International Divergencies in Marine Insurance Law: The Quest for Certainty

Source: Harvard Law Review, Vol. 64, No. 3 (Jan., 1951), pp. 446-456
Published by: The Harvard Law Review Association
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446 HARVARD LAW REVIEW [Vol. 64

INTERNATIONAL DIVERGENCIES IN MARINE INSURANCE LAW: THE

QUEST FOR CERTAINTY. - The British and American marine insurance
markets have always been closely interrelated.' Lloyd's, long the world's
center of this business, succeeded in keeping the lion's share of the
American market from the struggling American companies until the
first World War made apparent the need for stronger indigenous under-
writing facilities 2 and resulted in favorable congressional action.3 Yet
the increased strength of the American companies has not minimized
the significance of English practices to American underwriters and
their customers. Since the policies issued in both countries, little changed
from those of the sixteenth century,4 offer similar coverage, American
brokers continue placing policies with British underwriters when they
offer lower rates, and occasionally the converse takes place.5 Moreover,
American and British underwriters customarily reinsure a portion of
their risks with each other.6
Problems are created for participants in this international market
by the differences in the law affecting marine insurance. Many am-
biguities in the traditionally obscure policy language have been re-
solved differently by the courts of England and those of this country,
thus leaving both the underwriter and the insured in doubt as to the
extent of the risk assumed under a policy with international contacts.
The effect of these differences might be mitigated by redrafting trouble-
some clauses to obtain either uniform or clear but differing meaning.
Yet many problems depend upon admiralty rules governing liability
between insured parties, not all of which can be altered by contract.
Uniformity here is desirable not merely to eliminate the forum factor
but also so that underwriters can predict- possible liability without
considering where the loss takes place. In this Note methods used to
attain uniformity and certainty will be discussed in the light of their
suitability for resolving continuing differences.
Application of Conflict of Laws Rules. -It might seem that the
role of the forum and the locus delicti could be eliminated by the proper
application of conflicts rules. However, with regard both to the inter-
pretation of insurance policies and the determination of underlying
liabilities this technique has proved less than satisfactory.
(a) Marine Policies. - The few American and British cases on the
law governing marine policies follow the conflicts rule that a contract is
construed according to the law the parties intend.7 Great doubt exists
as to how to find that intent when not expressed.8 When a British

1 WINTER, MARINE INSURANCE 109 (ist ed. I9I9).

2 WINTER, THE FUTURE OF MARINE INSURANCE IN THE UNITED STATES 7 (address
to the American Bar Association, Atlantic City, 1946).
3 Marine underwriters were exempted from the antitrust laws, 41 STAT. 1000
(1920), 46 U.S.C. ? 885 (1946) (Marinie Insurance Association Act).
4 I ARNOULD, MARINE INSURANCE AND AVERAGE ? IO (13th ed., Chorley, I950
WINTER, op. cit. supra note I, at Io8.
5 WINTER, Op. cit. supra note 2, at 3.
6Ibid.
7DICEY, CONFLICT OF LAWS 647 (6th ed., Morris, Kahn-Freund, 1950); 2
BEALE, CONFLICT OF LAWS ? 332.9 (ist ed. 1935).
8 E.g., Campania Transatlantica Centroamericana, S.A. v. Alliance Assurance

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 I95I] NOTES 447

company doing business in Philadelphia insured cargo shipped from

New York to Lisbon aboard a British vessel, the Supreme Court, in
the leading decision involving a marine insurance policy, held that the
place of performance governed and applied British law since payment
for loss was to be made in England.9 However, since the Court has
sometimes looked to the law of the place of making in other types of
marine contracts,'0 as have the lower federal courts," it is not safe to
predict that the place of payment will control. Nor is the English law
completely clear, for, although the leading marine insurance case sug-
gests that the law of the underwriter's business domicil will ordinarily
be applied,'2 the courts might adhere to precedents in other types of
marine contracts which have chosen the place of performance,'3 the
place of making 14 and the law of the flag 15 as indicative of the intent
of the parties.
A dictum in a recent Supreme Court decision indicates that courts,
free of abstract formulations, may seek the law most closely related
to the agreement.'6 Even this approach would not create certainty in
transactions involving several international contacts unless a contact
common to all international agreements of the same type is consistently
selected. The business domicil of the underwriter, being the contact
least likely to be fortuitous, would provide certainty and would accord
with commercial expectations, since underwriters normally base their
rates upon a loss experience primarily reflecting application of local
law and seldom alter policies to allow for differences in foreign law.
However, in construing clauses specifically inserted to accommodate
needs peculiar to an insured from a foreign country, for example a
clause intended to minimize the impact of foreign exchange fluctuations,
it might be more in accord with the parties' expectations to look to the
law of the insured's domicil.
A clause indicating that the law of the underwriter's domicil should
control could do much to eliminate uncertainty, since such stipulations
have uniformly been upheld when the issue is which country's construc-

