marine insurance, and by which those same coverages are provided in war risk
insurance. The American Institute of Marine Underwriters has long sponsored
American Institute clauses as standards for reference in the United States and they
usually provide the same coverage as the London clauses and differ principally in the
"Americanization" of some of their terms and syntax.
England adopted its Marine Insurance Act 1906 as a codification of existing case
law. Parks says of it:
[T]hat Act to a very major degree is a "restatement" of English marine insurance law
(and to a major extent American marine insurance law) up to 1906. Consequently, the
statutory sections of that Act, being based upon decisional law, are highly persuasive in
the courts of the United States.21
London policy terms have been interpreted extensively in English courts and
have been widely used elsewhere in their original forms or paraphrased, and have
carried with them an overlay of the meanings found in them by the English courts
or given them by the Marine Insurance Act 1906. Also, when a London broker
has negotiated insurance with underwriters at Lloyd's and London companies, the
English law and market usages may apply to its interpretation, because the English
underwriter and the English broker, as agent for the assured, will probably have
used and intended the terms of the insurance as they were understood in their own
market.22
b. The Supreme Courts Harmony Rubric. In recognition of the principle underly
ing the lex mercatoria, the Supreme Court declared, in 1923, that "[t]here are special
reasons for keeping in harmony with the marine insurance laws of England, the great
field of this business."23 That view has been accepted as a guideline by lower courts24
and the Supreme Court repeated it in 1 953.25 The harmony the Supreme Court
spoke of could scarcely be encouraged, as a practical matter, without national uni
formity in America, guided ultimately by federal decisions. The principle of har
mony is, therefore, not compatible with the Supreme Court's subsequent decision in
Wilburn Boat Co. v. Fireman s Fund Insurance Co.16 It is encouraging to find the prin
ciple reiterated recently, as a reason for following an English decision on the disputed
meaning of a clause.27
21. A. Parks, note 17, supra, at 19.

22. See Edinburgh Ins. Co. v. R.L.Burns & Co., 479 F. Supp. 138, 1980 A.M.C. 1261 (CD. Cal.
1979); off dm part, rev'd and remanded in part, 669 F.2d 1259, 1982 A.M.C. 2532 (9th Cir. 1982);
Thebes Shipping, Inc. v. Assicurazioni Ausonia SPA, 599 F. Supp. 405 (S.D.N.Y. 1984).
23. Queen Insurance Co. v. Globe & Rutgers Fire Ins. Co., 263 U.S. 487,493, 1924 A.M.C. 107,
109 (1924).
24. See cases collectedin B. Yancey, State Regulation of Marine Insurance, 23 Ins. CounselJ. 143 (1956).
25. Calmar S. S. Corp. v. Scott, 345 U.S. 427, 443, 1953 A.M.C. 952, 965 (1953).
26. 348 U.S. 310, 1955 A.M.C. 467 (1955).
27. Antilles Steamship Co. Ltd. v. Members of the American Hull Insurance Syndicate, 73 3 F.2d 195,
198, 1984 A.M.C. 2444, 2449 (2d Cir. 1984).
B. National-State Choice
1. The Early Establishment of Admiralty Jurisdiction
Justice Story, in a landmark case,28 declared that marine insurance policies lay within
the admiralty jurisdiction of the federal courts. In 1870, the Supreme Court con
firmed the admiralty jurisdiction of marine policies and indicated that they were
governed by the "law maritime" and therefore inferably not by state law:
Perhaps the best criterion of the maritime character of a contract is the system of law
from which it arises and by which it is governed. And it is well known that the contract
of insurance sprang from the law maritime, and derives all its material rules and inci
dents therefrom.29
A little later the court announced the constitutional doctrine of uniformity of admi
ralty law, generally,30 and it should have followed that marine insurance law would
be uniformly declared by the admiralty courts.
2. The Rise of State Power
a. Federal Uniformity and State Regulation Before the McCarran-Ferguson Act. The
general regulation of the insurance industry has long been the province of the states.
But since admiralty had jurisdiction of marine policies it was questioned what power
the states had to regulate marine insurance. The Supreme Court had no trouble
sustaining the power of the states to apply their licensing laws to underwriters of
marine insurance within them.31 The regulations involved were consistent with the
general regulation of financial responsibility and business practices that had previ
ously been upheld by the Court.32 Nothing in those cases suggested stretching the
regulation to deal with warranties, representations, disclosures and the interpreta
tion of marine policies.33
b. The McCarran-Ferguson Act. In 1944 the Supreme Court held that the busi
ness of insurance, where it was interstate in character, was subject to federal antitrust
laws.34 Congress, in the following year, by the McCarran-Ferguson Act,35 largely
undid the Supreme Court decision, declaring that:
[T]he continued regulation and taxation by the several States of the business of insur
ance is in the public interest, and . . . silence on the part of Congress shall not be con
strued to impose any barrier to the regulation or taxation of such business by the several
States.
28. DeLoviov. Borr, 7 F. Cas. 418 (No. 3776) (CCD. Mass. 1815).
29. The New England Marine Insurance Co. v. Dunham, 78 U.S. (11 Wall.) 1,31 (1871).
30. The Lottawanna, 88 U.S. (21 Wall.) 558 (1874).
31. Hooper v. California, 155 U.S. 648 (1895); Nuttingv. Massachusetts, 183 U.S. 553 (1902).
32. Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869).
3 3. See generally B. Yancey, note 24, supra.
34. United States v. South-Eastern Underwriters Association, 322 U.S. 53 3 (1944).
35. 15U.S.C. ?? \0\\,etseq.
36. 15U.S.C. ? 1011.
Nothing in the McCarran-Ferguson Act or its background suggests that it was

