Petition for a Writ of Certiorari — Underwriters at Lloyds London v. Alcoa Steamship Co.

Supreme Court brief1971

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IN THE E. ROBERT SEAVER, CLERK

SUPREME COURT OF THE.UNITED STATES

OCTOBER TERM, -1970

T1- J]

‘UNDERWRITERS . AT LLOYDS LONDON,

. ANDREW WEIR INSURANCE CO., LTD.,

FINE ART-& GENERAL INSURANCE CO., LTD.,

NATIONAL PROVINCIAL INSURANCE CO., LTD., hte

ORION INSURANCE COMPANY, LTD., a a,8

ENGLISH & AMERICAN INSURANCE CO., LTD., “M”, _

and ECONOMIC INSURANCE COMPANY, LTD,

_— a/e, :

| Petitioners

_ versus - arenes

‘ALCOA STEAMSHIP COMPANY, INC., ET AL.

——_ a

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH. CIRCUIT,

LEON SARPY

JAMES G BURKE, JR.

PAUL A. NALTY |

Attorneys for Petitioners.

1500 National Bank of

_ Commerce Building - -

‘New Orleans, La. 70112

OF COUNSEL | Rie

_CHAFFE, McCALL, PHILLIPS, |

BURKE, TOLER & SARPY

TABLE OF CONTENTS

Page

Opinion .Below ce eeee ry Neel ae Renee 5.

Jurisdiction is ea 2

- Questions Presented 2 a ae

Statutes Involved cece

ey 0 aa \ 3

Hasty Argument | “oe ee

I. The Disgretion of the District Court in Assessing: |

Against Primary Underwriters the Payment of /

Interest Should Not Have Been. Disturbed. by ra

the Court of Appeals ___ 7 74

ne The ‘Peet of Interest Should | be yom ¢

Only Against the Principal: Debtor, and not

‘Against One Who Was Exonerated from the

Payment of Principal - :, 11

III. Interest Not Separable eens (Principal ‘In The

_° Absence of Contract SSStunR ASE ., 14

Conclusion __ Ses ee eas 7 ae

Appendix A. |

The opinion of the Court of p | Brikeatencneaenns 19

Appendix B = |

Judgment of the Court of Appeals eee pecs 32

| _--—'RABLE OF CONTENTS (Continued)

“*~

Page

Appendix C

- Order of the Court of Appeals on Petition “~ cae

Rehearing : 34,

— D-

”

@<"

Amendment) ica 36

_ Appendix E . ire, zt oe ic |

Findings by ‘the Special ‘Mester, Richard BL

Montgomery, Jr. - _- ns 42

| Appendix F~

- Statutes Involved Saiscislaben | 50

LIST- OF AUTHORITIES.

Albert Dumois, The, 177 U.S. 240, 20 S.Ct. 595,

: 44 L.Ed. 751 (1900) . ~ 9

" Aleoa Steamship Co., Ine. vs Charles paisa & Co.,

Ine., et al.; 383 F.2d 46, and 393 US. 836, 21

L.Ed 2d 107 (1968) _— DE GT 3

Arizona Eastern R. Co. v. . Head 224 P. 1057, 1058,

i 26 Ariz. 259 _ RL Par Plat 13

re Asphalt Pav. Co. vs Webster - County, 421"

| N.W. 1072, 1073, 143 lowa, 255 -- keene foe 13

Brotherhood of ‘Railroad Petia vs Baltimore and

Ohio Railroad vempeay, 8 331 USS. 519, 91 L.Ed.

1646 (1947) seis):

| Charter Shipping Citas vs Bowring, 281 US:

oR, 74 L.Ed. 1008 (1930) : ms

ee Glass Works vs. Cub Fork Coal nana

287 U.S. 474, v7 L.Ed. 439 (1932). - a

Gakr vs Louisville Banking Co., 74 Ry. (au Bush)

_ 180, 189, 21 Am. Rep. 209 : _ 13

Hagan \ V. Commissioners? Cat of Limestone County, . —

49 So. 417, 421, 160° Ala. 544, 37 LRA,

N.S. 1027 __. | — 13

Hemmenway vs Fisher, 20 Howard 255, 15 L. Ed. 799. 12

Inhabitants of Town of Norridgewock v. ‘Inhabitants’

of Town. of Hebron, Me., 128 A.2d 215, | 13

ate

LIST OF AUTHORITIES (Continued)

Kenny v. Si ‘Feliz Inv. Co., Cal, 9 P.2d 225, 228,

121 oe _ pide be et es IE ba a 13

Lekas & Drivas, Inc. vs Goulandris, 306 F.2d 426

(2nd Cir., 1962) _ Se we SES aie

MacRackan v. Bank of Columbus, 80 S.E. 184, 185,

164 N.C. 24, 49 L.R.A., N.S., 1043, Ann. Cas. -

1915D, 105 —-____ ea ae

"625 SE Pi OMe as phones ee L-

_ Manitoba, The, 122 U.S. 97, 30 L.Ed. 1095 (1886) _. 12 .

Mann, Succession of, 4 La.Ann. 28 (1849) > de *

Maryland :Casualty Co. of Baltimore, Md. vs Omaha

Electric Light & Power Co., 157-F.514 _____. 15, 16

Merrigan vs Metropolitan Life Ins. Co., 43° F. asc

209 (1942) m aeons } | 14

R.F.C. vs Service Pipe Line Co., mre Okl. 206 F.2d

6, OOF he, icant MO

Scotland, The, i18 U.S. 507, 30 L.Ed. 153 (1885) -

Shidieatinwe The, 106 F.2d 896 (9th Cir. 1939) ___ oS 9

United incite vs lcs tieei Oil Co., 60 Sup. Ct.

811, 310 U.S. 150, 84 L.Ed. 1129 (1940) 2

Vv.

LIST OF AUTHORITIES (Continued)

| | Page

Van Nievelt, Goudriaan Co.’s Stoom.M. vs ‘vias &

T. Man Corp., 421.F.2d 1183 (2nd Cir. 1970) __. 9

', Wagner Electric Corporation vs Ocean Ace: & Guar-

antee Corp., 36 F.2d 186 (1929) ___ newssnncntgnsae: ly SMM

Wright, The, 109 F.2d 699, 702, 2nd Cir.,” 1940 or 2

; | STATUTES a

28 USCA 1254 Yt ee

ANCA We

Siabeieie Civil Code of 1970, Article 1935 poe et 12 .

(—

watt GLP yar -

IN THE

‘SUPREME. COURT OF THE UNITED STATES |

OCTOBER TERM, 1970

NO.

UNDERWRITERS AT LLOYDS LONDON,

; ANDREW WEIR INSURANCE CO., LTD.,

M ‘FINE ART & GENERAL. INSURANCE CO., LTD.,

NATIONAL PROVINCIAL INSURANCE CO., LTD.,

_ ORION INSURANCE COMPANY, LTD.,

_. ENGLISH & AMERICAN INSURANCE CO., LTD., “M”,

and ECONOMIC. INSURANCE COMPANY, LTD.,

| | “M’”’ af,

. € | Petitioners

versus - 2 . :

- ALCOA STEAMSHIP COMPANY, INC., ET: AL.

Respondent

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT: OF APPEALS

FOR THE FIFTH CIRCUIT |

Now come Underwriters at Lloyds London, Andrew

Weir Insurance Co., Ltd., Fine Art & General Insurance

Co., Ltd., National Provincial Insurance Co., Ltd., Orion

‘ Insurance Company, Ltd., English & American Insurance

Go., Ltd., “M”, and Economic Insurance Company, Ltd.,

“M” a/c, Petitioners, hereinafter collectively referred to ;

. as Excess ‘Underwriters, and respectfully petition this

Honorable Court/ to issue a writ of certiorari to review

the judgment of the United States Court of Appeals for

LA ag aa ali al as

the Fifth Circuit entered in this case on April 26, 1971

exonerating petitioners from liability on the principal of

the shipowner’s claim for damages but holding petitioners

for the payment of interest, and the order of the same

Court denying a rehearing entered on June 23, 1971. -

OPINION BELOW

The said opinion in question of the Court of Appeals

for the Fifth Circuit is reported at ... . F.2d ,

Appendix A, and the order of that Court denying a re-

hearing was: rendered on June 23, 1971, Appendix C.

_ The trial court, United States District Court for the .

Eastern District of Louisiana, New Orleans Division, —

rendered its opinion at F.Supp. ____, Appendix C._

JURISDICTION

_ The judgment of the Court of Appeals was entered on

April 26, 1971 Appendix B and a petition for rehearing

' was timely filed by these petitioners and the order denying

the rehearing was entered on June 23, 1971. en

The jurisdiction of this Court is invoked under 28 US

Code 1254 (1 ‘i, é;

QUESTIONS PRESENTED —

1. .Whether the discretion of the district court in |

assessing the payment of interest against Primary Under-

writers who paid $300,000.00 principal, found to be

due by both District Court and the Court of Appeals,

should: be disturbed by the Court of Appeals which shifted

the liability. for the payment of interest from Primary

Underwriters to Excess Underwriters.

2. Whether the nature of ‘interest, being a premium -

for the use of money, should be due only by the principal

debtor who enjoyed the use of the money or by Excess

Underwriters. : ah |

3. Whether interest can be separable from principal

in the absence of contract,

STATUTES INVOLVED

28 U.S. Code 1961, and Louisiana Civil Code of 1970

Article 1935, Appendix E, imposing respectively, interest

_ at the rate allowed by state law, and the state law provi-

sion that interest is damages due for the.delay in per-

formance of ‘an obligation by primary underwriter to :

pay money.

STATEMENT OF THE CASE ‘

This litigation has previously come before this Court’ -

on application for writ of certiorari filed by Alcoa

Steamship Company, which this Court denied, 393 US

836, 21 L.Ed. 2d 107 (1968) The shipowner Alcoa sued

the repairman for damages approximating $1,000,000. _

The ship repair contract contained a red letter clause

limiting liability to $300,000. So in this matter two de-

cisions of the Court of Appeals have now held that the

red letter clause limiting liability of a ship. repairer to.