Co., Ltd., 50 F. Supp. 986 (S.D.N.Y. i943) (ship of Panama registry plying
American waters insured by her owner in New York under an American form
policy issued by British underwriters contacted through a New York broker's
London correspondent; the court divined that the parties intended British law
to govern).
I London Assurance v. Companhia de Moagens, i67 U.S. 149 W97); 2 BEALE
CONFLICT OF LAWS 1107.
10 See, e.g., Liverpool & Great Western Steam Co. v. Phenix Ins. Co., 129 U.S.
397 (I889) (bill of lading).
11 2 BEALE, CONFLICT OF LAWS 1109 (cases collected).
12 Greer v. Poole, 5 Q.B.D. 272 (i88o); DICEY, CONFLICT OF LAWS 674.
13 The Wilhelm Schmidt, 25 L.T. 34 (Admiralty i871) (charter party).
14The Industrie, [I894] P. 58 (charter party); Chartered Mercantile Bank of
India v. Netherlands India Steam Nav. Co., 9 Q.B.D. ii8 (i883) (affreightment).
15Lloyd v. Guibert, L.R. i Q.B. 115, 122 Eng. Re. 1134 (i865) (bottomry
bond).
16 See Hoopeston Canning Co. v. Cullen, 3i8 U.S. 313, 316 (1943); see Ra
Comparative Conflicts Law, 24 IND. L.J. 353, 357 (I939); Harper, Policy B
of the Conflict of Laws, 56 YALE L.J. II55, 177 (I947).
17 Cf. Marine Ins. Co., Ltd. v. McLanahan, 290 Fed. 685 (4th Cir. 1923).

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 448 HARVARD LAW REVIEW [Vol. 64

tional rules should govern.'8 When, however, the issue is one of the
contract's validity, and the contract has no substantial relation to the
jurisdiction selected,'9 American state courts have generally rejected
choice of law clauses. British courts and the American federal courts
have disregarded stipulations if the rule incorporated is contrary to
what they regard as their public policy.20 These rules do not seriously
limit the utility of stipulations in marine policies, which, unlike other
forms of insurance, have never been subjected to extensive legislative
regulation 21 though judge-made rules have had considerable impor-
tance. Precisely what "public policy" means in this area has not been
made clear in either nation. Thus, the question might arise concerning
the requirement that the assured have an interest in the subject matter
covered, lest the policy be merely a wager on a voyage.22 Policies which
have P.P.I. stipulations ("policy is proof of interest") have been
common since the first half of the eighteenth century.23 Sometimes
they are real wagers,24 but often they are used to protect a valid com-
mercial interest 25 not legally considered insurable,26 for example, a
commission merchant's interest in expected profits from selling goods
being shipped to him.27 In England, the Marine Insurance Act voids
all policies which waive proof of interest, forcing reliance on the "honor"
of the underwriter; 28 in America proof of the existence of an insurable
interest is allowed.29 If an American assured who has an insurable
interest should sue on a British underwriter's P.P.I. policy that stipu-
lated for American law, a British court might hold that the public
policy expressed in the Act overrode it. However, the stipulation might
be given effect by reasoning that the ban on P.P.I. policies as such was
not sufficiently vital to preclude enforcement since the underlying policy
of not enforcing wager contracts had not been violated.
(b) Assured's Liability to Third Parties. -From the underwriter's
point of view the assured's liability to third parties, covered by the

18 E.g., Canton Ins. Office v. Woodside, go Fed. 30I (gth Cir. I898); Lesicic
v. North River Ins. Co., i9i Wash. 305, 71 P.2d 35 (1937); see Note, 62 HARV. L.
REV. 647, 649 (1949).
19 Note, 62 HARV. L. REV. 647, 650 (1949); GOODRICH, CONFLICT OF LA
? III (3d ed. '949).
20 DICEY, CONFLICT OF LAWS at 604; compare Oceanic Steam Na
Corcoran, 9 F.2d 724 (2d Cir. 1925), with Jones v. Oceanic S.S. Co., Ltd., [1924]
2 K.B. 730.
21 WINTER, MARINE INSURANCE 27.
22 I ARNOULD, MARINE INSURANCE ? 253.
23 I Id. ? 312.
24 Ibid.
25 WINTER, MARINE INSURANCE 236.
26 I ARNOULD, MARINE INSURANCE ? 6.
27 In England an insurable interest in profits is not recognized unless the con-
signee has title to the goods or has contracted to purchase them, Stockdale v.
IDunlop, 6 M. & W. 244, i5i Eng. Rep. 391 (Ex. I840). Moreover the insured
must prove that profits would actually have been made, Hodgson v. Glover,
6 East 3I6, 102 Eng. Rep. 1308 (K.B. i8o5); I ARNOULD, MARINE INSURANCE ? 287.
The American rule has long been to the contrary, Potapsco Ins. Co. v. Coulter,
3 Pet. 222 (U.S. i830).
28 Marine Ins. Act, I906, 6 EDW. VII, c. 41, ? 4.
29 Booth-American Shipping Co. v. Importers' & Exporters' Ins.
304 (2d Cir. 1925); Hall v. Jefferson, 279 Fed. 892 (2d Cir. 1921).