intended to give the states any new power over the terms of marine insurance con
tracts, which had before that been subject to the maritime law, represented by the
decisions of the American and English courts and the writings of American, English
and continental authors cited above.
c. The Wdburn Boat Case. A small houseboat was bought by the Wdburn broth
ers for use in the commercial carriage of passengers on Lake Texoma, an interstate
lake, and was insured by them with the Fireman's Fund Insurance Company. They
then transferred legal title to a company they formed, called the Wdburn Boat Com
pany. The policy contained warranties against the transfer of the vessel and against
her use for commercial purposes.
The boat was destroyed by fire. Payment was refused for undoubted breaches of
warranty, but the Wdburns contended that Texas insurance law applied, under
which, they argued, the breaches of warranty were not dispositive unless they con
tributed to the loss. Recovery was denied in the district court and the court of ap
peals, under what they considered the admiralty rule.37 In the Supreme Court,38 Jus
tice Black, speaking for the majority, considered whether there were already a
judicially established federal admiralty rule governing warranties and, if not,
whether the court should fashion one. He answered the first question in the nega
tive, despite previous decisions by the Supreme Court39 and courts of appeals,40 as
well as the English courts.41 The majority declined to "formulate" such a rule, re
garding it as regulation of insurance and stating that this lay in the province of the
states, whose historic control had been preserved by the McCarran-Ferguson Act.
The dissenters pointed out that the historic regulation by the states had nothing to
do with the matter. Justice Frankfurter concurred in the result, upon the basis that
the activity of a small craft on an inland lake was local in character and not of na
tional concern,42 but the impact of the case was not to be so limited.
3. The Current Situation under the Wilburn Boat Case
a. Lower Court Responses. Wilburn has not only plagued cases involving pleasure
boats but all marine insurance cases since. One interpretation put forward is that
37. Wilburn Boat Co. v. Fireman's Fund Insurance Co., 201 F.2d 83 3,1953 A.M.C. 284 (5th Cir.
1953).
38. WUburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 1955 A.M.C. 467 (1955).
39. Hazard's Administrator v. New England Marine Insurance Co., 3 3 U.S. (8 Pet.) 557 (18 34). This
was a marine insurance case but was brought under the diversity jurisdiction. After stating that, in pre-Erie
cases, the court had applied the warranty rule as a general doctrine applicable to all insurance, the Wilburn
court distinguished the case unconvincingly by saying that it had not stated in Hazard's Administrator
that it was applying an admiralty rule and also that it had treated a Massachusettts decision as controlling
on another point in that case. 348 U.S. at 314-15, 1955 A.M.C. at 471-72. The court did not take note
that the later case of The Lottawanna, 88 U.S. (21 Wall.) 558 (1874) established the principle that the law
in cases of admiralty jurisdiction must be uniform.
40. E.g., Aetna Insurance Co. v. Houston Oil & Transport Co., 49 F.2d 121, 19 31 A.M.C. 995 (5th
Cir. 1931); Home Insurance Co. v. Ciconett, 179 F.2d 892 (6th Cir. 1950).
41. See 2 Arnould, Marine Insurance, ch. 19 (16th ed. 1981).
42. 348 U.S. at 323, 1955 A.M.C. at 477-78.
states may deal with marine insurance law only when it happens that cases have not
been presented to the federal courts in such numbers and clarity that there has been a
decision of the point involved.43 Another view is that a state may interfere by statute
but not by decisional law.44 Carried to its logical extremity, the Wilburn doctrine is
that a federal judicial rule can only have been established by the Supreme Court
before Wilburn and none can be established by later decisions, at least if there is
avadable any state rule by which to decide the case.
In practice, most courts have not adopted the logical extremity and Wilburn has
been applied by lower courts in a variety of ways. These include routine application
of state law;45 appearing to find, without discussion, a well-developed admiralty rule
in the American decisions;46 finding such a rule with the aid of English decisions;47
and finding that the state law does not differ substantially from the "maritime law"
(whatever that may be where it is not so well established as to override state law) and
that the state has no substantial interest in the application of its law.48 Finally, the
court may simply ignore Wilburn.*9
b. Settled Choices. Only the few issues decided by the Supreme Court can be re
garded as settled in American law. A more liberal view is justified in practice, how
ever, if not on the ground that the Supreme Court might yield to the views of several
courts of appeals in the future, than upon the ground that the Supreme Court wdl
probably never review their decisions at all. Therefore, when we find several circuits
agreeing and none in dissent, we may have a settled national rule and when we find
the rule decided as a matter of maritime law in our own circuit, the chances are that
we have at least a regionally settled rule for our times.50
Even from the conservative view, we can probably say with confidence that the
Supreme Court has laid down, in accord with the English and early American com
mon law, the most fundamental rules of representation, disclosure and materiality,51
43. Gilmore & Black, The Law of Admiralty ? 2-8, p. 69 (2d ed. 1975).
44. Id, p. 70.
45. E.g., Employers' Mutual Liability Insurance Co. of Wisconsin v. Pacific Inland Navigation Co.,
358 F.2d 718, 1967 A.M.C. 1855 (9th Cir. 1966).
46. Goodman v. Fireman's Fund Ins. Co., 600 F.2d 1040, 1979 A.M.C. 2534 (4th Cir. 1979).
47. E.g., Delta Supply Co. v. Liberty Mutual Insurance Co., 211 F. Supp. 429, 1963 A.M.C. 1540
(S.D.Tex. 1962).
48. Morrison Grain Co. v. Utica Mutual Insurance Co., 632 F.2d 424, 1982 A.M.C. 658 (5th Cir.
1980).
49. See, e.g., Insurance Co. of North America v. Board of Commissioners, 73 3 F.2d 1161, 1985
A.M.C. 1460 (5th Cir. 1984).
50. See, e.g., Bohemia Inc. and Employers Mutual Casualty Co. v. The Home Insurance Co., 725 F.2d
506 (9th Cir. 1984), holding that, under Federal law, a policy limit per vessel, in the case of a policy on a
tug and tow, applies only to each vessel at fault.
51. In M'Lanahan et al. v. The Universal Insurance Co., 26 U.S. (1 Pet.) 170 (1828), Justice Story
wrote that the duty of communicating material facts arises as soon as they are known to the insured and
continues to apply to circumstances learned after the insurance is ordered but before its inception. In Sun
Mutual Ins. Co. v. Ocean Ins. Co., 107 U.S. 485 (188 3), the court stated that materiality is to be tested by
the influence of the undisclosed circumstance upon the underwriting judgment of a prudent underwriter
(as distinguished from the particular underwriter in the case).
the rule of proximate cause with respect to covered losses52 and a number of other
narrow issues and has also drawn (slightly askew from English law) the line between
marine and war risks at sea.53 For the rest, one must weigh the lower court opinions
and make a rather subjective decision as to when an issue has been "settled."
There are issues besides breach of warranty that have been held definitely not gov
erned by maritime law. Among those that come up frequently are the validity and
interpretation of notice, claim and suit clauses. It has been held that there is no mari
time rule on the interpretation of notice of loss provisions and state law therefore
applies to them.54 Probably this conclusion can be extended to times for claims and
suits. It has also been held that there is no evidence of a federal rule governing dam
ages for unfair claims practices (presumably including bad faith in claims handling)
and that they are governed by state law.55
c. The Unhappy Result. Thus, under the present American regime, underwriters,
whether American or foreign, of a policy upon a subject likely to be present in sev
eral States, face a situation of great uncertainty as to how important matters will be
viewed in the event of a loss, depending not only on how the loss occurs but under
which state laws claims may be presented.
III. UBERRIMAE FIDEI AND NON-DISCLOSURE
A. The Principle
The principle of uberrimaefidei, that is, that the parties to a marine insurance contract
owe each other the highest degree of good faith, is well established in English, Amer
ican and continental law and is at the heart of those rules of disclosure and represen
tation that have been settled by the Supreme Court. It requires that the assured, in
obtaining insurance, disclose every circumstance known to him and material to the
risk and, in any actual material representations of fact, expectation or belief, tell the
whole and exact truth, at the risk of the policy's being avoided, without regard to the
relationship between the undisclosed circumstance and any actual loss.56
B. Some Recent Examples of Fatal Nondisclosure