$300,000 is valid, 383 F.2d 46, and ee "ae

exonorated Excess Underwriters from any liability ‘to

' pay any amount whatever toward interest. From the first:

determination ‘by the Court of. Appeals this Horoiable

Court denied certiorari and has accordingly refused

_ to review the correctness of the Fifth Circuit’s holding the

red letter clause valid:

“=

‘4

e:,

i a

CRETE Ee Ee

OPEN

FE SE MLAS SII RIL

‘In its second opinion the Court of Appeals declared

that although the primary underwriters of Charles Fer-

‘rand & Co., Ine., the ship repairer, elected to pay the '

principal‘sum of $300,000, that petitioners, being excess

underwriters, pay nothing in the form of principal. How- : ©

ever, the Court of Appeals has assessed the interest on

__ $300,000 against Excess Underwriters who .¢ .are e the peti-_ oh

tioners in this petition for certiorari.

‘This petition therefore concerns. only the question of

the imposition of interest against a litigant who has

been exonorated from paying any principal.

It is the position of petitioners that the judgment of

‘the Court of Appeals is erroneous in the three respects

_ above set forth and as-such contradicts the holdings of this

Court in its previous decisions which we shall cite.

ARGUMENT

I, THE DISCRETION OF THE DISTRICT COURT

IN ASSESSING AGAINST PRIMARY UNDER-

WRITERS. THE PAYMENT OF _ INTEREST

SHOULD NOT HAVE BEEN DISTURBED BY

THE COURT OF APPEALS.

We have here presented the anamolous situation whére

Primary Underwriters are held liable for the payment of

the principal of $300,000, but the payment of interest

on this principal has been cast by the Court of Appeals

upon Excess Underwriters held by: all Courts to be. ex-

onerated of any principal whatever, and reversed the

District Court in that regard. Our research discloses no

reported decision wheré a similar holding has been made.

This is an admiralty proceeding and as such the im-

position of interest is within the sound discretion. of the

Mis.rict Court. Unless thé determination of the District

Court is arbitrary, discriminatory or illegal, the exercise

of such discretion _should-not be disturbed. There is no

____finding-by the Court of Appeals that the District Court

was arbitrary, discriminatory or illegal. -

The following United States Supreme Court cases

enumerate this principle and are as follows:

Charter Shipping Company vs Bowring, 281 U.S. 515,

74 L.Ed. 1008 . (1930), involved a libel in admiralty

brought by one British corporation against another to

recover a general average deposit. The respondent subse-

quently filed a suit in England which involved the same

subject matter/ The District Court dismissed the libel —

. stating that contribution for general average is to be

determined by the law of the port of discharge and that

“under all the circumstances” jurisdiction should be de-

clined. The Court’ of Appeals. reversed, holding that juris-

diction should have been retained. The Supreme Court,

on certiorari, stated that the retention of a suit in ad-

_ miralty between foreigners is within the discretion of

the District Court, and that the exercise of its discretion

may not be disturbed ‘unless abused. The Court went on to

enunciate the following principle: _ ;

“Even if we assume, as did the Court of Appeals -

below, that the bills of lading may have modified .

the liability in general average so as to put in

issue the case taken to make the vessel sea-

worthy before sailing, we cannot say that the -

District. Court inprovidently exercised its discre-

tion. It was forthe District Court. to consider

the facts appearing _and the inferences which .

might be drawn from them breach its own con-

clusion. ...”

Therefore, on this pertinent issue, the Supreme Court

of the United States reversed the Court of Appeals’ de-

cision and reinstated the decision based upon the ‘District .

Court’s discretion.

Fairmount;Glass Works vs Cub Fork. Coal Company,

287 U.S. 474, 77 L.Ed. 489 (1932), involved an action

for damages based upon an alleged. breach of contract.

Jurisdiction of the Federal Court was invoked on diversity

of citizenship. On two trials in the Federal District

Court. the jury returned a verdict in favor of the defend-

ant and requests. for new trials were denied by. the

district judge. The Court of Appeals reversed these judg-

ments and ordered new trials. On certiorari, the United

States Supreme Court reversed the Circuit Court’s rulings

and used the following pertinent language:

“The rule that this court will not. review the

action of a Federal trial court in granting or

denying a motion for a new trial for error of

fact has been settled by a long and unbroken

line of decisions; and has been frequently ap-

plied where the ground of the motion was that

the damages awarded by the jury were excessive

_ or were inadequate. The. rule precludes likewise

a review of such -action by a circuit court of

appeals. More frequently the reason given for

the denial of review is that the granting - or

refusing of a motion for a new trial is a matter

within the discretion of the trial court”

Furthermore, the court went on ‘to state:

“It is urged that the refusal to set aside the

——ee

verdict was an abuse of the trial court’s dis-

_ ewetion, and hence reviewable. The Court of -

Appeals has not. declaréd that the trial judge

abused his discretion. Clearly the mere refusal

to grant a new trial where nominal damages .

were awarded is not an abuse of discretion. This.

’ court has frequently refrained. from disturbing

the trial court’s approval of an award of dam. |

« ages which-seemed excessive ar inadequate, and

the circuit courts of appeals have generally fol-

lowed a similar policy. Whether refusal to Set |

aside a verdict for failure to award substantial

damages may ever be reviewed on the ground

that the trial judge abused his discretion. we

have no occasion to determine.” ,

United States vs Socony-Vacuum Oil Co., 60 Sup.Ct.

811, 310 U.S. 150, 84 L.Ed. 1129 (1940), involved a

jury conviction under an indictment charging violations

of the Sherman anti-trust act. The Court of Appeals re-

versed and remanded for a new trial. On certiorari, the

United States:Supreme Court upheld the District Court’s -

exercise of discretion by using the following language:

“Hence, this case falls into the well established

wule that neither this court nor the tircuit court

of appeals will review the action of a fed- —

eral trial court in granting or denying a motion

for a new trial for error of fact, since such

action is a matter within the discretion of tf

trial court. Certain- exceptions have been noted,

such as instances where the trial‘ court has er-

roneously excluded from consideration matters

which were appropriate _to a decision on the

_ motion. But there are no such circumstances

' here. Certainly, denial of a motion for ‘a new

trial on the grounds that the verdict. was against

the weight of the evidence would not be sub-

ject to review. In substance no more than that

is involved here.”

In Brotherhood of Railroad Trainmen vs Baltimore

and Ohio Railroad Company, 331 U.S. 519, 91 L.Ed. 1646

_ (1947), another case involving the principle of discre-

_ tion, the issue dealt with the .intervention rights of rep-

resentatives of railroad employees in a suit brought —

against the railroad. The plaintiffs coritended that they |

had an.unconditional right to intervene by virtue of the .

Interstate Commerce Act. The: District Court denied

the order and the plaintiffs appeajed. The Pena: States.

Supreme Court stated:

“Our jariadiction to consider an appeal from an

_ order denying intervention thus depends upon-

.the nature of the applicant’s right to intervene.

-If the right is absolute the order’ is appealable

-and-we may judge it on tis merits. But if the

‘matter is one within the discretion of the trial

court and if there is no abuse or discretion, the

order is not dh capes and we lack power to

review it.”

The court held that the plaintiffs did have a right to in-

tervene based upon the-statute and ‘thus, reversed the

_trial court’s ruling. Howeve:, the Supreme Court of the

United States did state that if the.matter in question is

one within the discretion of the trial court and there

is no abuse or discretion, even the Supreme Court wofild

lack power to review it.

The above decisions concerning the matters within the .

trial court’s discretion and the non-reviewability of the

exercise of this discretein also appear to be the rule in.

admiralty concerning the award of interest. The Scotland,

118 U.S. 507, 30 L.Ed. 153 (1885)..This rationale was

* oo, 3

adhered to by the Supreme Court in The AlbertDumois,

177 U.S. 240, 20 S.Ct. 595, 44 L.Ed. 751 (1900). This

collision. case involyed limitation of liability problems as ©

well as a question as- to the award.of interest. The

Federal Court for the Eastern ‘District of Louisiana

valued the cargo. at $11,000. However, the Fifth Circuit

reversed and put a $15,000 evaluation on the ship. In-

terest must also have been sought. for the increased value,

’ for when the case got to the Supreme Court, the Supreme

Court stated the following: | :

“There was no error in refusing to allow interest

upon her evaluation. The allowance of interest in

Admiralty cases is discretionary and not review- -

able in this court except in a very clear case.”

The next case in which the discretion of the court in

allowing interest. was at issue, was that of The Stjerne-

borg, 106 Fed.2d 896 (9th. Cir., 1939). From a decree in

favor of the appellee with interest, an appeal was taken.

The appellants argued. that in admiralty interest, may be.

properly disallowed or reduced cause of unusual delay

in the prosecution of an ans :

_ their contention, the Court’ stated that the allowance of

interest is dsicretionary. The Albert. Dumois, supra. .In

the absence of ‘anything in the record disclosing who may |

be blamed for the delay, we are not warranted in holding

that the tiral court abused its discretion.

Two other admiralty, cases from the Second Circuit

which also involved the issue of awarding interest are

- Lekas & Drivas, Inc. vs Goulandris, 306 F.2d 426 (2nd

Cir, 1962) and Van Nievelt, Goudriaan Co.’s Stoom.M. vs

_ Cargo & F. Man Corp., 421 F.2d 1183 (2nd Cir, 1970).

In the Lekas case the Court refused to disturb the District’ |

ajty cause. On rejecting hs

Court’s award of interest, adding, however, that the dis-

cretion of the District Court in allowing interest is re-°

viewable for abuse, citing The EW nget, 109 F.2d 699, 702,

' 2nd Cir., 1940. , :

In the Van Nievelt case, where pre-judgment interest

on a liquidated amount-was at issue, the Circuit Court

reversed the District Court’s. denial of interest and_ re-.

manded the case for an award of interest. In reaching

. the result, the Court stated that the- general rule of allow-

ing interest is much stronger where, as in the instant

_ ease, the damages are liquidated and are based upon

' a breach of contract. The Court also stated that while

the general rule is that an admiralty court has discertion

to award or deny prejudgment interest, this discretion

is not unlimited.

The Court of Appeals in the instant case therefore

had no power to disturb the District Court’s exercise of

discretion. This holding by the Court of.. ss cc was

arbitrary to say the least.