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 1951] NOTES 449

collision clause in standard hull policies, is of substantial importance.

Although the conflicts rules applicable in collision cases seem settled in
each country,30 they are not the same, and, leaving choice of forum
an important factor, they do not achieve certainty. If a collision occurs
in territorial waters, under American law liability arises if the act was
tortious under the lex loci delictus,31 while in Britain the act must be
wrongful under British law as well.32 When a collision occurs on the
high seas, both countries apply the law of the forum 33 unless all of
the vessels involved belong to the same foreign nation, in which case
the law of the flag is applied.34 Though this may be the only practicable
solution, it often renders the fortuitous factor of the forum dominant.
No matter where the collision occurs, each country applies its own
statute allowing limitation of the shipowner's liability.35 In America he
may limit to the value of the vessel at the end of the voyage,36 while
the British limitation is a fixed sum per registered ton.37 Hence, if the
vessel at fault becomes a total loss, a substantial recovery is possible
in England and none in America; if she suffers only minor injury the
recovery in this country may be greater.
Conforming to English Precedents. - Since conflicts rules do not
provide certainty, the American courts have sought to achieve uni-
formity in substantive law. On a national level, federal courts have
not in general felt compelled by Erie R.R. v. Tompkins 38 to apply state
law in the construction of marine policies and have continued to base
decisions on general maritime law.39 Uniformity between American
and British decisions has been explicitly set as a goal,40 and even pre-
viously rejected English decisions have recently been preferred to
conflicting American precedents, thus fulfilling and at the same time
reinforcing business expectations.
In The Niobe 41 an English court decided that the collision clause
covered the liability of a vessel in control of her tug for the latter's

30 GRIFFIN, COLLISION ? 26 (3d ed. 1949).

3 Smith v. Condry, I How. 28 (U.S. I843); GRIFFIN, COLLISION ? 26. But cf.
Interlake S.S. Co. v. American S.S. Co., [I950] Am. Mar. Cas. i678 (S.D.N.Y.
1950) (American law applied to collision of two American vessels in Canadian
waters).
32 Compare The M. Moxham, i P.D. IO7 (i876), with The Halley, L.R. 2 P.C.
193, i6 Eng. Rep. 514 (i868).
33 The Leon, 6 P.D. I48 (I881); La Bourgogne, 2IO U.S. 95 (I908) ; -The
Belgenland, II4 U.S. 355 (i885).
34 The Eagle Point, I42 Fed. 453 (3d Cir. I906); GRIFFIN, COLLISION ? 26.
35 Oceanic Steam Nav. Co., Ltd. v. Mellor, [The Titanic], 233 U.S. 7I8 (i91i);
The Scotland, I05 U.S. 24 (I89I); 2 ARNOULD, MARINE INSURANCE ? 802. But cf.
Black Diamond S.S. Corp. v. Robert Stewart & Sons, Ltd., 336 U.S. 386 (i94g
36 REV. STAT. ? 4283 (I875), 46 U.S.C. ? I83 (1946).
37 Merchant Shipping Act, I900, 63 & 64 VICT., c. 32.
38 304 U.S. 64 (1938).
3 E.g., Jeffcott v. Aetna Ins. Co., [The Dauntless], I29 F.2d 582 (2d Cir.),
cert. denied, 3I7 U.S. 663 (1942). But cf. French Am. Bank. Corp. v. Fireman's
Fund, [I9421 Am. Mar. Cas. 28 (S.D.N.Y. I941). For a general discussion of the
influence of Erie in maritime cases, see Stevens, Erie R.R. v. Tompkins and the
Uniform General Maritime Law, 64 HARV. L. REV. 246 (1950).
40 E.g., Queen Ins. Co. v. Globe & Rutgers Fire Ins. Co., 263 U.S. 487, 493
(I924); General Ins. Co. v. Link, I73 F.2d 955 (gth Cir. I949).
41 [i891] A.C. 40I.