In Albany Insurance Co. & United States Fire Insurance Ins. Co. v. Leonard Wisniewski,57
an unsatisfactory experimental military hydrofoil, bought from the government for
about $70,000, underwent some reconditioning, inadequate to have rendered her
satisfactory, and then sank at her mooring. The buyer had obtained port risk insur
ance in the amount of $ 1,500,000, making in the process a number of misrepresen
tations, including the submission of a report from a facile surveyor containing what
the court called "taradiddles." Although it seemed that the taradiddles might have
52. Lanasa Fruit Steamship & Importing Co., Inc. v. Universal Ins. Co., note 11, supra.
53. Standard Oil Co. of New Jersey v. United States, 340 U.S. 54, 1951 A.M.C. 1 (1950).
54. Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195 (5th Cir. 1985).
55. Austin v. Servac Shipping Line, 794 F.2d 941, 1987 A.M.C. 666 (5th Cir. 1986).
56. See cases cited in note 51, supra.
57. 579 F. Supp. 1004, 1985 A.M.C. 689 (D.R.I. 1984).
been cause enough, the court dealt especially with the owner's fadure to disclose the
low purchase price and avoided the policy, saying that any reasonable person should
know that such a low price in relation to insured value was material.
In Thebes Shipping Inc. v. Assicurazioni Ausonia SPA owners, seeking to renew a
fleet hull policy and having a four-year loss ratio of 260 percent, met with demands
for high premiums in the London market. Their London brokers placed 2 percent of
it with a London underwriter, despaired of placing any more there, and then turned
to the overseas market, where they described the London underwriter as a "leader"
and placed the remainder, without disclosing the loss record or the small percentage
taken in London. The court asserted the usual rule, stressed that it requires full com
munication regardless of intention or design to conceal, and that the insured must
exercise ddigence to see that disclosure is made, and avoided the policy for fadure to
disclose the loss ratio and the low percentage taken by the leader. The court cited a
record of London practice showing that the undisclosed facts were regarded as mate
rial in that market and therefore reasonably known to brokers to be so. This case
highlights the importance of the broker's judgment in determining, learning, and
revealing what are material circumstances and the dire consequences to owners
when their brokers have not done so.
In Knight v. U.S. Fire Ins. Co.,59 a man who bought antique statues in Bangkok for
$65,000 in 1979 got them appraised at $ 30,000,000 in Singapore and insured them
for that sum in London for a voyage to the Netherlands. Acting on a tip, underwrit
ers had the goods inspected and cancelled the policy for non-disclosures and misrep
resentations and for grossly overvaluing the goods. The owner obtained another
policy from American underwriters in 1982 and shipped the goods. The vessel sank
and he claimed a total loss. A summary judgment was granted to the underwriters
and upheld on appeal. It was unnecessary to try the case and determine the validity
of the actual reasons for the cancellation of the first policy; the courts held that avoid
ance did not depend upon those reasons but upon the unquestioned fadure of the
assured to disclose the fact of the prior cancellation, a circumstance so clearly mate
rial that it need not be put to a jury as a question of fact.
The proliferation of pleasure boats and the possible view of their owners as "con
sumers" make it especially relevant to look at the risks they run in not placing their
insurance wisely and in complete candor. In Reliance Ins. Co. v. McGrath,60 a yacht,
not hauled out for three years, and having struck a submerged object eight months
earlier, sank in her berth because of damage from the striking and due to deteriora
tion from borers. The policy was avoided, in part on the ground of the fadure to
disclose the striking and neglect of maintenance on renewal of the policy.
In another yacht case, Hartford Ins. Co. v. Garvey,6X the boat was bought in Taiwan
for resale at a listed price of $ 112,500 and insured under a dealer policy, which was
58. 599 F. Supp. 405 (S.D.N.Y. 1984).

59. 804 F.2d 9, 1987 A.M.C. 1 (2d Cir. 1986).
60. 671 F. Supp. 669, 1987 A.M.C. 1916 (N.D. Cal. 1987).
61. 1989 A.M.C. 652 (N.D. Cal. 1988).
then cancelled for breach of navigation limits on account of entry in a race. A plea
sure boat policy was then obtained, upon representations that the market value was
$ 150,000, that the boat would be documented and used for pleasure, and that there
had been no prior insurance. The fact was that the owner intended to sell the yacht
for profit and not document her. The court held that all these matters were material
and the insurer was entitled to rescind.
C. Some That Were Acceptable

The question of materiality is often highly subjective. As to some circumstances,
however, a considerable objectivity can be achieved by reference to general market
practices. Market practices can go far to require a disclosure of certain circum
stances, such as a loss record. They can also work the other way. In China Union
Lines v. American Marine Underwriters,62 the London brokers placed a hull policy
partly in the London market and then offered a portion to the American market,
where an American company asked whether the offering was on the same terms and
conditions as the London market and was told it was on the same basis but with a
different, and unspecified, premium. After a total loss, the American company
learned of the London rate and contended it should have been disclosed. The court
noted evidence that it was common for premiums on the same risk to vary among
insurers and held that silence concerning such a well-established practice in a matter
of general knowledge did not affect the validity of the contract, at least where the
company did not ask to be told the London rate.
Another claim survived on first appeal, in part because of the raising and deferral
of a novel, though insubstantial, question of law. In Steelmet, Inc. v. Caribe Towing
Corp.,61 an appeal of an action to enforce an arbitration award against a vessel's pro
tection and indemnity underwriters, who were not parties to the arbitration, the
underwriters claimed that an arbitration finding of unseaworthiness was resjudicata
of material facts not disclosed when the insurance was placed. The court sent the
matter back for trial but raised the question whether the disclosure rule for marine
policies applied to P&I policies and chose not to resolve it until after further factual
development on retrial. The source of the idea that there might be such an exception
in unclear and nothing in the mainstream of Anglo-American jurisprudence suggests
such an exception for an ocean marine policy.
D. Assaults on the Rule
Although the rule on disclosure is well settled in the United States, it is under attack
elsewhere. In the interest of relaxing its rigor, at least in cases where actual fraud is
not involved, there has developed in Europe a formula called the doctrine of propor
tionality, applicable to both marine and non-marine insurance. Under that doctrine,
an insured guilty of nondisclosure would receive a payment for his loss in the propor
tion the premium he actually paid bears to what he should have paid if he had made a
proper disclosure. Trial lawyers will probably recognize that the settlement of that
62. 755 ?.26 26, 1985 A.M.C. 1643 (2d Cir. 1985).
63. 747 F.2d 689, 1985 A.M.C. 956 (1 1th Cir. 1984).
hypothetical proportion could involve a highly contentious, and perhaps somewhat