‘The District Court siidithad a Special Master who

returned his findings to- the Court to the effect that

interest should be paid by the Primary Underwriters, —

Appendix D, declaring that Primary Underwriters hav-

ing had the benefit of the principal over the years, should “

now. pay interest on that’ principal.’ The District ‘Court

affirmed that Special Master, Appendix .C. The Court of

Appeals then upset the finding of the Special Master and

the District Court without determining that the Special

- Master had abused his discretion or that his report was

arbitrary or discriminatory. Indeed the Court of Appeals

- gave as its reason for imposing interest on Excess Under-

11 ‘

writers its language on page 10 of its opinion :

“We think primary underwriters have the better

of .it sq we fixed ~ _— on excess under-

writers.”

We respectfully submit that it has always been the

: law that unless the District. Court -has abused its dis- —

cretion or: its holding has -been found arbitrary and —

discriminatory, | its determination should remain undis-

turbed.-

Il. THE PAYMENT ‘OF INTEREST SHOULD BE’

_ ASSESSED ONLY AGAINST THE PRINCIPAL

DEBTOR, AND NOT AGAINST ONE WHO WAS

EXONERATED © FROM | THE PAYMENT. OF

PRINCIPAL. :

‘There is no question but that Primary Underwriters, .

who paid $300 ,008principal . on May 5, 1969 retained -

the full benefit of the use of. those funds since October

6, 1956. The determination by the Court of Appeals

obviously places a premium on the ability of Primary —

Underwriters to. hold out~6n the principal (which. they

ultimately paid voluntarily) for the longest possible period.

during which time they reaped the harvest of the revenue

from the investment, approaching in this situation the .

sum of $200,000.

Interest is allowed as damages against a debtor for

the nonpayment of money by him, and‘in this case the -

only underwriters determined’ to owe money are the’

Primary Underwriters. If Pri imary ‘Underwriters had

' paid the pincipal of $300,000 at the time Alcoa filed suit

_in 1957, there would be no interest due by anyone. The

voluntary payment by Primary Underwriters of $300,000

on Bowe 5, 1969 terminated ci a of interest.

There are ae decisions Me the Supreme Court of

, the United States which bear on the subject. In (1857

Hemmenway vs Fisher, 20 Howard 255, 15 L.Ed. 799,

probably the first instance of a declaration by the Su-

preme Court of the United States on the subject of in-

terest in admiralty cases, involved an appeal from the’

District of Massachusetts concerning a collision which .

occurred in Louisiana. There the, Supreme Court rec-

ognized that there was no rule fixing any certain rate |

of interest upon decrees in admiralty. | |

The second case which came before the Supreme Court

of the United States was The Scotland, supra, in which

the District Court. in an admiralty proceeding was rec- .

ognized as having-the. full authority to exercise jurisdic-

ticn on the subject of interest. And the’ following: year to

the same effect the Supreme Court. decided The Manitoba,

122 U.S. 97,30 L.Ed. 1095 (1886). Hence, the District

Court’s exercise of discretion has been well recognized

should not be disturbed here.

The State law of Louisiana controls on, the subject

of interest and is stated in Civil. Code Article 1935 which

reads ‘as follows:

“The damages due for delay in the perform-

ance of an obligation to pay ‘money are called

interest. The creditor is entitled to these dam-.

ages without proving any loss and whatever loss

he may have suffered he can recover no more.”*

| From this language Louisiana has established the rule

which i is als6 recognized i in ne states that interest is the

damage due by .a debtor for nonpayment of money.

Here the failure to pay the money prior to the time of

actual payment was on the Primary Underwriters.

Interest has been defined as a premium paid for the

use of money. usually reckoned as a percentage. “Interest”

is a premium paid for the use of money. Barker Asphalt

Pav. Co. v. Webster County, 121 N.W. 1072, 1073, 143

Iowa, 255. The word “interest” means: premium paid for.

use of money usually recognized as a percentage. Kenny

v. Los Feliz Inv. Co., Cal., 9 P.2d 225, 228, 121 Cal.App.

‘ 378. Webster defines “interest” as a premium paid for

the use of money, usually reckoned as a_ percentage,

Hagan v. Commissioners’ Court of Limstone County, 49

So.417, 421, 160 Ala. 544, 37 L.R.A.; N.S., 1027. “In-

terest” is a Seats allowed by law for the pee of money. |

MacRackan v Bank of Columbus, 80 S.E. 184, 185, 164

N.C. 24, 49 L.R.A., N.S., 1043, Ann. Cas. 1915D, 105;

Gaar v. Louisville Banking Co., 74 Ky. (11 Bush) 180,

189, 21 Am. Rep. 209. .

Rurther, interest ‘has been defined as compensation for

the use of money. Arizona Eastern R. Co. v. Head, 224

my 1057, 1058, 26 Ariz. 259; R.F.C. v. Service Pipe Line

, CA. Okl., 206 F.2d 814, 817. “Interest” is compen-

, cy for ae of forbearance of money, Mayflower Inv.

Co. v. C.ILR., C.At, 239 F.2d 624, 625. “Interest” is the

compensation fixed by agreement or allowed by law, for -

_the use or i genegises Caras Inhabitants of Town of

Norridgewock v. Inhabitants of Town of Hebron, Me.,

128 A. 2d 215,:217.

We penbentes submit that from all considerations, .

*. 14

legal as well as equitable, it was an error for the Court

‘of Appeals to impose the payment of interest upon Excess

Underwriters which never had any benefit from any

“use “of the rincipal sum of money of $300,000, which

principal was due only and paid only by Primary Un- —

derwriters. |

The holding of the Court of Appeals therefore violates

the due process clause of the Fifth Amendment and should

be reversed because it imposes liability on petitioners who

owed no principal and without any authority in law.

III. INTEREST NOT SEPARABLE FROM PRIN-

~ CIPAL IN THE. ABSENCE OF CONTRACT.

The authorities support the proposition that although

the principal can exist without interest, a claim for

interest cannot exist without the principal in the absence

of agreement to that effect in the same fashion that a

. foundation ¢an exist without the superstructure but the

superstructure cannot exist without the foundation.

In Merrigan v. Metropolitan Life Ins. Co., 43 F.Supp.

209 (1942), in an action on a life insurance policy, the

Eastern District of Louisiana stated that interest is a

matter of law and under Article 1935 of the Louisiana

Civil ‘Code is damages for nonpayment of money. The

Court said:

“Interest is ever interest; because of its very

- nature it is a penalty, and referring to it as such, |

makes it none the less interest.”

The Court further observed:

“Interest can not be sued for distinctly from

the principal, for it is an accessory to the debt.”

citing sia se of Mann, 4 La. Ann. 8 oe

. In the partindaaly. pertinent decision bay the Eighth

Circuit ‘in Wagner Electric: Corporation v. Ocean Ace.

& Guarantee Corp., 36 F.2d 186 (1929), the insurance

company. issued an accident policy in the form of an ex- —

cess policy after $5,000, together with certain incidental

charges but was silent on interest. Appellant therefore

carried its own insurance up to $5,000 and the appellee

insurance company was to carry all thereafter up to the

next $5,000. The insurance company paid its $5,000 for

the excess but declined to pay the interest and tendered - .

$5,000 in full settlement which was refused. The Court

held that the insurance eompany was not liable for the

interest and declared:

? ,

“***Ordinarily, and in the absence of express

provision, an insurance company is not. liable for

_ Interest which has accrued pending appeal, for

‘the reason that: ‘Interest is a consideration paid

for the use of money, or for forbearance in de-

manding it when due; and so long as one retains

money and has its use he can make no charge

against another for interest thereon.’ Maryland .

Casualty Co. of Baltimore, Md., v. Omaha Elec-

tric Light .& Power Co. (C.C.A. 8) 157 F. 514,

515.”

The Special Master here declared, R.-: 223:

“The reason for making a determination that

the Marine Office of America should bear the

responsibility is that it, as primary insurer, had

the use of the money during the period of limita-

tion. There is some conflict of opinion as to

this question, but I am basing my decision on

Maryland Casualty Lae v. Omaha Electric

(16

Light ‘ca Power Co. CCA 8 (1907), 157 F. 514.

‘In this « ‘case the Court said:

““The argument of plaintiff's counsel that

the defendant, by exercising its right of ap-

peal, and by superseding thé execution of

the judgment pending that appeal, caused

the accumulation of interest in question, and

thereby created an additional charge against

the plaintiff for which it should be held

responsible as a loss to the plaintiff, is -

more specious than sound. The fallacy rests

in afailure to recognize the advantage

| Rtg a Te

which the appeal gave the. plaintiff.

The value of the use is equal to the accrued -

interest, that being only a consideration paid

-for the use of money or for forbearance is

a demanding it when due. Accordingly the as-

: | sured lost nothing by the delay occasioned

by the appeal or by paying the interest

which accumulated pending the appeal. The

assured .stood after paying the interest ex-

_ actly as it would have stood if it had paid:

the judgment of $5,000 on January 3, 1902,

when originally rendered. Nothing was lost.

by the appeal, as. the interest ultimately

paid was neutralzed by the use and enjoy-

ment of the money before that time.’ ”

Here, as in the Wagner Electric supra and Maryland

Casualty Co. of Baltimore; Md. v. Omaha Electric Light

& Power Co., 157 F. 514, a decision by the Eighth Circuit,

sé long-as one retains money ‘and has its use he can

make no charge against another for interest thereon.

The Fifth Circuit decision here’ therefore conflicts with °

the holding of the Eighth Circuit in Wagner Electric,

supra.

as |

OPT late

> |

“We respectfully submit that the foregoing ‘authorities

establish a rule of law which the Fifth Circuit’ Court |

has violated,- namely, that interest should be paid only

by the party. who rétains the principal and- enjoys

. the use of it, and not by. anyone who. has not enjoyed

the use of such money. Interest being a penalty it is

logically and legally improper to force an innocent party

to pay a penalty on the debt of another who has re-*

a: tained the use of the’ pr incipal for over a decade. ;

In charging interest againste Excess Underwriters, the

Fifth Circuit Court has; in effect, granted a decree

against excess underwriters which did not exist. before.

The Court of Appeals’ has departed from the original

concept: of interest which is the payment’ of damages ‘for

the use of money. | Since Excess Underwriters never had

the use of any of the funds, how then can they a

charged with interest, which is “dashiben for nonpaymen

of money? Excess Underwriters were never in all of °

proceeding . charged with one penny of principal. This

being so, it is very difficult-for one to understand how

they can be char ged with any. interest on the principal

due by Primary Underwriters.