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 450 HARVARD LAW REVIEW [Vol. 64

negligent collision with a third vessel. In Western Transit Co. v.

Brown42 the Court of Appeals for the Second Circuit held that the
clause did not cover the Troy's liability for negligently sucking the
Wilbur into her wake and forcing her to collide with the Martha. Al-
though The Niobe was clearly distinguishable since tow and tug, con-
sidered as one unit, had been in contact with the injured ship, its reason-
ing was explicitly disapproved and the decision based upon the ground
that the clause covered liability only to vessels with which the insured
herself had collided. A later English decision held that the clause en-
titled the Cornwood to indemnity for liability to the Galatee when the
Cornwood collided with the Rouen and forced her into the Galatee.43
When this fact situation came before the Second Circuit in United States
v. American Insurance Co. [The Shadoc],4 Western Transit was dis-
tinguished in order to reach the English result. A Western Transit situ-
ation has never been litigated in England, but English decisions seem to
support the American result since they have stated that the clause
applies only when the insured vessel actually collided with another,
considering tug and tow as one.45 And the language of The Shadoc in-
dicates that The Niobe would now be followed here despite earlier dis-
approval, thus bringing belated uniformity.
That the quest has been for commercial uniformity rather than mere
legal parallelism is illustrated by a recent case construing the "free of
capture and seizure" clause disclaiming liability for losses due to hostili-
ties or warlike operations. The English courts, stressing the nature of
the voyage, regarded almost any loss as falling within the clause if the
vessel was engaged in a warlike operation.46 However, the standard
English policy was changed to provide that the character of the mission
should not be relevant.47 When an F.C. & S. case arose in this country,
concerning which an English holding seemed to conflict with the reason-
ing of American precedents, uniformity of ultimate result was accom-
plished even though the English case was rejected since it had been
superseded by a revised English policy.48
American courts have not set uniformity as a pole star, however,
sometimes refusing to conform to British decisions even when not
confined by contrary precedents of their own. If the subject matter
insured was undervalued in the policy, and, after a loss, recovery against
the third party is for a greater amount than was paid on the policy, the
question arises whether the insurance company is subrogated to the full
amount or only to a pro rata share based on the coinsurance principle.
When the insurer paid ?6,ooo under a valued policy for a total loss and

42 I6I Fed. 869 (2d Cir. I908), cert. denied, 2IO U.S. 434 (I909).
43 France, Fenwick & Co. v. Merchants' Marine Ins. Co., Ltd., [I9I5] 3 K.B.
290.
4489 F.2d 8 (2d Cir. I937).
45 2 ARNOULD, MARINE INSURANCE ? 795.
46Derby, What Are Warlike Operations?, 33 CALiF. L. REV. I28, 134 (194
Note, 5I YALE L.J. 674, 679 (I942).
47 [I9341 Am. Mar. Cas. I30.
48 United States v. Standard Oil Co., I78 F.2d 488 (2d Cir. I949), 63 HARV. L.
REv. I455, af'd, I9 U.S.L. WEEK 4030 (U.S. Nov. 28, I950).

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 I95I] NOTES 45I

the insured, establishing that his vessel was worth ?9,ooo, later recovered
the ?5,700 to which the defendant limited liability, the British court
held that the insurer was entitled to the full amount of the recovery
rather than the two-thirds proper under coinsurance principles.49 It went
on to say that the insurer would have been entitled to the full ?9000 had
it been recovered. The Supreme Court, flatly rejecting this analysis,
held in a case where the insured did recover more from the wrongdoer
than had been paid under the policy, that the underwriter was entitled
only to the amount he had paid less a pro rata percentage of the expense
of the litigation against the wrongdoer.50
Express Provisions in the Policy. - When courts fall out, private
parties may still agree; many differences between English and American
law have been overcome by specially drafted standard clauses. For in-
stance, early American cases held that where a vessel was so severely
damaged that the cost of repair would exceed one-half her value when
repaired, her owner could consider the vessel a constructive total loss,
abandon her to the underwriter and collect for a total loss.51 In Eng-
land, unless the cost of repair would exceed the total value, a vessel
would never be considered a constructive total loss.52 It was further
established in America that, if the owner gave the notice of abandonment
reasonably believing he had a right to do so, it was valid regardless of
what the costs actually proved to be; 53 in England if the underwriter is
successful in restoring the ship for an amount not in excess of her value,
he may return her to the owner and is not liable on the policy.54 Today
the English result in both particulars is obtained in this country through
explicit provisions drafted by the American Institute of Marine Under-
writers.55 Similarly, after the Supreme. Court rejected 56 the English
rule 57 that a spoilage loss caused by delay is not recoverable under the
"perils of the sea" clause, it was embodied in a new American clause.58
Many other questions on which American courts have differed from
English decisions could be resolved in like manner. In both England
and the United States every policy covering a single voyage (a voyage
policy) contains an implied warranty that the vessel is seaworthy, so
that the insurer has no liability under the policy unless the vessel is
fit in all respects.59 In England, however, no such warranty is implied
" North of Eng. Ins. Co. v. Armstrong, L.R. 5 Q.B. 244 (I870).
50Aetna Ins. Co. v. United Fruit Co., 304 U.S. 430 (I938).
51 E.g., Devitt v. Providence Washington Ins. Co., I73 N.Y. I7, 65 N.E. 77
(I902).
52 Marine Ins. Act, I906, 6 EDW. VII, c. 4I, ? 6o; 2 ARNOULD, MARINE INSURANCE
? I09I.