speculative, process of determination. The doctrine has found favor in some quarters
in Europe and is being promoted as a uniform rule for the EEC.
There has also been dissatisfaction with the traditional rule in England. The Law
Commission submitted a report in 1979 recommending changes but not recom
mending the proportionality doctrine. A bill was proposed but Parliament declined
to enact any change. Some English judges are dissatisfied with the existing rule and
dissatisfaction was expressed in Container Transport International, Inc. v Oceanic Mu
tual Underwriting Association (Bermuda), Ltd.,6* the leading modern case, where a ma
rine reinsurance contract was avoided for non-disclosure.
This issue is heated by consumer insurance, and especially by yacht owners and
wdl continue to simmer. If changes are made, however, they wdl probably be made
in Europe before they are made in the United States.
IV. WARRANTIES
A. The Law as Wdburn Left It

The only thing made clear by Wilburn is that there is now no Federal maritime rule
on the effect of a breach of warranty, regardless of the historical evidence. The ques
tion in the Wilburn case was therefore referred back to the law of Texas and simdar
questions for the future were relegated to the laws of the States in which they arise.
Here is the beginning of several ironies.
After further proceedings in Wilburn, under the law of Texas, the policy was held
void for breach of an express warranty against concealment or misrepresentation of
some of the very facts previously charged as breaches of other warranties.65 Califor
nia affords an example of a more general irony. Its Insurance Code includes Section
447, providing for avoidance of a policy in the event of breach of a material war
ranty, as the warranties in Wilburn appear to have been. Some other states may
require materiality or, what is simdar, an increase of risk.66 In other states, statutes
applying to all insurance provide that loss is payable unless caused or contributed to
by the breach of warranty.67 Some states will probably apply their own judicial prec
edents on marine policies that contributed, before Wilburn, to the impression that
there was a general rule.68
B. Some Recent Examples of Enforcement

As a practical matter, warranties appear in policies to deal with risks that underwrit
ers have not intended to underwrite at the agreed premium, circumstances that, in
their experience, potentially increase the risk they have agreed to assume. The
64. Note 19, supra.

65. Fireman's Fund Insurance Co. v. Wilburn Boat Co., 300F.2d 631, 1962 A.M.C. 1593 (5th Cir.
1962) .
66. E.g., Mass. Gen. Laws Ann. ch. 175, ? 186.
67. E.g., Tex. Ins. Code Art. 6:14.
68. E.g., Continental Sea Foods v. New Hampshire Fire Ins. Co., 1964 A.M.C. 196 (S.D.N.Y.
1963) .
Wilburn warranties are common examples; change of ownership and change from
personal to commercial use are commonly seen as material changes in the risk.
Warranties are often breached and not perceived to have any relationship to the
loss claimed. In general, marine underwriters do not concern themselves about those
matters. A change of ownership, management or use, however, can seldom be disso
ciated from a reported loss. Again, where a trading warranty is exceeded without
incident, probably nobody is the wiser; but, where a casualty occurs beyond trading
limits, it will seldom be possible to dissociate the casualty from the location of the
vessel and therefore from the breach of limits.
The reported cases are almost always those where there is an increase of risk and a
causal connection with the loss. The result of handling them under state statutes
requiring a causal connection is, in many instances, to encourage litigation without
changing the result. Four recent cases will illustrate the process and also show some
hesitance or confusion about the applicable law. Two of them also illustrate the im
portance of causation.
In The Mutual Fire, Marine & Inland Ins. Co. v. Costa,69 a policy was issued for
passenger claims on a party fishing boat, which was described as carrying a maxi
mum of 100 passengers. The policy specified that coverage was limited to the haz
ards described. Passengers were injured in a casualty when there were 118 passen
gers on board. The court held that the language was plain and unambiguous and
operation with more than 100 passengers on board was not a covered hazard. Alter
natively, viewing the policy provision as a warranty, the court held that the same
result would follow, notwithstanding the Massachusetts law requiring that the
breach of warranty in such a case increase the risk of loss, since, as a matter of law,
the risk is greater with 118 passengers than with 100.
In Marine Charter & Storage Ltd. v. All Underwriters at Lloyds of London Subscrib
ing, etc.,10 a vessel grounded outside the boundaries of a yard where she was war
ranted laid up out of commission. She had been moved from there to another yard
to be hauled out for bottom work and, while returning to the first yard, ran aground.
The owner contended that a lay-up warranty did not concern the location of the
vessel but only her condition. The court disagreed, observing that the risk of casualty
would be reduced by remaining out of commission at a specified marina and that
movement had imposed an increased risk, for which underwriters had not been paid,
and the warranty was therefore breached and there could be no recovery. The case
was apparently decided as a matter of general warranty law, under pre-Wilburn prec
edents. The reference to increase of risk is apparently explanatory, rather than neces
sary under the authorities cited by the court.
Lexington Ins. Co. v. Cookes Seafood71 is a somewhat remarkable case, possibly illus
trating a desire to forget Wilburn. A fishing vessel, warranted not to exceed 100
miles offshore, proceeded outside that limit, to tie up to an oil rig while trying to
69. 789 F.2d 83, 1986 A.M.C.. 2813 (1st Cir. 1986).
70. 628 F. Supp. 740 (S.D. Fla. 1986).
71. 835 F.2d 1364, 1988 A.M.C. 1238 (1 1th Cir. 1988).
obtain replacement filters needed for the engine, and was there sunk as the result of a
hurricane. The court held that a navigation warranty is to be strictly enforced under
Federal maritime law and, whde an exception could be made for the preservation of
life, it was not justified in this case and the policy was therefore void.
In Reliance Insurance, 2 cited above in connection with disclosures, the same fact of
unseaworthiness not disclosed at the renewal of the policy was treated alternatively
as a fatal breach of the warranty of implied seaworthiness at the inception of the
policy, under a California statute.
C. Breach as a Result of a Covered Risk
United States Fire Ins. Co. v. Cavanaugh1 dlustrates how a warranty may be breached
as a result of a covered loss and the policy not be void. A difference of opinion on the
court also dlustrates the nicety of the causation questions that arise in so many ma
rine cases. In her hull policy, a fishing vessel was warranted not to exceed 150 mdes
from shore. The owner, temporardy ill, engaged another operator as master. The
vessel left Florida and was not heard from untd she was found aground and burning
on a reef southwest of Jamaica, where her crew were rescued, not including the
master, who was never heard from again. It was found that she had been saded out
side her limits as a result of barratry of the master. Because barratry was a covered
risk, the court upheld coverage. A dissenting judge may possibly have had the better
of it, based on the authorities cited. He argued that the loss of the vessel on the reef
was not covered because what was proximately caused by barratry was the loss of
the policy, a loss not insured, which had already occurred before the vessel ran
aground, at which time there was no policy.
D. The Broker's Knowledge

