Brief for Petitioners — Wilburn Boat Co. v. Fireman's Fund Insurance

Supreme Court brief1955

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SUPREME COURT.U@

IN THE

Supreme Court of the United States

October Term, 1954

WILBURN BOAT COMPANY, er at.,

Petitioners

VERSUS

FIREMAN’S FUND INSURANCE COMPANY,

Respondent

On Writ of Certiorari to the United States Court

of Appeals, Fifth Circuit

BRIEF FOR PETITIONERS

Hosert Price,

ALEXANDER GULLETT, Attorney for Petitioners,

Of Counsel; 761 San Jacinto Bldg.,

T. G. SCHIRMEYER, Houston 2, Texas

Submitted Brief for

Petitioners

Atpua Lae Barr Co., 402 M & M BiDe., Houston 2

INDEX

OPINIONS BELOW

B. JURISDICTION '

C. CONSTITUTIONAL PROVISIONS AND STATUTES

INVOLVED

D. QUESTIONS PRESENTED

E. CONCISE STATEMENT OF THE CASE

a. Pertinent Facts

b. Alleged Policy Violations

1. Mortgaging the WANDERER

2. Breach of Warranty of Use

3. Sale of WANDERER .

c. The Loss was Covered

D. ARGUMENT

Point I —General Admiralty Law Does Not Outlaw

State Insurance Statutes Regulating For-

eign Corporations Doing Business Within

the State i

(a) Insurance is not commerce, it involves a

personal contract of indemnity .

(b) Police power cf States versus the mari-

time law

(d) Characteristic Features of admiralty law

(e) Historical Sketch of Marine Insurance .

Point II —Congress Has Declared that the Marine

Insurance Business Shall be Governed by

State Laws —_" ee tae

(a) The Model Marine Insurance Act Passed

by Congress ar

(b) The Merchant Marine Act of 1920 .

PAGE

a on

Sk 8

PAGE

Point 111—The fact that the Wilburn Brothers ‘Trans-

ferred the WANDERER from their part-

nership to their corporation without re-

spondent’s approval cannot support a for-

feiture of the policy because there is no

proof that there was a change in their

insurable interest in their vessel 29

G. CONCLUSION ae 31

Appendix A—Certificate of Texas Insurance Commis-

sion Authorizing Fireman's Fund Ins.