5 Orient Mut. Ins. Co. v. Adams, I23 U.S. 67 (I887).

542 ARNOULD, MARINE INSURANCE ? I096.
55 CONSTRUCTIVE TOTAL Loss CLAUSE, (American Institute Cargo Clauses, April
I947).
56 Lanasa Fruit S.S. and Importing Co. v. Universal Ins. Co., 302 U.S. 556
(1938).
57 Marine Ins. Act., I906, 6 EDW. VII, c. 4I, ? 55(b); 2 ARNOULD, MARINE IN-
SURANCE ? 824.
58 See, e.g., DELAY CLAUSE, SPECIAL MARINE POLICY, (Ins. Co. of North Am.,
Form 33).
51 Marine Ins. Act, I906, 6 EDW. VII, c. 4I, ? 39; 2 ARNOULD, MARINE
? 686; New Orleans T. & M. Ry. v. Union Marine Ins. Co., 286 Fed. 32 (5th Cir.
I923).

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 452 HARVARD LAW REVIEW [Vol. 64

in a policy covering a fixed period of time (a time policy), and, if a

vessel sails in an unseaworthy condition, recovery can be had upon the
time policy except in cases where the insured had actual knowledge of
the condition that was the proximate cause of the loss.60 American
courts have usually said that there is an implied warranty of seaworthi-
ness in time policies but there is doubt as to its scope and the circum-
stances under which it arises.61 Unless a loss is caused by the ship-
owner's failure to use due diligence in seeing that the vessel was sea-
worthy, he is excused, despite negligent navigation, from liability for
damage to cargo he is carrying.62 Hence, the American rule leaves the
cargo owner with no recourse in cases where the vessel's unseaworthiness
is not caused by the shipowner's neglect.
A clause in American time policies on cargo negating any implied
warranty of seaworthiness would afford needed protection to cargo
interests and render rights under the contract more certain; a clause
spelling out such a warranty would create equal certainty but might
induce American cargo owners to seek British policies in the hope of
getting the broader coverage.
Another difficulty not yet drafted out of existence is exemplified in
the following situation: while under a time policy a vessel is stranded;
thereafter the policy expires and is replaced by one with a different in-
surer, during the term of which further damage is caused by the
pounding of the surf. In England the first insurer would be liable for
all of the damage.63 One state has followed this reasoning 64 but it
was rejected by the Court of Appeals for the Second Circuit which held
each insurer liable for that portion of the loss which materialized while
his policy was in force.65 Since the latter rule involves highly conjec-
tural apportionment, simplicity as well as uniformity could be attained
by stipulating for the English result.
The "memorandum" clause, first introduced by Lloyd's in 1749 66
functions to exempt the underwriter from liability for damage which
amounts to less than a specified percentage of the value of the ship or
cargo insured.67 The construction of this clause has raised numerous
problems, some of which persist despite rephrasing.68 In England, if

60 Marine Ins. Act, I9O6, 6 EDW. VII, C. 4I, ? 39(4).

61 Several views are discernible: no implied warranty in time policy, Sorenson
v. Boston Ins. Co., [I926] Am. Mar. Cas. 241 (D. Md. I925); implied war-
ranty that vessel is seaworthy at inception of the risk, see Union Ins. Co. v.
Smith, I24 U.S. 405, 427 (I887); implied warranty of seaworthiness if the vessel
is in port at inception of the risk, Leathem Smith-Putnam Nav. Co. v. National
Union Fire Ins. Co., 96 F.2d 923 (7th Cir. I938).
62 49 STAT. I2IO (I036), 46 U.S.C. ? I304 (I946); Carriage of Goods by Sea
Act, I924, I4 & I5 GEO. V., C. 22.
63 I ARNOUXLD, MARINE INSURANCE ? 438.
64 Duncan v. Great Western Ins. Co., I Abb. App. Dec. 562 (N.Y. I867); Coit
v. Smith, 3 Johns. i6 (N.Y. I802).
65 Export S.S. Corp. v. American Ins. Co., io6 F.2d 9 (2d Cir. I939), cert.
denied, 309 U.S. 6o6 (I940).
66 2 ARNOULD, MARINE INSURANCE ? 882.
67 DOVER, ANALYSIS OF MARINE AND OTHER INSURANCE CLAUSES 20 (6th ed.
1950).
68 2 ARNOULD, MARINE INSURANCE ?? 882 et seq.