The importance of the broker in relation to disclosures and representations cannot
be overstated. A recent case, Northwestern National Ins. Co. v. Federal Intermediate
Credit Bank of Spokane, * dlustrates how skdled and conscientious marine brokers
may also be vital to the assured's compliance with warranties. The owner of a fishing
vessel expected to make a voyage several months hence to the vicinity of Kodiak
Island and asked its brokers for modification of the navigation warranty to permit it
and was told that it had been done. It had not and the vessel sank near Kodiak. In a
suit by the mortgagee, as additional assured, the court of appeals upheld a summary
judgment for the underwriters, since the brokers were the assured's agents and the
warranty could not be considered modified on their word. There was a held-covered
clause, as there often is, providing that, upon immediate notice of a breach of naviga
tion warranty, the underwriters would hold the assured covered for an additional
premium. That was of no avad because the immediate notice was not given and the
owners had known of the intended breach months earlier.
72. Note 60, supra.

73. 732 F.2d 832, 1985 A.M.C. 1001 (11th Cir. 1984).
74. 839 F.2d 1366, 1988 A.M.C. 1839 (9th Cir. 1988).
E. The Screw Is Tightened?the Pennsylvania Rule

Those who think the rule of avoidance for breach of warranty harsh may be sur
prised at a recent case that made it even more stringent through the burden of proof.
Here again a rule of causation and its application became central to the result. The
Pennsylvania Rule has provided, for more than 100 years, that, where any vessel is
in breach of a navigational safety rule at the time of a collision, the breach will be
presumed to have caused the collision. The presumption is very strong and the party
in breach is required to prove that its breach could not have contributed to the casu
alty. American law implies a qualified warranty in time hull policies that the owner
will use due diligence not to permit the vessel to commence a voyage in an unsea
worthy condition. The consequence of breach of that qualified warranty is denial of
liability for a loss proximately caused by the unseaworthiness.
In Insurance Co. of North America v. Board of Commissioners,5 & vessel was navigat
ing without properly licensed officers, in violation of law, and had a collision. One of
our most important maritime courts of appeals held that the Pennsylvania Rule ap
plied to the question of causation in relation to a breach of the warranty of seawor
thiness and that the vessel therefore had the burden, which she could not possibly
carry, of showing that licensed officers would not have avoided the collision.
V. SUING AND LABORING
A. Positive Duty and Separate Coverage

The Sue and Labor Clause in marine policies has two separate purposes, to encour
age the assured to take steps, expensive if necessary, to minimize the loss, and to
compensate the assured for doing so. The coverage, rather than the encouragement,
is usually the issue. Under the more positive wordings at least, encouragement may
amount to a positive duty of the assured. In Reliance Insurance, the court regarded
the Sue and Labor Clause as having been breached by failure to take steps to protect
from loss and assigned this as another reason for denial of the claim.
B. Relation to Insured Peril
1. The British Traders Case
The Sue and Labor Clause is generally regarded as a separate coverage from indem
nity for loss of the principal subject matter. Generally also, suing and laboring is not
covered in relation to a subject matter the loss of which is not covered. These doc
trines are sometimes in tension, when the coverage of the principal subject matter
cannot be determined until expenses have been incurred that are, prima facie, under
the Sue and Labor Clause. That situation is illustrated by a recent English case, /. C.S.
v. British Traders Ins. Co. 7 The subject matter was containers, of which the assured
was the lessor. When the lessee became insolvent, the assured spent a large sum in
recovering containers from various points in transit, where, by reason of the lessee's
75. 733 F.2d 1161, 1985 A.M.C. 1460(5thCir. 1984).

76. Note 60, supra.
77. [1984] 1 Lloyd's L. Rep. 154(C.A ).
condition, they were exposed to risks of theft, misuse and abandonment. The in
surer contended that the assured had to prove that loss would very probably have
occurred but for its expenses. The court disagreed, saying that it would place the
insured in the ddemma of having to make a decision whether it could later satisfy
that burden or take the risk that the insurers would be able to show later that it
should have acted in defense of the goods. It was therefore proper to spend the
money and to recover it from the insurer, if the assured acted reasonably to avert a
loss, when there was a risk that the insurer might have to bear it, even though "it is
not possible to state with certainty all the adverse consequences which [would] be
suffered," and even though insolvency and bankruptcy were not covered risks and
some losses, if they occurred at all, might not have been covered. 8
2. The American Cases
The cases on suing and laboring in America are replete with close questions on causa
tion, and it is doubtful that they can be harmonized. A recent Second Circuit case,
Armada Supply, Inc. v. Wright, 9 holds something for or against many who have
close cases. Od shipped from Brazd to New York had become contaminated with sea
water and the cargo owner had it reconditioned at considerable expense. Although
they were all contested by the underwriters, the trial court allowed as sue and labor
costs:
1. inspection costs to determine the amount of contamination;