The Court’ of Appeals las placed ‘nue Sauhiee on :

the term “aggregate liability” as used in the red letter

‘clause, Appendix A, p. 26. This term “aggregate liability”

obviously refers to all individual items of principal taken.

in the aggregate as of the date when the obligation to pay *

the _ principal accrued. Here the obligation to ‘pay the

principal accrued from the time the cause of.action arose

and the cause of action as finally determined by this

Court was restricted to $300,000, all principal paid by

Primary Underwriters.

”

rs — % va

SLOANE LINE RES, LIE MPL LY SILI AEN RST MN EN

EDP COLLET Ag GE i?

CONCLUSION |

We respectfully submit that each of the three points:

above-mentioned is strong reason for this Court to grant

this petition for certiorari. We certainly have a matter

of first impression, and which violates the cited decisions

of this Court and further denies ‘Excess Underwriters

of their constitutional right to due process of law under

the Fifth Amendment.

Respectfully submitted,

LEON SARPY

JAMES G. BURKE, JR. —

PAUL A. NALTY ~

Attorneys for Petitioners

- 1500 National Bank of Commerce

Building

New Orleans, La. 70112 -

OF COUNSEL . ae

CHAFFE, McCALL, PHILLIPS,

BURKE, TOLER & SARPY

CERTIFICATE |

I, PAUL’ A. NALTY, a member of the Bar of

_. this Court, do hereby certify that I have this day served

copy of the above and foregoing application to Benja-

min Y. Yancey and Edward S. Bagley, attorneys - for

,Aleoa, and upon George B. Matthews, attorney for

Primary Underwriters, by mailing a copy thereof, postage

.- prepaid, to them at their offices, at New Orleans, Loui-

_ Siana-on: this L164. day of July, 1971. .

(Sga.) PAUL A. KALTY

oes

* 19

APPENDIX A

’ The Opinion of the Court of Appeals

7 IN THE

UNITED STATES COURT vial APPEALS

FOR THE FIFTH CIRCUIT

No. 28944

ALCOA STEAMSHIP COMPANY, INC.,

Plaintiff-Appellee Cross Appellant,

versus

CHARLES FERRAN & CO., INC. AND GLENS FALLS

INSURANCE COMPANY, ET AL,

Defendants-Appellants Cross Appellees.

Appeals from the United States District Court for the

Eastern District of Louisiana

(April 26, 1971) ’

Before BROWN, Chief Judge, GEWIN and

; THORNBERRY, Circuit Judges. © iccss

BROWN, Chief Judge: Now on its second voyage

ieee? | S20

here’ the case presents a rehash of the Louisiana. Di- |

rect Action’ and Red Letter Clause. problem, one con-

cerning interest on the limited liabilty figure, an intra-

-mural controversy between the

mary and excess underwriteys“as to interest, and a

tag end complaint by. Shipowner®..with respect to the

amount of interest ch has accumulated in one year

between the dat the casualty and the first judicial

demand. We affirm in part and reverse in part.

After remand following Op [iii] the parties never

got around. to proving. Shipowner’s total damages or

the reductien thereof under the doctrine of avoidable

consequences.’ About the time it seemed likely that’ the

Special Master and District Court would adhere to our

noating, in - iat p. a6, that the Red Letter ence

————

The prior opinions here and in the Distriet Court appear in this

ries 2 ji] Aleoa Steamship Company, Ine. v. Charles Ferran

& Con Inc.,*E.D. La., 1965,- 242 F.Supp. 962; [ii] Aleoa

Steamship Company, Ine. v. Charles Ferran-& Company, Ine., E.D. _

La. 1966, 251 F.Supp. 823, 1966 A.M.C. 1029, aff'd in {iii} Aleoa

Steamship Company, Ine. v. Charles Ferran & Company, Ine., 5 Cir.,

1967, 383 F.2e 46, 1967 A.M.C. 2578, cert. denicd, 393 836, S:Ct.

. L.Ed.2d > . For convenience these\prior. opinions

kang be roterred té Op as [ii] [iii], with page citatigns following

. Op [i] p. 962. % 2 4

2Ch: he ’s Ferran Company, Inc. i e wk

8Alcoa Steamship Company, Ine. 5

4The pettinent part of this clause is: F see

_“* * * we undertake to perform work on veeieta’ *\ \?

. only upon condition that we shall not be liable in respect

to any one vessei, directly er indirectly in contract Jor in|

_tort * * * to its owners, charterers or underwriters for any

injury to such vessel, .its cargo, equipment or movable

_ Stores, or for any consequences thereof, unless such injury

is caused by our negligence or the negligence of our

employees and in no event shall our aggregate liability to

all such parties in interest for damage. sustained by them, .

as a result of such injury, exceed, the sum of $300,000.00.

““In connection with the accident and/or indemnity and/or

insurance clauses, if any, contained in your specifications,

.- relating to liability for personal injuries, please note that

‘we ‘do not agree to same, in so far as they undertake to

impose any liability or any obligation to take out or main-"

tain insurance beyond the liabilities or the obligations . to

to insure imposed upon us by law.”

“Dr

21. ;

limitation of $300,000 extended to the underwriters m

der the Louisiana Direct Action’ Statute,* the Primary

Underwriter (Glens Falls) threw in the towel by. paying

the full $300,000 into the Registry. The Master entered

Aa the District * Court approved) an order limiting

liability of Shiprepairer and _ its Underwriters ~to

— 000, but he allowed interest, against puaprepasser

5 ‘ “No or ie or contract of liability insurance shall 7

issued or delivered in this state, unless it contains provi-

sions to the effect that the insolvency or bankruptcy of

the insured shall not release’ the insurer from the payment

of damages for injuries sustained ‘or loss occasioned dur-

ing the existence of the policy, and any judgment which

may rendered against the insured for which the insurer

is liable which shall -have become -executory, shall be

deemed prima facie evidence of the insolvency of the in-

-sured, and. an action may thereafter be maintained within . *

the terms and limits of the policy by the injured person, —

or his or her’ survivors mentioned in the Revised Civil

Code Article 2315, or heirs against the insurer. The. injured. 3

. person or his or her survivors or heirs hereinabove re-

ss ' “ferred to, at their option, shall have a right of direct action

against the insurer within the terms and ‘limits - of the

policy; and such action may be brought against the -insurer

alone, or against both the insured and insurer jointly and“in

solido, in the parish in which the accident or injury oc-

curred or in the parish in whith an action could be brougt

against either the insured or the insurer under the general

ruies of venue prescribed by Art. 42, Code of Civil Pro- ?

cedure. This right of direct action shall exist whether the f

policy of insurance sued upon was written or delivered in:

the State of Louisiana or not..and whether or not’ such

policy contains a provision forbidding such direct action,

provided the accident or injury occurred within the State’

of Louisiana. Nothing contained in ‘this Section shall be.

construed to affect the provisions of the policywor contract

if the same are not in violation of the laws of this State.

It is the intent of this.Section that any action brought

hereunder shall* be subject to all of the lawful conditions

of the policy or contract and the defenses which could be

urged by the insurer to a -direct action brought by the rate

insured, provided the terms afid conditions of such policy.

or contract are not in violation of the laws of this State.

-It is also the intent of this Section that all liability

policies within their terms and limits are exechted for the

benefit~of all insured persons, his or her survivors or.

‘. heirs, to whom the insured is liable; and. that it, is the

purpose :of all liability policies to give protection ° and

coverage to all insureds, whether they are named insured

or additional insureds. under the omnibus -clanse, for any a

legal liability said insured may have as or for:a tort-feasor

within the terms and limits of: said: policy. -

LRS-R.S. a3; 655 (Supp. sari

and its Primary Underwriter on that sum, from the

date of judicial demand (October 1957), rather than

the date of the loss (October 1956). Shipowner by its

appeal wants. to recover the full loss from the Under-.

writers under the Direct Action Statute, plus interest

for the additional year. The Primary Underwriter con-

tinues to join. hands ‘with its long time but now-some-

time-ally, the Excess Underwriters (Lloyds), as both

resist that awful prospect, but soon fall out as each

takes the generous view that the other, not it, Ameri-

can Fidelity & Casualty Company, Inc. v. ‘St. Paul-

Mercury Indemnity Company, 5 Cir., 1957, 248 F.2d |

509, should bear the loss of interest. |

_ Red Letter and Direct: Action

In Op [iii)/we affirmed the eaNier decisions of the —

District Court upholding the validity of the Red Letter

Clause (see note 4, supra) and extending th

_ limitation to the Underwriters under the Direct \A:

Statute. Ordinarily that would be an-end to it under

-the law of the case doctrine. Lincoln National Life In-

surance Company v. Roosth, 5 Cir., 1962, 306 F.2d 110

(en banc), cert. denied, 1963, 372 U.S. 912, 83 S.Ct. 726,~

.. 9 L.Ed.2d 720. But we agree that the matter deserves

another look-see in view of, the long awaited answer —

to the Jane Smith 4-1-4 riddle*® which came 15 years

‘ later in our celebrated Nebel Towing’ 2

. 6Maryland Casualty Co. v. ‘Cushing, 1954, 347 US. 409, 74 S.Ct. 608, 98

’ L.Ed. 806, 1954 A.M.C. 837.

7Olympic Towing Corp. v. Nebel Towing Co., Inc., 5 Cir., 1969, 419 F.2d

230, 1969 A.M.C. 1571, reh. en banc denied, 419 F.2d 238, cert. denied,

Nebel Towing Co., Inc. v. Olympic Towing Corp., 1970, 397 U.S. 989,

90 S.Ct. 1120, 25 L.Ed.2d 396, AML. _....... See Bue,

* Cushing Revealed — The Grisly Spectre is Precariously Defined As

To Size And Shape, — July 1970 Insurance Counsel Journal 401.