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 I95I] NOTES 453

total separate losses during the course of one voyage amount to more
than the specified percentage, the insured can recover.69 In America it
is generally agreed that separate losses to cargo can be added but there
is a split of authority whether the same is true of hull damages,70
resulting in uncertainty also curable by a policy provision.
Many changes in the terms of the standard policy have been made,
but reluctance to reword archaic phrases may still have unsatisfactory
commercial effects. This reluctance is partially attributable to the notion
that the bizarre language of the ancient form has been completely
clarified by years of judicial construction.7' In part, an incomplete
awareness that a policy is subject to the control of the parties may have
led the industry to accept undesired constructions 72 by courts which,
subordinating intent, have frankly formulated what they deem equitable
rules.73 Yet, acceptance of judicial regulation perhaps has tended to
forestall legislative action, like that found necessary in other insurance
fields, designed to protect that minor segment of the industry composed
of small insurance buyers.
Private International Agreements. - International agreement has not
been used as a technique for achieving uniformity of phraseology in
policies, because action on an individual or a national level suffices.
Many insurance problems, however, depend upon liabilities arising
under the law of general average where certainty can only be achieved
at an international level. A general average loss is a partial loss volun-
tarily incurred in averting an extraordinary marine peril; 74 it is an
ancient maritime principle that all who benefit thereby must contribute
proportionately.75 Before the York-Antwerp Rules came into general
use there were striking differences between the general average rules of
leading maritime nations.76 Even the basic theory of general average
differed: in England a right to contribution existed only if the safety of
the adventure had actually been threatened,77 while in America and
some continental countries it arose whenever an extraordinary sacrifice
was necessary to complete the voyage.78 These and other differences 79

69 TEMPLEMAN, MARINE INSURANCE I98 (4th ed., Greenacre, I934).

70 2 ARNOULD, MARINE INSURANCE ? 893.
71 I ARNOULD, MARINE INSURANCE ? IO.
72 See Gulf Refining Co. v. Atlantic Mut. Ins. Co., [The Gulflight], 279 U.s.
708, 715 (I929).
7 See, e.g., Gulf Refining Co. v. Atlantic Mut. Ins. Co., supra note 72.
74 LOWNDES AND RUDOLF, GENERAL AVERAGE i6 (7th ed., Hodgson and Rudolf,
I948).
75 LOWNDES AND RUDOLF, op. cit. supra note 74, C. I; ELDRIDGE, MARINE POLICIES
2I2 (2d ed., Atkins, I924).
76 LOWNDES AND RUDOLF, op. cit. supra note 74, at 317.
77 CONGDON, GENERAL AVERAGE 3 (2d ed. I923); LOWNDES AND RUDOLF, op. cit.
supra note 74, at 44.
78 McAndrews v. Thatcher, 3 Wall. 347 (U.S. i865); Reliance Marine Ins. Co.
v. N. Y. and Cuba Mail S.S. Co., 70 Fed. 262 (S.D.N.Y. I895), aff'd, 77 Fed. 3I7
(2d Cir. i896), cert. denied, i65 U.S. 720 (I897); CONGDON, op. cit. supra note 77,
at 44; LOWNDES AND RUDOLF, op. cit. supra note 74, app. 3 at 463. But cf.
Earnmoor S.S. Co. v. New Zealand Ins. Co., 73 Fed. 867 (N.D. Cal. i896), aff'd,
79 Fed. 368 (gth Cir. I897).
'I See CONGDON, op. cit. supra note 77, app. Ig9-202 (table of differences be-
tween British and American general average rules).