Co. to do business in Texas . 33

Appendix B-—Affidavit of Wilburn brothers that they

each owned one-third of Stock in the

Wilburn Boat Company ; 34

INDEX OF AUTHORITIES

CONSTITUTION AND STATUTES

United States Constitution-——

Mptacee 5, Bectiem & Ceemee fF... ccc ccc ec ceee 2,17

Arsticte [0t, Becton Z.................. SPC perry,

Article X—Amendment. eee ate 4a SE a RS ee 2,15

UNITED STATES STATUTRS

McCarran Act ..... 3, 5, 14, 23, 26, 27, 29, 31

15 USC 1011 3 LA COE COPS re oe ne Nol See 3

15 USC 1012 SS Ray Se eye Oe eR a 3

SRR SEINE cae SD a ae EAE Cen aR te ea 3

Judicial Code—

Admiralty Jurisdiction, 28 USC 1333 __... een cea dt 3,16

Limitation of Liability Act, 46 USC 181-189 a 18

Merchant Marine Act of 1920, 46 USC 885(b) __. 25, 26

Model Insurance Code 19, 23, 24, 25

Public Law 162 of March 4, 1922, 42 Stat. 408

District of Columbia Code (1951), Sec. 1101-1134

TEXAS STATUTES

Vernon's Civil Statutes, Art. 4890—Lien on Insured Property 4,9

Vernon’s Civil Statutes, Art. 4930—Breach by Assured 4,10

Vernon's Civil Statutes, Art. 5054—Texas Laws Govern _. 4,13

lil

PAGE

LEGISLATIVE MATERIAL

f&2 Congres-:oral Record 2521, 2522 15, 24

62 Congressional Record 3408 25

Subcommittees of the Committees on the Joint oe

before Judiciary, 78th Congress, Ist Session, on S. 1362 26

H.R. 3269, H.R. 3270—MeCarran Act 27, 28

Senate Hearings on S. 210-bill “To Regulate Insurance in

the District of Columbia and for other Purposes” 24, 25, 26

CASES

Allgever vy. Louisiana, 165 U.S. 578 (1896) . 25

A. M. Bright Grocery Co. v. Lindsey (1915), 225 Fed. 257-261 18

Aetna Ins. Co. v. Houston Oil & Transport Co. (5 Cir.), 49

F. 2d 121, Cert. Den. 284 U.S. 628 21,22

Bogart v. The John Jay (1854), 17 How. (58 U.S.) 399, 15

ye er ee rr ee 9

Camden Fire Insurance Co. v. Clayton, 6 S.W. 2d 1029, 1030

te Ot Rete re 29

Cooley v. Board of Wardens of Philadelphia (1851), 12 How.

(53 U.S.) 299.. ctu kale sae aera eat 17, 18

Davis v. Department of Labor and Industries of Washing.

ton (1942), 317 U.S. 249 to ra owen miata Dae ae . 27

De Lovio v. Boit (1815), 2 Gall 3¥4, Fed. ‘Case No. 3,776. 15

Fire Insurance Co. v. Coos County (1894), 151 U.S. 452 11

General Smith (1819), 4 Wheat, 4th Ed. 609............. 17

Hooper v. California (1895), 155 U.S. 648. ..... 4B, 17, 23, 25, 29

Insurance Co. of Pennsy'vania v. Proceeds of the Sale of

the Barge Waubaushene (1885, N.Y. Cir.), 24 F. 559 18

J. E. Rumbell (1892), 148 U.S. 1, 15, 16 dias wa didi atate ae 9

Just v. Chambers (1941), 312 U.S. 383 at a Se 16

Lottawano, 21 Wall. (88 U.S.) 558, 580, 581 ss. 17

Knickerbocher Ice Co. v. Stewart (1920), 253 U.S. 149 16, 17, 24, 32

Maryland Casualty Co. v. Cushing (1954) —U.S.—, 98 L. Ed.

Oe RRR iar Sig ae ey Ou can mr eee ae 18

Miller Indemnity Underwriters v. Braud, et al (1926), 270

U.S. 59 6 al ate nn AM pa eS A I Be PL SS 17

New England Mutual Marine Ins. Co. Vv. Dunham (1870),

& Bg ot 8 a ein ees 15, 20

New York Life Ins. Co. v. Cravens (1900), 178 US. 389 14, 29

New York Life Inst: ance Co. v. Deer Lodge County (1913),

I a a atciaa 14

Nutting v. Massachusetts, 183 U.S. 553 (1901) 25

Osborn v. Ozlin (1939), 310 U.S. 53, 65, 66 14

Paul v. Virgina (1868), 8 Wall. (75 U.S.) 168 14, 17, 23

Peck & Co. (Inc.) v. Lowe, 247 U.S. 165 (1917) 25

CASES PAGE

Prudential Insurance Co. v. Benjamin, 328 U.S. 316 28

Red Cross “Line v. Atlantic Fruit Co. (1924), 264 U.S. 109 16

Robertson v. California (1946), 328 U.S. 440 14, 15, 28

South-Eastern Underwriters, 322 U.S. 533 16,17

Southern Pacific v. Jensen (1917), 244 US. 205 21, 22, 24, 32

Springfield Fire & Marine Ins. Co. v. K.M.A. Fuel Co.

(1935), 78 S.W. 2d 1053 10

Standard Dredging Corp. v. Murphy (1943), 319 U.S. 306,

a el 2 SA 5 SRR eg ee BE ay ayn mie ed Pee an 17

Thames & Mersey v. US., 237 US. 19 (1914) 25

Thompson v. Phenix Ins. Co. of Brooklyn (1890), 138 U.S.