Whatever else might be saig’, by the protagonists a-.

bout Nebel’ Towing, or what.élse it may portend, neith-

er our holding therein that the statutory limitation of

shipowner’s liability isa defense. personal to the as-

sured shipowner nor the elucidation of it, transfers to

a contractual limitation contained in the agreement

which ‘is ‘the principal (if not whole) source of rights

and obligations. Pes . ‘ |

- The problem of course is ‘an amphibious one which

is the result of mixing the Louisiana: codal ‘provision

concerning debtors in solido* — as the Direct Action

Statute (note 5, supra) expressly characterizes the lia-

bility — into a maritime case. In the context of a Direct -

Action situation the cases, as did Nebel Towing, turn

on. whether the particular defense is “personal to some

of the other. codebtors,”® And until rejected in Nebel

Towing, none involved directly the affirmative provi-

“Art. 2098. Defenses available to debtors in solido

Art. 2098. A codebtor in solido,. being sued by the creditor

may plead all the exceptions resulting from the nature. of

'the obligation, and all such as ‘are personal to himself,. as

well as such as are common to all the codebtors. - =

He can not plead such exceptions as are merely personal

to some of the other codebtors.” : aa, .

L.S.A. — C.C. Art. 2098 (1952). : ee”: 8

See the following articles for a full explanation of the meaning

of. “debtor in soltido’: Comment, XXV Tulane Law Review 217; and

Comment XIV Louisiana Law Review 828.

®Defenses which have heretofore been considered “personal” under

, Louisiana law, thereby precluding their assertion and utilization by

-@ tortfeasor’s insurer, include: infancy, LSA-R.S. 9:571, see Rouley

v. State Farm Mutual Automobile Ins. Co., W.D. La.,. 1964, 235

S.Supp: 786; coverture, see Edwards v. Royal Indemnity Co., 1935,

182. La. 171, 161 So. 191 and Dumas. v. United -States Fidelity &

Guaranty Co., 1961, 241 La. 1096, 134 $0.2d 45; charitable immunity,

see Lusk v. United States Fidelity & Guaranty Co., La.Ct.App., 1941, -

199 So. 666; and governmental immunity, Brooks v. Bass, Lia.Ct

App., 1938, 184 So. 222. As succinctly stated in’ Simmons vy. Clark. - -

' La.Ct. App., 1953, 64 So.2d 520;: “personal defenses are, such as

. infancy, interdiction, coverturd, lunacy, bankruptcy ‘and the like.” 64

‘So.2d at 523. In ITCO, E.D. La., 1965, 242 F.Supp. 950 was added .

‘those with a right to limit their liability. See also, Nebel Towing,

supra, and Alcoa v. Ferran, supra, at p. 1. :

24 .

rae

sion of Art. 2098 (note 8, supra) extending ‘to all co-

debtors the defenses “resulting from the nature of the

obligation.” |

Although we have found little in the way of Court:

decisions or the preferred legal literature of the Civil

Law’ to guide us through the sometime quaint codal

language, we’ are of the clear view that the Red Letter

Clause defense is not’ [i] personal to the Shiprepair-

er" and is (ii] one resulting from the nature of the

obligation. |

Obviously the defense is not “personal” to Shipre-

i so the pivotal question is: what is the nature

1OMost of the literature regarding defenses .“resulting from ea nature

of the obligation” in Article 2098 speak in terms of defenses which

derive from the non-existence of the obligation or’ from Various types °

of nullity. See 25 XXV, Fulane Law Review. (1951), comment,

Solidary Obligations .217, 224. ,We have examined the material

cited in notes. 69, 70 and 71, and. {jnd ‘nothing significant as

bearing on our problem. The literaturé recognizes that frequently

the “nature of the obligation” defense and defenses “as are Common

to all the codebtors” coalesce. But the “common” defense element

of Article 2098 is not helpful here since this-tecessarily begs the

question whether the’ Rea Letter eo ced defense available to all

stantiation in the literature in Court decisions. for Shipowner’s

argument that by the interplay of codal Articles 1764, 1841, 1903

(see Appellant's brief pages 5-6 and note 1). “the “nature of the

Shiprepairer and its ure fin 6 or have we fold -any- sub-"

“obligation” is an implied term of a contract since an expressed pro-

vision (the Red Letfer Clause) is an “accidental stipulation”.

~ ‘1iCiting the District Court on this point the Court in Nebel Towing said:

“|T |he nature of a ‘personal defense’ under Louisiana‘ law

is explained in [the] excellent opinion in * * * [Op [ii], p. 831]

* * * * After pointing out a number of defenses which

have been . held to be ‘personal’ under Louisiana ee

.[the court | stated:

‘Amongst these apparently varied eeaiiat defenses, ;

one common denominator is. discernible —,each -person ,

possessing a.“personal” defense obtained “that defense

- because the law granted it to.all members of his Class

as a matter of public policy. The personal defense

attaches to the status. Hence parents, children, hus-

bands, wives, .governmental -units, char itable . organiza-

tions, bankrupts, lunatics, Interdicts, vessel owners, and+

the like. possess a_ defense denitd their respective

insurers.’ ” See Op [ii] p, 831.

: .

. ‘

of the transaction. The nature of the transaction was,

of course, a ship repair contract -which expressed

rights and duties, but which — perhaps even more im-

portant — created: the ‘relationship out of which the —

_.law would impose implied duties, rights, and obliga-

tions. Typical would be~the implied obligation (in the

absence’ of contract terms) not to cause darhave by |

_ negligence; and for amphibious ' work, the presence of

the ubiquitous, awesome -WWLP.” And if the “trans-

| action” encompasses the litigation, it meets the test.

For the action asserted both negligence and breach of |

WWLP. | |

Given the validity of the Red Letter Clause ( Op {iii}

pp. 55, 56), its effectiveness. is preved by the result

here — a ceiling of $300,000 on damages stated to have

exceeded: $1,000,000.1° The clause was used for the ex-

press purpose of ‘limiting the underlying obligation in .

the event. of foreseeable occurrences, which would be

in the nature of a-tort or breach of the WWLP, in which, |

‘damages could run into the millions.

The District, Judge was correct. in‘stating it this way:

“Here the size of the obligation was part of’ the obliga-

tion.” (Op [ii] p. 831). | |

. : ee

The Red Letter Clause is valid. and extends to in-

surers under the Direct Action Statute.

12Warranty of Workmanlike Performance. See . Horace Delaneuville,

Jr. v. O. Ditlev Simonsen, Jr, 5 Cir, 1971, -,.... Fad _.

[No. 29233, January 25, 1971] at p. 2, n. 1, and, cases therein cited.

SNotwithstanding the limitation of $300,000 imposed. by the’Red Letter

" Clause there is no substantial doubt that the actual damages inflicted

on the ship amounted:to $1,000,000. See Op [i] pp. 966, 973. -

LAE LIS PO

ie ie le ial aa as” Se

sion. of Art. 2098 (note 8, supra) extending to all co-

debtors the defenses “resulting from the nature of the”

obligation.”

Although we have found little in‘ the way of Court

decisions or the preferred legal literature of the Civil

Law’ to guide us, through the sométime quaint codal

language, we are of the clear view that the Red Letter

Clause defense is not [i]. personal to the Shiprepair-

er" and is [ii] one suse from the nature of the

obligation. :

‘Obviously the defense is not “personal” to Shipre-

pairer, so the pivotal question is: what is the nature

l0Most of the literature regarding defenses Lae re en. the nature

of the obligation” in Article 2038 speak in terms of defenses which

derive from the non-existence of the obligation or from various types

of nuility. See 25 XXV, Tulane Law Review (1951), comment,

Solidary Obligations 217, 224. We have examined the material

cited tin notes 69, 70 and 71, and find nothing significant as

bearing on our problem. “The literature Tecognizes that frequently

the “nature of the obligation” defense and defenses “as are. cqgmmon

to all the codebtors” coalesce. But the “common” defense element

of Article 2098 is not. helpful here since .this necessarily -begs the

question whether the ‘Red Letter Clause is a defense available to all

-— Shiprepairer and its. Underwriters. Nor have we found any sub-

Stantiation in the literature or in Court decisions for Shipowner’s

argument that. by the interplay of ¢odal Articles 1764, 1841, 1903

(see Appellant's brief pages 5-6 and note 1), the “nature of the

obligation” is an implied term of a contract since an expressed pro-

_ Vision (the. Red Letter Clause) is an “accidental stipulation”.

11Citing “the District Court on this point the Court in Nebel Towing said:

“(T\|he nature of a ‘personal defense’ under Louisiana law

is explained in [the] excellent opinién in * * * [Op-[ii] p. 831]

* * * * After pointing out a number of defenses which

have been held to be ‘personal’ under Louisiana — * * * *

[the court | stated:

‘Amongst these apparently varied “personal” defenses,

one common denominator is discernible — each person.

possessing a “personal” defense obtained that defense

‘because the law granted it to all members of his class

as a matter of public policy. The personal defense

attaches to the status. Hence parents, children, hus-

bands, wives, governmental units, charitable organiza-_

tions, bankrupts, lunatics, Interdicts, vessel owners, and

the like possess a defense denied their respective

insurers.’ ”’ See Op [ii] p. 831. ,

of the transaction. The nature of the transaction was,

‘of course, a ship repair contract which expressed

rights and duties, but which: — perhaps even more im- |

portant — created the relationship out of which. the.

law would impose implied duties, rights, and obliga- -

tions. Typical would be the implied obligation (in the :

absemce of ‘contract terms) not to cause damage. by ~

negligence, and for amphibious work, the presence of

the ubiquitous, awesome WWLP.” And if the “trans-

action” encompasses the litigation, it meets the test.

For the action asserted both’ negligence and breach of

WWEP.

Given the validity of the Red Letter Clause (Op [iii]

" pp. 55, 56), its effectiveness is proved by the result

here — a gelling of $300,000 on damages stated to have

exceeded $1, 000,000." The clause was used for the ex-

press purpose of limiting the underlying obligation in

the event of foreseeable occurrences, which would - be

in the nature of a tort or breach of the WWLP, in which

damages eould run into the millions.

The District Judge was correct in stating it this way:

| “Here de size of ‘the obligation was part of the obliga-

tion.” (Op. [ii] p.. 831).

The Red Letter Clause is ‘valid and wichinaall to in-

surers under the Direct Action Statute.

12Warranty of Workmanlike Performance. Seé Horace Delaneuville,

Jr. v. O. Ditlev Simonsen, Jr., 5 €Cir., 1971, 22 ee 3

|No. 29233, January 25, 1971] at p. 2, n. 1, and cases therein cited.