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454 HARVARD.LAW REVIEW [Vol. 64

could only be resolved by international agreement because the rules of

the port of destination must govern, being the only ones with which
the adjusters handling this intricate problem would be familiar.80 Since
the insurance coverage is coextensive with liability, insurers were
anxious to eliminate such fortuitous variations and took an active part
in the international conferences.8'
The York-Antwerp Rules of I890, not attempting a philosophy of
general average,82 dealt with specific recurring instances and left matters
not so covered to the law of the port of destination.83 In I924 these
specific rules were revised and general rules were added which embodied
the British theory that physical peril was a prerequisite to general
average 84 and provided that the right to contribution should not be
affected if the sacrifice was necessitated by the negligence of one of the
parties.85 Dissatisfaction with the British theory and belief that the
negligence provision violated the Harter Act 86 caused American ship-
pers to reject the general rules; 87 they also rejected the revised specific
rule for valuating damage to partially injured cargo.88 In the I950
revision 89 several changes were made including adoption of the Ameri-
can method for computing such damage.90 The Harter Act having been
superseded by enactment of the Hague Rules,9' the basis for the previous
American refusal to adopt the rules in toto was largely eliminated. The
new rules were approved by the American Institute of Marine Under-
writers, the International Law Association and the Maritime Law Asso-
ciation.92 Yet, the rule that deposits collected in respect to the general
average liability of cargo be placed in trust 93 has met with organized
opposition from American average adjusters who have recommended
that it be rejected.94 Since a similar provision in the I924 rules 9 oper-
ated in this country with apparent satisfaction,96 this objection would

80 Charter Shipping Co., Ltd. v. Bowring, Jones & Tidy, Ltd., 28i U.S. 515
(I930); CONGDON, op. cit. supra note 77, at I48; LOWNDES AND RUDOLF, op. cit.
supra note 74, at 224.
81 LOWNDES AND RUDOLF, op. cit. supra note 74, at 3I8-2I.
82 CONGDON, op. cit. supra note 77, at 53.
83 YORK-ANTWERP RULES, i8go, RULE XVIII, DOVER, op. cit. supra note 67,
at 565.
84 YORK-ANTWERP RULES, I924, RULE D, DOVER, op. cit. supra note 67, at 56
85 YORK-ANTWERP RULES, 1924, RULE A, DOVER, op. cit. supra note 67, at 56
86 27 STAT. 445 (I893), 46 U.S.C. ? IgI (I946).
87 [I926] Am. Mar. Cas. Supp. 79. This action was taken upon recommenda
tion of the American committee.
88 KNAUTH, OCEAN BILLS OF LADING, app. B, (3d ed. I947) (typical American
York-Antwerp clause).
89 YORK-ANTWERP RULES, I950, DOVER, op. cit. supra note 67, at 580.
90 YORK-ANTWERP RULES, 1950, RULE XVI, DOVER, op. cit. supra note 67, at
583.
91 Enacted in the United States as the Carriage of Goods by Sea Act, I936, 49
STAT. 1210 (I936), 46 U.S.C. ? II30 (I946); the 1936 Act supersedes the Harter
Act "from tackle to tackle," KNAUTH, op. cit. supra note 88, at I33.
92 [I950] Am. Mar. Cas. 464.
" YORK-ANTWERP RULES, I950, RULE XXII, DOVER, op. cit. supra note 67,
at 587.
9 [i 5o] Am. Mar. Cas. 7I6.
9 YORK-ANTWERP RULES, 1924, RULE XXIII, DOVER, op. cit. supra note 67,
at 579.
96 LOWNDES AND RUDOLF, op. cit. supra note 74, at 434.

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 I95I] NOTES 455

seem to be overbalanced by the need for uniformity. It is to be hoped,

therefore, that American shipowners will incorporate the rules in their
bills of lading.
Perhaps the technique of private international agreement could be
used to solve other problems. The Hague Rules specify a maximum
liability for damage to cargo but authorize it to be increased by con-
tract.97 Proceeding under this provision in the British enactment,98
British underwriter, cargo owner and shipowner associations have
entered a maximum liability agreement which is national in scope.99 A
similar international agreement, subject to periodic revision, would
assure more complete uniformity, since maximum liability for each
country could be adjusted to minimize differentials due to exchange rate
fluctuations.
Treaties and Statutes. - In situations where the legal liability under-
lying the insurance obligation is not based upon contract, governmental
action is the key to uniformity. Liability for collision damage is a promi-
nent example. Since the Brussels Collision Convention of I9IO 100 has
been adopted in Britain 101 but not in the United States, this treaty,
designed to create uniformity, has increased the divergence. First, when
a collision is caused by the negligence of both vessels, liability under the
Treaty is apportioned according to the relative gravity of the vessels'
fault 102 while American courts divide it equally.'03 Second, under the
treaty an owner of injured cargo can recover from his carrier and the
other vessel only that portion for which that vessel was responsible 104
whereas under American law he can recover from either vessel for the
full amount of the loss and leave it to that shipowner to seek contribu-
tion from the other vessel.'05 This latter rule gives the cargo-owner
greater protection since under the Hague Rules the owner of the carry-
ing vessel may not be liable for damage to cargo he is carrying.'06
Despite opposition to this limitation, the Convention was submitted
to the Senate in I937 107 and approved by the Foreign Affairs Commit-
tee.'08 However, no further action was taken and President Truman
has revoked it for "further study." 109 While adopting the Treaty in
toto might not be politically expedient, by enacting only the apportion-

97 49 STAT. I2I0 (I936), 46 U.S.C. ? I304(5) (1946).