2. the customs bond and duty and New York spill tax paid to bring the od ashore
for reconditioning;
3. barging and demurrage in transporting the od for reconditioning;
4. travel expenses for supervising the work;
5. interest, which was thought to represent the economic loss involved in holding
the bulk of the cargo whde reconditioning was carried on; and
6. legal expenses in pursuing a claim against the vessel, since the insurance certifi
cate required the cargo owner to preserve and exercise all rights against carri
ers.
On appeal all those expenses were upheld and, in addition, the court allowed:
1. commissions the cargo owner paid to arrange sale of the damage cargo, on the
ground that they were paid to mitigate damages and reduce the insurer's expo
sure;
2. the amount of a deductible on a shortage claim arising from the transportation
for reconditioning; and
3. legal expenses in prosecuting a breach of contract action against the buyer of a
part of the reconditioned od who refused to pay the full contract price.
All the expenses listed, totalling more than $1,100,000, were seen as reasonably
related to the preservation of the value of the cargo.
78. A Federal court opinion followed I.C.S. in a similar situation. It was reported, States Steamship
Co. v. Aetna Ins. Co., 59 B.R. 314, 1985 A.M.C. 2749 (N.D. Cal. 1985), but was vacated by its author,
77 B.R. 753.
79. 858 F.2d 842 (2d Cir. 1988).
The English case discussed above seems to mean that coverage will exist where
there is reason to apprehend that a covered loss will otherwise occur, even though no
such loss has occurred and it cannot be said with certainty to what extent, if any, the
subject matter will be lost through covered risks, if at all. Two recent cases illustrate
the general American rule that recoverable suing and laboring expenses must have
been incurred to avoid a loss that would itself have been covered.
In Commodities Reserve Co. v. St. Paul Fire & Marine Insurance Co., the assured
owned a cargo of chickpeas being carried from Turkey on a vessel that afterward
loaded a cargo of munitions in Israel and was arrested and held in Greece for viola
tion of regulations on the carriage of munitions. The shipowner refused to release
the chickpeas, but their owner obtained a court order to release the cargo, arranged
for transshipment on another vessel to Venezuela and sought all its transshipment
and legal expenses under the sue and labor clause. Proximate cause was delicately
weighed. Accepting that forwarding was done to avoid infestation, a covered risk,
and that detention of the vessel in Greece was not covered, by reason of the F.C.&S.
Clause, the court held that the dominant cause of the potential loss by infestation
was the detention, since the owner transshipped the cargo only because it was de
tained. While this might have been prudent because of the potential for infestation,
the cost was not recoverable because detention was a risk not covered. The owner
was allowed, however, to recover its litigation expenses in Greece in getting the or
der for the release of the chickpeas, since the dominant cause of those expenses, in
the view of the court, was not the detention but the captain's unreasonable conduct
in refusing release, which was within the all risks coverage and not excluded by the
F.C.&S. Clause. One may well wonder whether the English court that decided
ICS., overlooking insolvency as the dominant cause, would have decided this
American case in the same way or would have overlooked detention here and fo
cused on the ensuing risk.
In Gulf Ventures III, Inc. v. Glacier & General Assurance C0.,81 a shrimp boat, after
unprofitable wanderings in the Gulf of Mexico, disappeared from the view of her
owners and mortgagee. The mortgagee investigated and recovered her from the Ba
hamas and claimed suing and laboring expense, alleging that the vessel had gone
astray through the covered risk of barratry by the master. The court held that the
cause of the abandonment, and hence the claim of barratry, was not proved and
denied recovery. With the support of earlier American cases, it held that, when the
insured peril is not proved, the suing and laboring expenses are not recoverable. This
case is distinct from ICS. and the case of the chickpeas, in that an actual loss had
occurred here, but it has in common with them that the expenses were incurred at a
time when probably neither assured nor insurer could know whether a covered risk
was involved.
80. 879 F.2d 640, 1989 A.M.C. 2409 (9th Cir. 1989).
81. 584 F. Supp. 882 (E D. La. 1984).
C. Avoidance of Liability or Only Preservation of Property

Another recent case, International Commodities Export Corp. v. American Home As
surance Co.,92 represents a fine line drawn between legal expenses that are recoverable
and those that are not. Some cargos declared by the seller under an open all risks
cargo policy were diverted and did not reach the buyer. An arbitration between
buyer and seller ensued as to who had the risk of loss. The seller prevaded and sought
recovery of its expenses of defending the arbitration under the Sue and Labor
Clause. The court denied them, concluding that the clause requires reimbursable
costs to relate to preserving the cargo or mitigating its loss and not simply conferring
a benefit on the insurer (who would have had to pay had the seller been liable to the
buyer). The court thought it necessary to ground the clause strictly in the subject
matter of the insurance to prevent its becoming an all-purpose indemnity clause.
VI. BARRATRY
A. The Arcane Becomes Commonplace

Barratry, in the marine sense, is fraud or other misconduct by the master or crew
the prejudice of the vessel owners. As recently as the 1950s, the term was arcane an
unfamdiar to most maritime lawyers. It was necessary to go well back into the nin
teenth century to find substantial American authority, although barratry has bee
covered in marine policies for centuries. Barratry may take a number of forms, ra
ing from simple theft or unauthorized use of the vessel for drug smuggling, through
theft of the cargo, to sophisticated paper schemes creating liabdities for the vessel
hence her owner. Probably fraud is more common throughout society than it was
few decades ago; maritime fraud has become rampant and so has drug smuggling an
both have engaged much professional attention. Hence the issue of barratry arises
more frequently today.
B. Some Examples
In connection with breach of warranty we have already mentioned United States F
Ins. Co. v. Cavanaugh,*' the case of the vessel that breached her navigation warranty
as a result of the master's barratry, a covered risk, with the result that the court held
the policy not avoided.
The same court had before it, in Tillery v. Hull & Co., Inc.9* a fishing vessel policy
covering barratry but containing an F.C.&S. Clause. The master's contract de
scribed fishing limits and prohibited carrying illegal substances. Contrary to both
limitations, he entered Jamaica to take on a cargo of marijuana and the vessel was
there seized and forfeited. After the seizure she was stripped of much of her gear and
equipment. The insurer paid money to secure the release of the vessel, but refused to
pay for the damage done to her whde under seizure. The case turned on causation;
82. 701 F. Supp. 448, 1989 A.M.C. 408 (S.D.N.Y. 1988).