13Notwithstanding the limitation of $300,000 imposed by the Red Letter

Clause there is no substantial doubt that the actual damages inflicted

on the ship amountéd to $1,000,000. See Op [i] pp. 966, 973.

AE. SERIALS PERT BUS: ’

Red Letters and Interest

The Master and District Court awarded interest to :

Shipowner on the $300,000. The question now is whether —

that is consistent with the term “aggregate liability”

as used in the. Red Letter Clause (see note 4, supra).

We readily answer in the affirmative. At the’ outset

’ the clause describes liabilities in..terms of those

to whom it might become liable as the vessel’s owners,

charterers, or underwriters. It is next stated therein

that the “aggregate liability to all such parties” shall.

be limited to $300,000. There are thus both claims —

inthe sense of distinctive types of losses, e.g., to hull,

to. stores, to cargo — and persons to whom it might:

be liable, which could readily make the ceiling inef-

fective unless it is certain that all are to be lumped

‘fogether so the ceiling would apply to them all. .

Equally important, this was, in effect, an implied

undertaking by Shiprepairer that, if it was, or became,

liable for any such damage, it would have to. pay up

to the limit of $300,000. As with any other obligation

— and in the Admiralty most torts — when: the one

cast fails to pay, then interest on the amount due, but

withheld, is allowed as a means of making the other

party whole. There is justification for that here since

it took from 1956 to 1969 to get even the limited recov-

ery. And lastly, this. being a contract claiming immuni-

ty it is to be strictly construed. Herd & Co. v. Krawill

Machinery Corp., 1959, 359 U.S. 297, — 79 S.Ct.

- 766, 3 L.Ed.2d 820, 1959 A.M.C. 879. |

—

Shiprepairer (and hence its Underwriters) are liable.

for interest on the $300,000.

Allies Part — Whose Move — Who Pays?

Comforted by the serene knowledge that the Red Let-

ter ceiling has been maintained, Primary and Excess :

Underwriters now part company, with. each turning

on the other for the payment of interest. From a com-

bination of factors we think Primary Underwriters

have the better of it so we fix the liability on Excess.

Underwriters.

‘

The case law in non-marine policies is generally con-

sistent in disallowing interest in excess of the dollar

policy limits unless the policy contains language which

provides for interest.‘ We do not agree with the Mast-

ter’s reliance on Maryldnd Casualty Co. v. Omaha

Electric Light & Power Company, 8 Cir., 1907, 157 F.2d.

514 and Tulare County Power Company v. Pacific: Sure-.

ty Company, 1919, ......-__- * oaromnes , 185 P. 399 for the

holding that Primary ‘Underwriters have a liability in

excess of the dollar limit.

But we do not make this as a choice of law for general

{or Louisiana) application. We do it in the context of

this situation in which the insurance was a carefully

dovetailed, integrated program in which each had sig-

nificant intérests at stake, often regardless of the ulti-

14Primary Underwriters stresses these cases which so hold: Pacific

Coast Casualty: Company v. General Bonding & Casualty Company,

9 Cir., 1917, 240 F. 36; Maryland Casualty Company vy. Omaha Elect-

ric Light & Power Company, 8 Cir., 1907, 157 F. 514; Tulare County

Power Company v. Pacific Surety Company, 1919, _ Cal.

185 P. 399; Davison v. Maryland Casualty Company, 1908, eee

Mass. ...... 83 N.E. 407; National & Providence Worsted . Mills v.

Frankfort Marine Accident, Ete. Company, 1907, Petey, Caan

66 A. 58; Munro v..Maryland Casualty Company, 1905, 96 N.Y.S. 705:

Brewster v. Empire State Surety Co. of New York, 1911, 130 N.Y.S.

439: Saratoga Trap Rock Co. v. Standard Accident Insurance Co.,

1911, 128 N.Y.S. 822.

ek ee

; .

. P

ARAL ISIN PL TN EE ee

RPTERIES ERY

mate outcome of a potential claim. Primary Under-

writer had the first $300,000 less a franchise (deducti-

ble) of $500. The excess. cover was expressly based:

“upon the named primary policy and subject to all its

terms and conditions. ‘It picked up liabilities in excess

of $300,500."*

Contrary to the argument Excess _ Underwriter

makes, which was. successfully: pressed on the Master,

this was in.no sense a situation where Primary Under-

writer had the “use of this money” for 13 years. Both

_ Underwriters were actively interested in ‘the, handling

of this casualty loss, as witnessed by the vigorous argu-

ments advanced orally and in briefs, both here and

below, by these close collaborators as proctors' for the

Shiprepairer, without the slightest suggestion that

there were differences. between them. More than ‘that,

as the 15 year struggle in Jane Smith demonstrates,

no one could have predicted with any ‘assurance, until

we ruled and the last bell from Washington tolled out

denial of certiorari, whether the-Red Letter Clause

would survive or what: would happen under the Louisi-

ana Direct Action Statute. The baseless nature of the

“money retained” theory is shown by contemplating |

_15The policy provided: . :

“3. The maximum liability of " [the .Primary Underwriter]

on account of any one disaster or casualty. shall not exceed:

$300,000 “{under Section 1A], $300,000 [under Section 1B].

4. *-* * [The] sum [of $500] shall be deducted from the

amount payable hereunder * * *.”-

16The policy recited:

“Subject to all terms and conditions as. per underlying

policy with the Marine Office of America * * * and only

to pay the excess of $300,500 each and every accidént, or

if the underlying Underwriters are obligated to pay a

larger sum under the terms of their coverage, as to. liabili-

ties chargeable to single accident, then to pay thé excess.

of such larger sums plus $500.”

‘what would have incrend had Primary Underwriter |

on its own and without consent of Excess Underwriters,

paid into the registry its full $300,000 before liability |

had been adjudicated, or before the’ validity of the Red

Letter Clause had been determined.

And £0 cap it all off, the insuring agreement (see

note .16, infra) spells out how amounts in excess of

policy limits are to be adjusted under the insurance .

program. It provides that “if the [Primary] Under- ..

writers are obligated to pay a larger sum under the

terms ° of their coverage, as to liabilities chargeable

to a single accident, then. [Excess Underwriters are]

to pay the excess of such ae sums plus _— ¥

Obviously what was in mind was what has occurred

here — a Court holding that despite the fixed ceiling

of $300,000 the law requires payment of interest there-

on. Indeed, affirming the Master’s holding would auto-

matically. trigger this obligation, so the result is the

same whether done on~that basis or our approach’

which fixes it directly on HNxcess Underwriters.

Consequently the decree is reversed to put liability

for interest’ on Excess Underwriters.”

When Does Interest Conimence?

Shipowner’ s attack on the lower Court’s holding that —

interest would commence from the date of judicial de-

mand (October 1957) rather than from the date of cas-

ualty (October 1956) may be —. of quickly.

iT There is no merit to Excess Underwriter’s contention that Shipowner,

in the fermal “Certificate of Satisfaction” of judgment, released or

waived its claim to the interest. ‘

30 |

Although allowance of interest is ordinarily within

the discretion of the Trial Court, it is equally true that

for property damage “interest from: the date of loss _

has Frag been allowed, of course, in admiralty for prop-

erty loss”. National Airlines, Inc. v. Stiles, 5 Cir., 1959,

268 F.2d 400, _..-.. A.M.C. __.. This is the general rule -

prevailing in admirality. Seé; Petition of The City of

_ New York, 2 Cir., 1964, 332 F.2d 1006. The Court therein

stated: ,

“Tt ia. long been held proper for aidmival-

ty courts fully to restore the injured party to

his condition at the time of injury by: allowing -

and fixing prejudgment: interest from: the date

of the loss in ——— involving property —

damage. / ee HID:

Here saither the Master nor District Judge gave any

reason why: this rule should not be followed. We might, «

of course, send. this back for reconsideration, but since

cases should at least -fade away, if-not die,’* from our

view we think the equities predominate in Shipowner’ g.

favor, ‘especially as. a permissible, slight amelioration

of the Red Letter immunity, Herd & Co. v. Krawill

Machinery Corp., supra, and we should so state with-

out more delay. Oil Screw Noah’s Ark v. Bentley &

Felton Corporation, 5 Cir., 1963, 322 F.2d 3, at - hy 1964

_A.M.C. 59, at 68.

a- ; : % ;

In summary | we give full application to Nebel. Towing:

which remains undiminished in its binding force. but

hold. that. the defénse of the Red Letter Clause is not

i isBros, , Incorporated v. W.E. Grace “Manufacturing Company, 5 Cir.,

1963, 320 F.2d 594.

personal to the Shiprepairer as it is one resulting from

the nature of the obligation and consequently is avail-

able to the Underwriters. And specifically we -affirm

- (i) extending the Red Letter\Clause to the Underwrit-

ers, and (ii) the allowance of ‘interest, but we reverse

by holding (iii) that Excess, not. Primary, Underwrit-

ers are to pay interest and (iv) interest is to commence me

on the date of the loss. We remand for. computation.

AFFIRMED IN PART

REVERSED IN PART

aa, ; and REMANDED. |

APPENDIX B

Judgment of = Court. of Appeal

UNITED: STATES COURT OF APPEALS.

FOR ae FIFTH CIRCUIT

October Term, -1970

No. 28944

D. C. Docket No. Adm..3390 “B”

rac ‘ALCOA STEAMSHIP COMPANY, INC., ;

eee Cross Appellant,

a“

, Versus”

de CHARLES FERRAN & co., INC AND GLENS FALLS

INSURANCE COMPANY, ET .AL.,

: Defendants-Appellants Cross ‘Ngpellses.

Appeal from the United ‘States District Court for. the i

Eastern District of. Louisiana —

ware Before BROWN, Chief Judge, GEWIN and

. THORNBERRY, Circuit Judges.

JUDGMENT |

This cause came on to be heard on the transcript. of

the record from the United States District Court for

the Eastern District of Louisiana, and was argued by .