287 ee eS ee ee ee AA le oe ee PT 31

Union Fish Co. : v. Erickson (1919), 248 U.S. 308. 16

United States v. Southeastern Underwriters Ass’n. (1944),

322 U.S. 533 Pree ray e's: .......54, 15, 26, 27, 28

Western Fuel Co. v. Garcia (1921), 257 U. S. 233, 242 16

TREATISES

22 American Jurisprudence 505, Section 630... ............

Arnould on Marine Insurance, 13th Ed. (1950), 1202-1227,

The Marine Insurance Act, 1906, (English)

Vance on Insurance—

Historical Origin of Imsurance........................

ee ee Ss c's o's 5 bee ekev chee a aes

Ee eee OP es ee rr et rrr re

Winters on Marine Insurance—Historical Background

B8rs 8 8

IN THE

Supreme Court of the Anited States

October Term, 1954

WILBURN BOAT COMPANY, Er Au.,

Petitioners

VERSUS

FIREMAN’S "UND INSURANCE COMPANY,

Respondent

On Writ of Certiorari to the United States Court

of Appeals, Fifth Circuit

BRIEF FOR PETITIONERS

Opinions Delivered Below

The opinion of the District Court is unreported. It is in-

corporated in the judgment of the Trial Court (R. 19, 20).

The opinicn of the Fifth Circuit Court of Appeals (R. 199-

206) is reported in 201 F. 2d 833, 1953 AMC 284.

Jurisdiction

Jurisdiction of the court was invoked by petition for

certiorari under 28 USC 1254 (1), Certiorari was granted

on 26 April 1954 (R. 207).

Constitutional Provisions and Statutes Involved

Article I, Section 8, Clause 3—Unirep States Con-

STITUTION

“The Congress shall have Power * * * To regulate

Commerce with foreign Nations, and among the sev-

eral States, and with the Indian Tribes;”

Article III, Section 2—Unirep States CONSTITUTION

“The judicial Power shall extend to all Cases, in Law

and Equity, arising under this Constitution, the Laws

of the United States, * * *, to all Cases of admiralty

and maritime jurisdiction; * * * to Controversies be-

tween * * * Citizens of different States, * © *.”

Article X—AMENDMENT TO THE UNITED STAatTes

CONSTITUTION

“The powers not delegated to the United States by the

Constitution, nor prohibited by it to the States, are

reserved to the States respectively, or to the people.”

Title 15—Unrrep States Cope, Chapter 20, “Regula-

tion of Insurance” 15 USC 1011-1015.

The McCarran Act

15 USC 1011—"Declaratinn of policy.”

“Congress declares that the continued regulation and

taxation by the several States of the business of insurance

is in the public interest, and that silence on the part of

the Congress shall not be construed to impose any

barrier to the regulation or taxation of such business

by the several States.”

15 USC 1012—"Regulation by State Law; Federal law re-

lating specifically to insurance; applicability of Certain

Federal laws after June 30, 1948.”

“(a) The business of insurance, and every person en-

gaged therein, shall be subject to the laws of the sev-

eral States which relate to the regulation or taxation of

such Lusiness.”

“(b) No Act of Congress shall be construed to in-

validate, impair, or supersede any law enacted by any

State for the purpose of regulating the business of in-

surance, or which imposes a fee or tax upon such busi-

ness, unless such Act specifically relates to the business

of insurance; * * *.”

15 USC 1014—Applicability of Merchant Marine Act

of 1920.

Nothing contained in this chapter shall be construed to

affect in any manner the application to the business of

insurance of the * * * Act of June 5, 1920, known as

the Merchant Marine Act, 1920.

28 USC 1333—Admiralty, Maritime and Prize Cases

“The district courts shal! have original jurisdiction, ex-

clusive of the courts of the States of:

(1) Any civil case of admiralty or maritime iuris-

diction, saving to suitors in all cases all other r-...2dies

to which they are otherwise entitled.”

Applicable State Statutes

VERNON’s Texas STaATUTES—Chapter 10, Revised Civil

Statutes 1936, Article 4890—entitled “Lien on Insured

Property” (1951 Texas Insurance Code, Art. 5.37)

“Any provision in any policy of insurance issued by

any company subject to the provision of this law to the

effect that if said property shall be encumbered by a lien

of any character or shall after the issuance of such

policy become encumbered by a lien of any character

then such encumbrance shall render such policy void

and shall be of no force and effect. Any such provision

within or placed upon any such policy shall be null and

void.”

