Newport News Shipbuilding & Dry Dock Co. v. United States

PARKER, Circuit Judge

(dissenting in part). I agree with the majority of the court that the Shipbuilding & Dry Dock Company is liable on the ground of negligence for the damage occasioned by the fire, and that the question of demurrage need not be considered by us until it has been passed upon by the court below; but I dissent from se much of the decision as holds that the company, by virtue of contract with the government, is relieved of liability for its negligence to the extent of the government insurance on the vessel. In other words, I think that the decree of the District Judge should be in all respects affirmed.

So far as the questions here involved are *108 concerned, the contract seems to me to be clear and free of ambiguity and not to require resort to parol evidence for interpretation except to identify “the present hull, equipment and machinery insurance” to which it refers. Resort may not be had to parol to create ambiguity to be solved by parol. I do not stress this, however, for, whether the contract be taken alone or in connection with the negotiations which led up to its execution, I do not think that it can be construed as giving the company the benefit of the insurance carried by the government or as relieving it to that extent of liability for its negligence.

It is true, as contended by the company, that under its first bid it contemplated taking out builder’s risk insurance covering the value of the vessel, which would have protected its own interests as well as those of the government. This bid, however, was not acdepted. The specifications were changed on submission for new bids; and the effect of one of the changes was that the government would “continue the present hull, equipment and machinery insurance,” and that the contractor would be required to carry builder’s risk insurance only to the amount of the contract. It should be borne in mind, in this connection, that, in stipulating to continue the present insurance, the government was stipulating to continue insurance which protected the government alone. It did not stipulate that, the contractor should have the benefit of this insurance or that he should be relieved from liability to the extent thereof. The only effect of the new specifications, therefore, so far as insurance was concerned, was to make it clear that the contractor was not required to carry insurance for the protection of the government to cover the value of the vessel, but only for the value of the repairs to be made. There was nothing in them from which a contractor could have concluded that he was to have the benefit of the existing insurance which was to be continued, that he was to be relieved from liability to the extent thereof, or that he was in any wise relieved of the necessity of protecting himself with legal liability insurance if he desired 'protection of that sort.

This change in the specifications respecting insurance came about because of a controversy which arose between officials of the shipbuilding company and the officials of the government as to the protection which the government was to receive from the shipbuilding company (for full discussion thereof see opinion of the District Judge [ 21 P. (2d) 117 -119]); but there was nothing in this controversy, or in any part of the conversation connected therewith, which would warrant the conclusion that the shipbuilding company was to have the benefit of the government insurance which was to be continued or that it was to be relieved of legal liability for negligence because of same. It was after this controversy that the specifications were changed, but it is to be noted that they were changed, not only with respect to the requirement of insurance, but also as to many other matters. As changed, they were resubmitted to other bidders as well as to the shipbuilding company, and competitive bids were submitted on the basis of their provisions. The bid of the shipbuilding company upon which the contract was awarded was not merely $5,000 less, but approximately $100,000 less, than its original bid, and there was nothing in it or in the original bid to indicate what was included or eliminated on account of insurance.

It appears, therefore, that the negotiations leading up to the contract, as well as the contract itself, contemplated nothing more than that the government should continue its existing insurance on the vessel, or, to use the exact language of the specifications and contract, “the present hull, machinery and equipment insurance.” This “present insurance” was so-called “government insurance” under the usual form of marine policy, insurance which protected the interest of the government alone. I cannot conceive how the continuance of such insurance could inure to the benefit of the shipbuilding company, which was not protected by it, so as to give that company in effect the benefit of legal liability insurance, to the amount of the policy, or how it could be held to exempt the company from liability on account of .its negligence.

The ease of S. J. Brice Sons v. Christiani & Neilsen, 30 Lloyd’s List, 177, cited in the opinion of the court, if I understand that decision, is a very different case from this. There it was agreed that the owners of a crane barge should take insurance at the expense of the hirer covering all risks. The insurance, although to be paid for by the hirer, was to be for the benefit of both. The owner failed to perfect the insurance according to agreement, and the barge was damaged. It was held that, although this damage was due to the negligence of the hirer, the owners could not recover therefor because of their failure to perfect insurance according to agreement which would have protected the hirer. In the case at bar, the government in *109 surance whieh was to be continued, and was continued, was not of the kind which would protect the shipbuilding company.

Some confusion arises in this case because the government, as the owner of many vessels, carried its own insurance. It will simplify matters, therefore, to assume, for the sake of the argument, a case in all respects like this, except that the insurance is carried, as in ordinary eases, with a private insurance company. In such ease there would be no question as to the right of the government to recover damages for negligence, notwithstanding its insurance. The insurance company, if it paid the policy, would be entitled to subrogation to the rights of the government to recover damages from the shipbuilding company (see Liverpool, etc., Co. v. Phenix Ins. Co., 129 U. S. 397, 463 , 9 S. Ct. 469 , 32 L. Ed. 788 , Inman v. S. C. Ry. Co., 129 U. S. 128 , 9 S. Ct. 249 , 32 L. Ed. 612 , and Luckenbach v. W. J. McCahan Sugar Refining Co., 248 U. S. 139, 148 , 39 S. Ct. 53 , 63 L. Ed. 170 , 1 A. L. R. 1522); but under no possible theory would the shipbuilding company have any right against the insurance company.