ON CONSIDERATION WHEREOF, ‘It is now here

is Issued As Mandate:

ordered and adjudged by this Court that the judgment -

of the said. District ‘Court in this cause be, the same is

hereby, affirmed in part and reversed in part;. and that

_ this cause be, and the same is hereby remanded to the said

District Court in eee with Ge opinion . of this

Court. | ) Pen

+ It is further ordered that the costs of appeal be taxed

equally against (1) Charles Ferran and Company, Inc..

and the’Glens Falls Insurance Company and (2) excess

=o of Charles. Ferran aioe. ed

April 26, ‘1971

- 4

NG,

= poe _APPENDIX Cc

Order of the Court of Appeals « on Petition for Rehearing”

IN THE

UNITED STATES COURT ‘OF APPEALS

FOR THE FIFTH CIRCUIT

b No. 28944 nee

ALCOA STEAMSHIP COMPANY, INC.,

-Plaintiff-Appellee Cross Appellant,

versus

CHARLES FERRAN & CO., INC. AND GLENS FALLS

INSURANCE COMPANY, ET AL, |

.- Defendants-Appellants Cross Appellees.

Appeals from the United States: District Court for the .

Eastern —s ‘of Louisiana

ON PETITION FOR REHEARING AND PETITION

FOR REHEARING EN BANC |

(Opinion Apr. 26, 1971, 5 Cir., 1971, _. F.2d'___).

(June 23, 1971)

‘Before BROWN, Chief Judge, GEWIN and

THORNBERRY, Circuit Judges.

~~» ag

NS th A AST lA Bier SG RED ERY

; ‘

35.

PER CURIAM: The Petition po Rehearing on be-

half of Alcoa Steamship Co., Inc. is-DENIED and no

member of this panel nor Judge in regular active serv-

ice on the Court having“ requested that the Court be

polled on..rehearing en banc, (Rule 35 Federal Rules

. Of Appellate. Procedure; Local Fifth Circuit Rule 12)

Motion to Modify the Mandate on. behalf of Alcoa

from 5% to 7% is DENIED.

_ It is further ordered that the Petition for Rehearing

on behalf of Charles Ferran & Co. and its Excéss Un-

' derwriters be, and hereby is, DENIED.

ZO, PLS I OES 3

. .

Se Seles

APPENDIX D | :

~ Judgment of the District Court (Original) .

ADMIRALTY

NO. 3390 .

' SECTION “B”

ALCOA STEAMSHIP COMPANY, INC.

versus 2

‘CHARLES FERRAN AND COMPANY, INC., et al.

UNITED STATES DISTRICT COURT

‘EASTERN DISTRICT. OF LOUISIANA -

NEW ORLEANS DIVISION

JUDGMENT

This action came'on for hearing before the Court on.

the report of the Special Master, Richard B. Montgom-

ery, Jr., for the determination of the amount due to

the plaintiff, Aleoa Steamship Company, Inc., from the

defendants, Charles Ferran and Company, Inc., The

Fidelity and Casualty Company of New York, et al, as _

interest on the. damages sustained by plaintiff, limited to

$300,000.00 as a result, of the fire on its vessel, the Jf

ALCOA CORSAIR, on October 6, 1956. As noted by the

Special Master, the damages in the principal sum of

$300,000.00 as limited by the “Red Letter” clause under

which the repairs to-the vessel were performed were

paid to the plaintiff by Charles Ferran and Company,

Inc. and the Fidelity and Casualty ‘Company of New.

York on May 6, 1969, reserving to the plaintiff its

right to interest and costs. The issures having been

duly heard and a decision having been duly rendered and

all objections to the — having ‘been considered by

the Court: ) : :

IT IS ORDERED AND ADJUDGED that the report

‘of Richard B. Montgomery, Jr., Special Master, be, and -

the same is hereby accepted and ‘confirmed by the Court

and adopted as its findings and reasons. herein; and;

IT IS ORDERED, ADJUDGED AND DECREED

' that the plaintiff, Alcoa Steamship Co., Inc., recover .of

the defendants, Charles Ferran .and Company, Inc. and

the - Fidelity and Casualty Company of New York, its

interest at the rate of five (5%) per cent per annum on

its damages, limited as aforesaid to $300,000.00 from

the date of judicial demand, October 3, 1957, to May 6,

1969, a period of eleven (11) years, seven (7) mionths

and three (3) days, the sum of $173,873.27, with interest

thereon at the rate of five (5%) per cent per annum

from the date of this a a pursuant to 28 USCA

1961, and its costs. ante

IT IS FURTHER ORDERED, that a ruling of the

determination of the fee of the Special Master, if neces-

sary, is hereby RESERVED. |

Dated -at. New Orleans, Louisiaria this 24 day of

November, 1969. : |

° ee (Signed) - . Frederick J. R. Riskie :

UNITED. STATES cial JUDGE

a - .

Benjamin W. Yancey, Esq." :

Edward 8S. Bagley, Esq.

George: A. Frilot, I, Esq.

George B. Matthews, Esq.

Paul A. Nalty, Esq.

Leon Sarpy, Esq.

— B. + Montgomery, J r., Ean,

. 39

‘APPENDIX D

Judgment of the District Court (Amended)

ADMIRALTY _

NO. 3390

SECTION “B”

ALCOA STEAMSHIP. COMPANY, INC.

versus

< CHARLES FERRAN AND COMPANY, INC., et al.

EASTERN DISTRICT OF LOUISIANA

+ See: .

a J UDGMENT

‘It appearing to* the Court that in the ‘ihenant of »

of New York was erroneously named, and the proper

party to. be cast in judgment is Glens Falls Insurance

Company ;

IT IS THE ORDER YF THE COURT that the judg-

ment entered in the above cause on November 24,’ 1969,

* A

~ 40

“be, and the same is hereby, AMENDED to read as

follows:

“This action came on for hearing before the Court

on the report of the Special, Master, Richard B. Mont-

gomery, Jr., for the determination of the amount due to

the plaintiff, Aleoa Steamship Company, Inc., from the »

defendants, Charles Ferran and Company, Inc., Glens

Falls Insurance Company, et al, as interest on the dam-

ages sustained by plaintiff, limited to $300,000.00, as_a.

result of the fire on its vessel, the SS ALCOA CORSAIR,

on October 6, 1956. As noted by the Special Master,

the damages in the principal sum of - $300,000.00 as

limited by the “Red Letter” clause under which the

repaire to the vessel. were performed were paid to the

plaintiff by Charles Ferran and Company, Inc. and.

Glens Falls Insurance Company on May 6, 1969, reserv- -

. ing to the palintiff its right to interest and .costs. The

issyes having been duly heard and a decision having been —

duly rendered and all objections to. the report. having -

been considered by the Court:

“IT IS ORDERED AND ADJUDGED that the report *

of Richard B. Montgomery, Jr., Special Master, be, and

the same is hereby, ACCEPTED and CONFIRMED by

the Court and ADOPTED as its findings and: reasons

herein; and —

-“IT IS ORDERED, ‘ADJUDGED AND DECREED

that the plaintiff, Alcoa Steamship Company, Inc., re-

cover of the defendants, Charles Ferran and Company, -

Inc., and Glens Falls Insurance Company, its interest

at the rate of five (5%) per cent per annum on its

‘damages, limited as aforesaid to $800,000.00 from the ..

“a

date of judicial demand, October 3, 1957, to May 6,

1969, a period of eleven (11) years, seven (7) months, -

and three (3) days, the sum of $173,873.27, with interest

thereon at the rate of. five (5%) per cent. per annum

from the date of. this judgment, ne: to 28 USCA

1961, and its costs.

“IT Is FURTHER ORDERED ‘that a ‘valle on the

determination: of the fee of the Special Master, if neces-

sary, is hereby, RESERVED.”

(Signed) Frederick J. R. Heebe

UNITED STATES DISTRICT JUDGE

New Orleans, Louisiana

December 1, 1969

RE LENO TG

FEE I AE EY

AMET RT ISB PR BOM IDRC PRS IR AB, KGPEDI RIN HAYTER IE ATR IN

42 _

: APPENDIX E

‘Findings by the Special Master,

Richard B. Montgomery, a

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF LOUISIANA

NEW ORLEANS DIVISION»

IN ADMIRALTY NO. 3390

SECTION ‘“B”

“ALCOA STEAMSHIP COMPANY® INC.

versus

CHARLES FERRAN & COMPANY, INC, ET AL

SPECIAL MASTER'S REPORT

; ‘The report of Richard B. Montgomery, Jr., Special |

Master in the above captioned and numbered matter, to

whom this cause stands referred for the purpose of

determining whether or not Alcoa Steamship.Co., Inc.

was entitled to recover interest and if it is entitled to

recover interest the amount thereof and the period for

which it should be allowed. The matter was further re-

' ferred for the purpose of determining whether ‘or not

the interest should .be paid by the Marine Office of

America, the primary insurer, or whether it should be

, paid by Lloyds. — |

‘The original record has been considered: by the master.

A hearing was had before me to allow each side to

present its ‘case and to offer any additional ‘evidence,

letters or documents, which were pertinent. A preliminary

_ finding was made which was submitted to the attorneys

for the parties and another hearing was had with addi-

tional —

cn NE Remote

_— :

‘Baséd upon ihe hearings; my findings are as follows:

-The Court. in its judgment found that the niin

af Was entitled to. interest. and the judgment is: now:

final. | .

2. The Red Letter Clause contained in the contract

between Alcoa Steamship Co., Inc. and Charles Ferran —

«& Company, Inc. does not exclude Alcoa Steamship Co.,

‘Ine.’s right to be awarded interest on -_ oo of

$300, 000. 00.

3. ‘The primary insurer, Marine Office of America,

should bear - the ee for the payment of the

. interest. . | a Wy ;

4. The facts do not support any defense | of release

from liability for interest.

6. The’ question of hey is decided in favor of Alcoa

Steamship Company, Inc. as there is no evidence that

any delay in the final determination of the case can be

laid at-the door of Alcoa scprnasers Company, -

6. The determination as to ‘lnbeet is discretionary,

and the master. believes that this isa case where interest

.Should: be allowed.