8 3. Note 7 3, supra.
84. 876 F.2d 1517 (11th Cir. 1989).
the insurer was upheld by the court, on the ground that the damage was the result of
the excluded risk of seizure rather than the covered risk of barratry.
In another case, Tradewinds Marketing v. General Accident Ins. Co.,65 the incensed
cargo owner claimed barratry but faded because of a provision in the charter party.
The charter was for a cargo of cement to Puerto Rico and provided for payment of
freight within twelve hours of arrival. A portion was paid and half the cargo dis
charged and the vessel was asked to wait untd the following day for the remainder of
the freight. She waited a few hours and, at nine the foUowing morning, saded for
another island, where the master sold the remaining cement, under the authority of
a charter provision to sell cargo for unpaid freight. The court held that barratry re
quires a fraudulent breach of duty and, in light of the charter terms, there was no
such breach and no barratry.
The noninvolvement of owners in these frauds is essential to characterize them as
barratry and recover under typical marine policies. One may recall as an example the
case of the Salem, a supertanker that sank off the coast of Africa ten years or so ago.
She was scuttled by her master and crew after the surreptitious sale and delivery of
her cargo of $50 million worth of crude od, which was intended to appear to have
gone down with her. The cargo owners could not recover for barratry, since the
master had not acted to the prejudice of owners but under their instructions.86
Thus, whde insurance claims of barratry do not always succeed, even in cases of
undoubted wrongdoing, the practice of barratry exists and the word is now very
much in the minds of underwriters and counsel.
VII. CAUSATION, A PERVASIVE PROBLEM UNDER ''SETTLED*' LAW
Causation problems arise in all fields of insurance. The circumstances of marine loss,
however, seem to provide exceptional opportunities for drawing fine lines of causa
tion to produce desired results.
It is impossible to explore here the tortuous and irreconcdable approaches to cau
sation taken by the courts, to say nothing of the phdosophical ruminations of the
scholars. The cases demonstrate the significance of the causation issue, how it can
and does generate dissent, how the ground may shift, and why practitioners' con
sciousness of it should be raised.
In The Columbia Ins. Co. of Alexandria v. Lawrence,97 the Supreme Court said, in
agreement with English law, the basic rule was causa proxima non remota spectatur,
meaning that only the proximate, or nearest cause and none more remote should be
regarded. In Peters v. The Warren Ins. Co.," the insured vessel, Paragon, was in a
collision in the Elbe and the other vessel sank. The Paragon was arrested and a court
in Hamburg found no fault in either vessel but, under the law prevading there, as
sessed each vessel half of the total loss, so that the Paragon's owners had to pay half
85. 843 F.2d 58, 1988 A.M.C. 2191 (1st Cir. 1988).
86. The Salem, [1983] 1 Lloyd's L. Rep. 342 (H.L.).
87. 35 U.S. (10 Pet.) 507 (1836).
88. 39 U.S. (14 Pet.) 99, 110(1840).
their own damage and also half of the value of the other vessel. The underwriters
contested payment of the contribution for the value of the other vessel, as proxi
mately caused by the peculiar law of Hamburg, rather than the collision. Justice
Story reiterated the standard earlier stated but said that it must be applied "in a mod
ified practical sense" and that underwriters of vessels must contemplate the opera
tion of various foreign laws. He concluded that the risk of collision, insured as "per
ils of the sea," was the proximate cause of a loss as a result of a financial exaction
imposed upon a faultless vessel under a peculiar foreign law.
The causation standard came up again in 1938, in Lanasa Fruit Steamship & Im
porting Co., Inc." It appears to have been argued that the English rule had been
changed in the interval. The court concluded, from analysis of English cases, that it
had not changed and reaffirmed the existing rule, making clear, however, that the
proximate cause is the "real efficient cause," rather than merely the latest in time.
Although the rule is stated with apparent clarity, its application often leads to dis
agreement, the more fervent because it is frequently the determining issue in cases on
basic coverage, warranties and suing and laboring.
Differences of application have led to what may be one of the principal distinc
tions between the English and American law: the line of demarcation between ma
rine and war risks. The Supreme Court, applying the same fundamental rule, in
Standard Oil Company of New Jersey v. United States,90 decided that the loss to a vessel
that collided with a mine sweeper clearing a channel in wartime was a marine risk,
caused in part by the navigational fault of the minesweeper. It was not a "conse
quence of hostilities or warlike operations," as against the argument that the English
courts would reach the opposite conclusion as a matter of law. The controlling fact
was that the error of the minesweeper was not peculiar to warships or warlike opera
tions. Although the majority did not acknowledge that they were at odds with En
glish cases, three dissenters thought they were. Justice Frankfurter, in dissent, was
inclined to follow certain English decisions on the language, which originated in En
gland although it occurred in an American policy. The elusiveness of proximate
cause is brought out in his statement: "A warlike operation does not lose its warlike
character because it is carried out negligently."91
The case illustrates a semantic blurring that continually plagues the issue. The
choice of causes is between an activity over an extended period, described as an in
sured risk, and an instant in that activity when it was carried on inattentively. This is
a nice judgment, ultimately subjective, depending on which of a number of undis
puted facts strikes the judge's mind with emphasis. It allows plenty of latitude for the
court to reach a desired result. The war risk cases normally involve a decision as to
which underwriter, war risk or marine, the loss will fall on. Interestingly, in the Stan
dard Oil case, there was no marine insurance, so the loss was uninsured. Whatever
else may be said, we can be sure that the court was in pursuit of proximate cause. A
89. Nopte 11, supra, 302 U.S. at 563, 1938 A.M.C. at 8.

90. Note 53, supra.
91. 340 U.S. at 66, 1951 A.M.C. at 10.
standard of wider latitude, such as the "but for" test, which accepts as a cause an act
or condition but for which the loss would not have occurred, might have led to the
conclusion that the loss was caused by both war and marine risks and left it up in the
air as to which underwriters were ultimately responsible.
In United States Fire Ins. Co. v. Cavanaugh,92 a barratry case discussed above, the
majority and dissenting opinions present a situation of more contrast. Attention is
drawn not to concurrent activities, as in Standard Oil, but to two very different
actions, well separated in time, the barratry of the master in taking the vessel outside
the limits of her navigation warranty, and her later grounding and burning beyond
those limits. Barratry, grounding and burning were all covered risks but a breach of
warranty intervened in time.
Following die Standard Oil case by analogy, coverage might be denied, on the basis
that the proximate cause was grounding and burning, and that being navigated by a
barratrous master was simply a continuing condition, rather than a cause. The court
seems to have applied the "but for" rule to link the loss with the barratry. But a
consistent application of that rule might have led to denial, on the basis that the loss
could not have occurred but for the breach of warranty, by which the vessel reached
the place of perd. Either the proximate cause standard or the "but for" standard
could support the view of the dissenter.
In Tillery v. Hull & Co., Inc.,91 another barratry and breach of warranty case
discussed above, the barratrous master took the vessel outside navigation limits to
carry marijuana cargo and the vessel was seized in Jamaica and, whde under sei
zure, stripped of much gear and equipment. The underwriters had paid the ransom
to release the vessel, but they would not pay for the damage to her during seizure.
If the court had applied the "but for" standard to the same extent as in the pre
vious case, it would seem that the owner would have recovered for the loss to
vandalism that occurred during the seizure. Seizure was excluded by an F.C.&S.
Clause and the vandalism was denied as caused by the seizure. The precedents
cited make it appear that, if the ransom had been an issue, that would also have
been denied. The case stands for the proximate cause rule, based on solid prece
dents, and is difficult to reconcde with the previous case, from the same court,
which was unconvincingly distinguished.
In I.C.S. v. British Traders7 Ins. Co.,94 a sue and labor case discussed above, the
insolvency of the shipowner was surely not the proximate cause of loss or damage to
containers under lease to the insolvent owner and in transit at various places. The
most that can be said is that insolvency created a condition in which damage and loss
of property could be foreseen. Payment for the cost of pursuing and protecting the
containers may be viewed as an extension on the coverage provided by a sue and
labor clause, without regard to causation. To the extent that it reflects a view on
causation, it must fall in the "but for" category.
92. Note 73, supra.