Now the fact that the government carried its own insurance, instead of having it carried by a private insurance company, cannot help the shipbuilding company. If the government insurance be conceived of as real insurance, then when the government as insurer pays the loss of the government as owner, it is subrogated, like'any other insurer, to the rights of the owner against the party whose negligence has caused the loss. If, however, the bookkeeping fictions are ignored, and the fact is faced that under government insurance the government is both insurer and insured and consequently has no insurance, then an agreement to continue the present government insurance is in reality nothing but an agreement on the part of the government to continue without insurance. It is manifest that an agreement to continue without insurance is not an agreement to perfect insurance whieh will protect the shipbuilding company, nor is it an agreement that that company shall be released from legal liability for its negligence.

It should not be ignored that the provision here in question was inserted in the contract under article X, entitled “Protection and Insurance,” and that every provision of the article was manifestly inserted for the protection of the government. The provision is a part of section 2 of article X, which section begins-with the declaration, “Without limiting by the provision hereof any liability of the contractor howsoever arising, it is understood,” etc., which provides further on, “The contractor shall take precautions to protect the ship from fire in every possible way, including the prompt removal of rubbish, care in the use of inflammatory materials and torches,” etc., and whieh contains many other provisions looking to the proper protection of the vessel. These provisions, whieh enjoin the highest degree of care on the shipbuilding company, are entirely inconsistent with an intention to relieve that company of liability for its negligence. While, of course, it is permissible to contract against liability for negligence, no contract ought to be construed to have that effect unless such intention clearly appears. McCormick v. Shippy (C. C. A. 2d) 124 F. 48, 51 ; International M. M. S. S. Co. v. W. & A. Fletcher Co. (C. C. A. 2d) 296 F. 855, 860 . Here not only is there no provision in the contract expressly relieving the company of liability for its negligence, but the provisions requiring particular care on the part of the company negative, it seems to me, beyond peradventure the idea that it was intended to relieve against negligence.

It is said, however, that, unless the meaning whieh the majority of the court ascribe to the provision in controversy be given to it, it is entirely meaningless. I do not think so. Under the original specifications, the company was required to protect the. vessel for the benefit of the government by what is known as “builder’s risk” insurance. Incidentally, such insurance would have protected the contractor also, but this was a phase of the matter in which he alone was interested and not the government. He could have obtained the same protection for himself, doubtless at much less cost, under legal liability insurance if protection of the government’s interest were not required. Now the provision in question relieved the contractor from the obligation of carrying insurance for the protection of the government except in an amount necessary to cover the cost of the new construction. This relieved the company of paying for such insurance for the benefit and protection of the government; and a loss not due to the negligence of the company under such circumstances would have fallen upon the government as the carrier of its own insurance, or as having no insurance. The government, under the agreement, assumed the risk of not being insured except to the amount of the repairs; but, of course, this is not the same thing as releasing the company from liability for its negligence.

*110 It is said also that the shipbuilding company reduced its bid by the amount of $5,000 because of not being required to carry builder’s risk insurance, which would have protected both it and the government,- and that the government got the benefit of this reduction; and it is asked what the shipbuilding company received, in return therefor. The answer is that, as a matter of fact, the shipbuilding company made no reduction in any bid. Its first bid was rejected along with all other bids received on the first specifications, and the specifications were thereupon changed. Its second bid was approximately $100,000 less than its first. If it eliminated $5,000 on account of not being required to take builder’s risk insurance for the protection of the government, it did so with full knowledge that the only change in the specifications regarding insurance was that the government was to continue its then existing government insurance, which, as we have seen, • gave no protection to any one except the government. It is not correct, therefore, to' say either that the shipyard did or did not receive anything for reducing its bid; for, as stated, the bid was not reduced, but a new bid was made on amended specifications. Under these specifications, it is true, the company was not required to take insurance for the protection of the government, and this was, no doubt, a reason for eliminating the amount included in its estimate to cover the cost of such insurance. To have .been perfectly safe, it should have taken legal liability insurance for its own protection, and the cost of this should have been considered in figuring its bid; but whether it should take such insurance or not was a matter which concerned it alone, as was the amount of its bid. As a matter of fact, the record shows that it had legal liability insurance in the amount of $100,000, which was doubtless deemed sufficient.

It is argued that, if the government had not inserted in the specifications and contract the provision in question, the bid would have been $5,000 higher than it was, and the contractor would have been protected as well as the government. Possibly so; but we must determine the rights of the parties on the basis of what they did, not of what their rights would have been if they had done something which they did not do. Nothing is better settled than that courts will not make contracts for parties, or relieve against improvident provisions or lack of foresight, and that, when the meaning of a contract can be extracted from its terms, it must be enforced as the parties have made it. I think that, when we lay to one side such matters as what the rights of the parties would have been if they had done things which they did not do or had made agreements which they did not make, there can be no doubt as to the meaning of the written contract here, whether considered alone or in the light of the negotiations, leading up to it. The only agreement was that the existing insurance would be continued. This insurance protected the interest of the government• alone. Nothing in the contract or in the negotiations supports the conclusion either that the government insurance was to be carried for the benefit of the shipbuilding company or that that company was to be relieved of liability for its negligence.

Por the reasons stated, I think that the decree appealed from should be affirmed.