MASTER'S REASONS FOR — FINDINGS

It is my opinion, after reading the opinion of Judge

Ellis and the pleadings leading up to the order of Judge :

Rubin, that ‘the court did decide the question of whether

or not interest was due to the Alcoa Steamship Com-

pany, Inc. However, when the language of the judgment

signed by Judge Ellis on March 3, 1966 is considered, it

would seem ‘that he — this question. The language

is. as follows:

“ORDERED, ADJUDGED AND DECREED

that the libelant herein, Alcoa Steamship Com-

pany, Inc.,. recover of and from Charles Ferran

- Underwriters at Lloyd’s London, Andrew Weir

Insurance Co., Ltd., Fine Art & General Insur-

ance Co., Ltd., National Provincial Insurance

Co., Ltd., Orion Insurance Company, Ltd., Eng-

lish & American Insurance Co., Ltd., “M’”’, and

Economic Insurance ‘Company, Ltd. “M”’ a/c,

ages sustained by Alcoa Steamship Company,

Ine. in consequence of the matters referred

to in the libel, limited to the sum of $300,000.00

pursuant to the limitation of liability provided

by the “red letter” clause of the contract between

the parties as referred to in the Court’s opinion,

with interest’ and costs ;’’

This states that Alcoa Steamship Company, Ine. dial.

‘recover the damages with interest and costs. He limits.

the recovery of damages to the sum of $300,000.00, but —

does not include interest in the limitation. The judgment —

would have read “damages, interest and costs limited to. .

the sum of $300,000.00” if he had so intended.

‘I also have decided that’ the. “red letter” clause does

' 45

cn tt Ot exclude the right to interest; that, as a matter’ ‘of

"fact, if one accepts the decision cited by Lemle & Kelleher,

one comes to the conclusion that if this is considered

similar to a limitation of liability proceeding, one should

_ find then that interest is applicable. In re -Harris, et als,

57 F. 243. See also the language in the GEORGE W.

ROBY, 111 F.R., at page 622:

“Where the stipulators defend’ the suit it is -

not unusual to charge them with interest from

the date of the filing of bond upon the ground

‘that they are responsible for the delays instant

to the defense made. THE MAGGIE, 33 F. 595;

JUANITA,. 95 U.S. 612; MAGGIE +. SMITH,

123 US. 356, 8 S. Ct. 139.” ra

»Also, it is the general rule of law in regard to in-

terest where limitations of the policy are pleaded. See

Section 1591; Am.Jusp., Vol. 29-A: It is also my opinion

that the sgme rule of law applies to the limitation of

the policy under the general theory that interest is pay-

_ able as damages for loss of use of the money.

The reason for making a determination that the Marine

Office of America should bear the responsibility is that ._

it, as primary insurer, had the.use of the’money during

the period of limitation. There is some tonflict of opinion _

as to this question, but .I am basing my decision on

Maryland Casualty Company v. Omaha Flectric Light

and Power Co., CCA 8 (1907), 157 F. 514. In this

case the Court said: rb eg ee

“The argument of plaintiff's counsel that the

defendant, by exercising its right of appeal. and

by superseding the execution of the judgment

pending that appeal, causéd.the accumulation of

interest in question, and thereby cfeated an

additional charge against the plaintiff. for which

it should be held responsible as a loss to the

plaintiff, is more specious than sound. The -

fallacy rests in a failure to recognize the ad-

vantage which ‘the appeal gave the plaintiff.

* * * The value of the use is equal to the ac-

‘crued interest, that being only a consideration

‘paid for the use of mogey or for forbearance in

demanding it when duet Accordingly the assured

lost nothing by the delay occasioned by the ap-

peal or by. paying the-interest which accumulated

pending the appeal. The assured stood after pay-

ing the interest exactly as it would have stood

if it had paid the judgment of $5,000 on January

3, 1902, when originally rendered. Nothing was

lost by the appeal, as the interest ultimately paid

was neutralized by the use enjoyment of the

money before that time.

“Numerous authorities have been called to our

-attention as sustaining the different contentions

of the parties. Defendant relies on Munro v.

Maryland Casualty Co., 48 Misc. Rep. 705, 96

N.Y. Supp. 705, Henderson v. Maryland Cas-

ualty Co., 29 Pa. Super. Ct. 398, Frye v. Bath,

Gas & Electric Co., 97 Me. 341, 54 Atl. 395, 59

L.R.A, 444, 94 Am. St. Rep. 500, Travelers’

~~~Ins_ Co. v. Moses, 63 N.J. Eq. 260, 49 Atl.

720,~92 Am. St. Rep. 663, and: other cases.

Plaintiff Felies on Rumford Falls Paper Co. v.

Fidelity & Casualty Co., 92 M.E. 574, 43 Atl.

503, Allen v. Aetna Life Ins.-Co., 76 C.C.A. 265,

. 145 Fed. 881, 7 L.R.A. (N.S.) 958, Cudahy

' Packing Co. v. New Amsterdam Casualty Co.

(C.C.) 182 Fed. 623, Southern .Ry. News. Co. v.

Fidelity &. Casualty Co.,°83 S.W, 620, 26 Ky.

Law Rep. 1217, Travelers Ins. Co. v. Henderson

Cotton Mills, 85 S.W. 1090, 27 Ky. Law Rep. -

653, and other’ cases dealing with She general

subject of indemnity, of more or less pertinency_ .

to the case in hand. The Rumford Paper Com-

pany and Allen cases, supra, deal chiefly with

the contention whether the indemnitor, by avail-

ing itself .of the right to defend the employees’

action, subjected itself to liability for any

amount which might be recovered in the action

beyond. the limit fixed in the policy. That con-

tention was held untenable, and very little, if -

any, consideration was given to’any other ques-

tion of law. In the Cudahy Packing Company

case the main contention was whether the in-

demnitor in an action similar to the present was

entitled to a deduction from the limit of: its

liability of amounts expended in making a de-

fense to the employees’ action. It was held that it

was entitled to. no such deduction. Very little

the present contention of the plaintiff.

“All. the cases have been carefully ‘ considered,

and the conclusions reached are believed to be

in harmony with the best reason and authority.” .

This is _also the. ruling in the case of Tulane County

Power Co. v. Pacific Surety Co., 185 P. 399.

Although the attorneys for the primary insurer cite

the above: cases. as being favorable to their position that

the. excess insurer should pay: the interest, I am unable

to agree with their conténtion as to what the case holds.

_ In this case the plaintiff would have had -to pay the

judgment and did not do so by ‘reason of the appeal

which was taken. the court held that since the plaintiff,

the. insured, had the use of the money during that period

- that as between the insured and the insurer the insured

could not recover interest from the insured because ‘it

had had the use of the money. In other words, this case

- 48

would be authority that Charles Ferran & Company, Inc. °

could not recover interest from its insuter. However, the .

_ question here is is the interest due to a third party

payable by the primary -or the excess’ insurer. The

answer is covered by the language on page 405 of the

opinion in the case of Tulane County Power .Co, vs.

Pacific Surety Co., supra. The court there cites the very

language that has been cited previously from Maryland

_ Casualty Co. v. Omaha, supra, as supporting the master’s |

contention that interest should be paid by the primary

insurer.

Further, a reading of the exhibits, the letters and other

documents submitted failed to prove that there was any -

undue delay in the trail of this case caused by the libel-

lants or for which libellants can in‘ any way be held

responsible.

The defense of release cannot be upheld for the reason

that there is no evidence in the record that any release

was given when the payment of the $300,000.00 was made

by the Marine Office of America. It is my opinion tlfat —

this ‘was a payment made solely for the purpose of cutting

off future interest’and the documents accompanying the

; payment were an admission that the amount was owed

rather than was a settlement of a disputed claim. _

The question of interest is discretionary in matters

which are not based upon the law of the state but the:

recent cases, _namely, Louisiana and Arkansas Railroad |

v. Export Drum Co., 359 F: 2d 311; Gardner v. National

Bulk Carriers, 221 F. Supp. 243, affirmed 333 F. 2d 676,

places the burden squarely upon the master to make a

decision using: his best discretion. |

LY. eR

eth ete orb

Pre re eens ee

___was-a dimunition of damages:-The interest should run

‘See also Crawn Industries v.-Boyerton, 300 F. .2d 809;.

-Samicorp v. Rivadeluna, 277 F. Supp. 948; Collier v.

Granger, 258 F. Supp. 717. This is a case in which the

amount of damages which the libellant could recover was

more or less ascertainable by calculation. The real ques-

tion at issue in this case was not whether or not damages.

. were owed but whether or not the “red letter” clause

limited the amount of damages and whether or not there

from October 3, 1957, and the rate of interest pues be

five: (5%) percent. : |

Respectfully submitted,

(Signed) RICHARD B. MONTGOMERY, JR.

RICHARD B. MONTGOMERY, JR,

806 National Bank of Commerce

- Bldg.

New Orleans, Louisiana TOM.

" SRECIAL MASTER

‘APPENDIX F

Statutes Involved

28 US.C.A. 1961 3

§ 1961. Interest | ;

Interest shall be allowed on any money judg-

ment in a civil case recovered in a district court.

_ Execution therefor may be levied by the

marshal, in any case where, by the law of the

State in which such court is held, execution may

be levied for interest on judgments recovered in

_ the courts of the State. Such interest shall be

~ ealculated from the date of the entry of the

judgment, at the rate allowed. by State’ law.

June 25, 1948, c. 646, 02 Stat. 957.

- Louisiana Civil Code. of 1970, Article 1935

Art. 1935. Interest as damages for noh-payment of

money —

' Art. 1935. The damages due for delay in the

-performance of an obligation to pay money are

called interest: The creditor is entitled to these

"damages without proving any loss, and whatever

loss he may have suffered he can recovér no more.

Bans FT Bae Wee eee

| SUPREME COURT OF THE UNITED STATES :

_ OCTOBER TERM, 1971

eae eS ee

Nw : ?

7 ie 91

NER 4 '

-OepeRwiernes: AT tuovbe: LONDON,

ANDREW “WEIR INSURANCE CO., LTD.,:

roe ART & GENERAL INS CE CO., LTD,,

‘NATIONAL PROVINCIAL INSURANCE CO.,-LTD,

| ORION INSURANCE COMPANY, LTD:

ENGLISH & AMERICAN. INSURANCE CO., LTD.,

i “Ml”, and ECONOMIC INSURANCE COMPANY,

wos LTD., Sends 4 etn,

x d 3 “3 & “ee ae versus

- “ALCOA STEAMSHIP. COMPANY, -INC., ET _* in oe

= : > aed

OPPOSITION OF CHARLES. FERRAN & CO.,

INC. and GLENS FALLS INSURANCE COMPANY

__ 30 THE PETITION FOR A WRIT OF CERTIORARI a i

_™

2 de : ‘eign aco ek : :

a |

Petitioners _

“a . o>

7, x . 9 OG

va +

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