98 Carriage of Goods by Sea Act, I924, I4 & I5 GEO. V, C. 22.
91 BRITISH HAGUE RULE AGREEMENT, I950, [I950] Am. Mar. Cas. 1743
100 GRIFFIN, COLLISION, app. XV.
101 Maritime Conventions Act, i9ii, I & 2 GEO. V, C. 57.
102 COLLISION CONVENTION, BRUSSELS, IgI0, ART. 4; GRI?FIN, COLLIS
xv.
103 GRIFFN, COLLISION ? 245.
104 COLLISION CONVENTION, BRUSSELS, IgI0, ART. 4; GRIFFIN, COLLISI
xv.
105 GRIFFIN, COLLISION ? 246.
106 See p. 452 supra.
107 EXEC. K, 75th Cong., ist Sess. (I937), [I9471 Am. Mar. Cas. 832.
108 SEN. EXEC. REP. No. 4, 76th Cong., ist Sess. (I939), [I939] Am. Ma
I05I.

109 Message of the President to the Senate, Apri

Cas. 832.

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 456 HARVARD LAW REVIEW [Vol. 64

ment of fault principle substantial uniformity might be obtained since

it has recently been held 110 that the cargo-owner's right to recover for
his entire loss can be waived by contract.

THE EXCULPATORY PROVISION OF THE DEFENSE PRODUCTION ACT

OF 1950. - Industrial and economic mobilization inevitably causes large
scale dislocations in the delicate machinery of a dynamic economy.' It
is then that government action radically alters contractual arrangements
and frequently defeats the expectations of the parties. In the absence
of statutory exculpation or discharge on grounds of supervening illegal-
ity, common law principles of impossibility or frustration would deter-
mine liability under such agreements and, if the frustrating event could
reasonably have been foreseen, escape from contractual obligations
would be unlikely.2 To facilitate prompt compliance with government
mandates, Congress sought, in the Defense Production Act of I950,3 to
eliminate this common law doctrine in specified instances.4 But, since
the statutory provision will frequently be inapplicable and troublesome
problems remain even where it operates, it may be desirable for contract-
ing parties, wherever possible, to anticipate such contingencies by
appropriate contract provisions.
Comparison with Prior Provisions. - The Defense Production Act of
1950 is an omnibus measure dealing with such varied matters as priori-
ties and allocations, authority to requisition, expansion of productive
capacity and supply, price and wage stabilization, and control of con-
sumer and real estate credit. Section 707 of the Act, insofar as it con-
cerns exculpation, may relate to all of these matters since it provides
that:

No person shall be held liable for damages or penalties for any act or
failure to act resulting directly or indirectly from his compliance with a rule,
regulation or order issued pursuant to this Act, notwithstanding that any such
rule, regulation or order shall thereafter be declared by judicial or other
competent authority to be invalid . . .

Some enlightenment as to the scope of this exculpatory provision may be

derived by comparing it with its 1941 predecessor.5 Section 2 (a) (7) of
the earlier act Drovided that:

10 United States v. The Esso Belgium, go F. Supp. 836 (S.D.N.Y. I950). See
KNA-UTH, op. cit. supra note 88, at I59.
- ee Note, American Economic Mobilization, 55 HARV. L. REV. 427-536 (I942).
2 See L. N. Jackson & Co. v. Royal Norwegian Gov't, I77 F.2d 694, 702 (2d Cir.
I949) (L. Hand, J., dissenting), cert. denied, 339 U.S. 9I4 (I950); RESTATEMENT,
CONTRACTS ? 457 (I932).
'Pub. L. No. 774, 8ist Cong., 2d Sess. (Sept. 8, I950).
' See H.R. REP. No. 460, 77th Cong., Ist Sess. 6 (I94I) which accompanied th
World War II exculpatory provision. The committee reports relating to the
present provision are not as explicit, see SEN. REP. No. 2250, 8ist Cong., 2d Sess.
ii (I950); H.R. REP. No. 2759, 8ist Cong., 2d Sess. 22 (I950). However, there
is no reason to believe that there was any difference in the basic purpose of both
statutes.
5 55 STAT. 236 (I94I), 41 U.S.C. PRECEDING ? I (SUPP. I I942), as amended,
56 STAT. i8o (I942), 50 U.S.C. App. ?? 633 (7), II52 (a) (7) (I946).

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