93. Note 84, supra.
94. Note 77, supra.
Commodities Reserve Co. v. St. Paul Fire & Marine Ins. Co.,9$ was the case of the
cargo of chickpeas on a vessel held in Greece for illegal carriage of munitions, dis
cussed as a sue and labor problem above. The cost of forwarding the cargo on an
other vessel was denied, because detention was a risk excluded by the F.C.&S.
Clause, but the cost of litigation in Greece to compel the master to release the cargo
for forwarding was allowed, as attributable to the master's intransigence, rather than
the official detention. The forwarding was reasonably necessary because of deten
tion, unless we minimize the purpose of a contract of carriage, which is to get the
goods somewhere in a specified, or reasonable, time. To avoid the conclusion that
detention was the reason for forwarding, the claimant could assert another and spe
cial reason why the goods should be carried forward, rather than sit in detention
forever. The reason asserted here was the possibility of the covered risk of infesta
tion. But, if we give proper weight to the purpose of a contract of carriage, it seems
that indefinite detention is, in all common sense, the proximate cause of forwarding
charges. When the captain holds the cargo on the vessel and prevents forwarding,
however, the detention would still be the cause under the "but for" rule; as a proxi
mate cause, however, it recedes, at least in time, and a new cause takes over. The
decision, at first surprising, seems justified by the proximate cause rule and inconsis
tent with a "but for" rule.
A recent case in the Supreme Court of Canada is of great potential importance, at

least in Canada. In C.C.R. Fishing Ltd. and Bank of Montreal v. British Reserve Ins. Co.,
Ltd.,96 the court had before it the case of a fishing vessel that sank at her berth from
entry of seawater resulting from two causes: the corrosion of screws of the wrong
type, negligently installed by a repairman two years earlier, and the vessel owner's
failure prudently to close an intake valve that allowed the water to reach the point
where the screws failed. The vessel was insured under the SG Clause97 and the ques
tion of coverage was whether the sinking was caused by a peril of the sea. Canada
had followed the proximate cause rule and that rule is stated in the governing statute,
the Insurance (Marine) Act of British Columbia, where the loss occurred. The se
quence of events was negligence of the repairman, followed by negligence of the
owner in leaving the valve open, followed by failure of the screws. The court strug
gled with the question whether the screws or the open valve were the proximate
cause. If the screws were the cause, then questions arose about coverage, but there
was no problem as to coverage of the owner's negligence.
In the end, the court observed that there could be two proximate causes, decided
to combine proximate cause with "but for," and said.
[I]n determining whether a loss falls within the policy, the cause of the loss should be
determined by looking at all the events which gave rise to it and asking whether it is
fortuitous in the sense that the accident would not have occurred without an act or
event which is fortuitous in the sense that it was not to be expected in the ordinary
95. Note 80, supra.

96. 1990 A.M.C. 1443 (Can. S. Ct. 1990).
97. See text at II.A.2.a, supra.
course of things. This approach is preferable, in my view, to the artificial exercise of

segregating the causes of the loss with a view to labeling one as proximate and the others
as remote, an exercise on which the best of minds may differ.98
This view, if it spreads, wdl no doubt make proof of loss easier for insureds and
create added problems between insurers of various risks. The court said that a loss
would not be fortuitous, if the statutory exceptions of the Insurance (Marine) Act or
its exclusions from the coverage of "perds of the seas" were established, and this
seems to mean that the court would apply the same "but for" rule to those exclu
sions and limitations. Nothing was said about applying it to exclusions and warran
ties in the policy itself.
The results must in some cases have surprised everybody but the court. Trial coun
sel may sometimes take causation too much for granted and should look closely at
some of the fine lines drawn and consider trying the causation issues more fully, as to
both facts and law, with reference to the curious distinctions found in some of the
reports, and with the conscious purpose of molding what is in many cases a very
subjective impression.
VIII. CONCLUSION
Marine insurance is a large subject; how large can be gathered by a look at the cha
ter headings of the two volumes of Parks." The topics discussed in this articl
among the most active.
The long history of marine insurance law is important because of the continuit
its rules and the continuing use of older cases and treatises, both American and f
eign. Choice of law issues are pervasive and characteristic of marine insurance and,
respect of the Wilburn problem, unique to it, and they can often determine t
result. The Wilburn Boat case left the choice of law doubtful, confused and variabl
resulting in chaos even in warranties, with which it dealt, because of variations
state laws. Consequently it is necessary to either know or estimate when Wilburn
applies and refers the issue to state law.
The rule of the highest good faith imposes upon insureds a duty of disclosure a
of truth in representations. Although the rule is old and unchanged, vessel owne
still run afoul of it, in the effort to gain an edge in premiums. The costs of suing
laboring in an age of technology have risen dramatically. Consequently, these cos
place greater pressure on sue and labor clauses, and the cases suggest an increasingly
liberal interpretation of that coverage. Barratry of masters and crew has been on the
increase, probably concomitant to a general increase in fraudulent activity. It is also
often accompanied by other illegalities, such as drug smuggling. Thus, problems
have arisen in applying this old coverage to new situations.
Although the standard of proximate cause is plainly stated, its application is diffi
cult. Consequently, many cases turn on close causation points. The importance of
this to trial lawyers cannot be overstated.
98. 1990A.M.C. at 1451.
99. Note 17, supra.

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ADMIRALTY AND MARITIME LAW: SELECTED TOPICS

Author(s): Graydon S. Staring

liance upon learned writers; developments in marine insurance cases considered in

II. CHOICE OF LAW

1. The Historic International Standard

The earliest published writers on marine insurance were Continental, principal

2. R. Valin, Nouveau Commentaire Sur L'Ordonnance de 1681 (La Rochelle 1766).

12. W. P. Phillips, A Treatise on the Law of Insurance (Boston 1823).

21. A. Parks, note 17, supra, at 19.

1. The Early Establishment of Admiralty Jurisdiction

2. The Rise of State Power

Nothing in the McCarran-Ferguson Act or its background suggests that it was

3. The Current Situation under the Wilburn Boat Case

III. UBERRIMAE FIDEI AND NON-DISCLOSURE

B. Some Recent Examples of Fatal Nondisclosure

58. 599 F. Supp. 405 (S.D.N.Y. 1984).

C. Some That Were Acceptable

hypothetical proportion could involve a highly contentious, and perhaps somewhat

A. The Law as Wdburn Left It

B. Some Recent Examples of Enforcement

64. Note 19, supra.

C. Breach as a Result of a Covered Risk

D. The Broker's Knowledge

72. Note 60, supra.

E. The Screw Is Tightened?the Pennsylvania Rule

V. SUING AND LABORING

A. Positive Duty and Separate Coverage

75. 733 F.2d 1161, 1985 A.M.C. 1460(5thCir. 1984).

1. inspection costs to determine the amount of contamination;

C. Avoidance of Liability or Only Preservation of Property

A. The Arcane Becomes Commonplace

82. 701 F. Supp. 448, 1989 A.M.C. 408 (S.D.N.Y. 1988).

VII. CAUSATION, A PERVASIVE PROBLEM UNDER ''SETTLED*' LAW

89. Nopte 11, supra, 302 U.S. at 563, 1938 A.M.C. at 8.

92. Note 73, supra.

A recent case in the Supreme Court of Canada is of great potential importance, at

95. Note 80, supra.

course of things. This approach is preferable, in my view, to the artificial exercise of

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