VERNON’s Texas StatutTEs—Chapter 10, Revised Civil

Statutes 1936, Article 4930, entitled “Breach by Insured”

(1951 Texas Insurance Code Art. 6.14)

“No breach or violation by the insured of any war-

ranty, condition or provision of any fire insurance

policy, contract of insurance, or application therefor,

upon personal property, shall render void the policy or

contract, or constitute a defense to a suit for loss there-

on, unless such breach or violation contributed to bring

about the destruction of the property.”

VERNON’s Texas Statutes—Chapter 21, Revised Civil

Statutes 1936, Article 5054, entitled “Texas Laws Govern

Policies” (Art. 21.42 of 1951 Texas Insurance Code)

“Any Contract of insurance payable to any citizen or

inhabitant of this State by any insurance company or

corporation doing business within this State shall be

held to be a contract made and entered into under and

by virtue of the laws of this State relating to insurance

and governed thereby, notwithstanding such policy or

contract of insurance may provide that the contract

)

was executed and the premiums and policy (in case it

becomes a demand) should be payable without this

State, or at the home office of the company or corpora-

tion issuing the same.”

Questions Preseuted for Review

1. Are the insurance statutes of Texas, regulating the

terms of a marine insurance policy in reference to the

encumbrance and use of a small boat, rendered in-

applicable by general admiralty law in a case where a

foreign corporation, authorized to do business in the

State, issues a marine insurance policy to citizens of

that State?

2. Does Article III, Section 2 of the United States

Constitution exclude marine insurance from the

McCarran Insurance Act of 1945 (15 USC 1011-

1015) so that States cannot regulate the business of

marine insurance conducted within its boundaries by

foreign corporations authorized to do business within

the State?

3. Where there is no proof in the record that three named

individual assureds changed their interest in their

vessel, can the transfer of said vessel from their part-

nership to their corporation be construed as a sale under

the terms of an alienation clause and thereby cause their

rights to be forfeited?

Concise Statement of the Case

(a) Pertinent Facts

This lawsuit was originally instituted in the Texas State

Court at Denison, Texas, from whence it was removed to

the civil side of the docket in the Federal District Court

at Sherman, Texas, on the grounds of diversity of citizen-

ship.

Petitioners are citizens of Texas and are marine insurance

policy holders seeking to recover from respondent insurance

company for the loss of their Motorboat WANDERER

which was destroyed by fire on February 25, 1949, while

she lay afloat, moored close to shore, in Lake Texoma, an

artificial inland lake between Texas and Oklahoma.’

The WANDERER was a small wooden inland vessel,

65x 17x3 feet with a six cylinder 225 H.P. engine. The

vessel’s registe' 2d hailing port was Denison, Texas, and she

was documented in Houston, Texas (R.52) for miscel-

laneous service (R. 49). Petitioners purchased the house-

boat WaNDERER from Marshall and Shuler of Rock

Island, Illinois, and each of the petitioners acquired an un-

divided one-third interest in the vessel (R. 43-44).

Respondent is a fire and marine insurance company incor-

porated in California, with its principal office in San Fran-

cisco, and was qualified and certificated to do business in

the State of Texas at the time the policy was issued and de-

livered to petitioners at Denison, Texas. According to re-

spondent’s sworn statement, which is of public record in

Austin, Texas, Fireman’s Fund Insurance Company agreed

to comply with the Texas insurance laws for the year ending

May 31, 1949, in accordance with the provisions of Chapter

11 and 18, Title 78, Revisep Crvm Statutes, Texas, 1925.

(See Appendix A) Chapter 11 is entitled ‘Fire and Marine

Companies”.

The policy in question was purchased from R. L. McKinney

1 See Stipulation of Facts (R. 23-25). Most of the pertinent facts

are stated therein.

Agency, an insurance agency doing business in Denison,

Texas, and the premiums were delivered to this agency at

Denison, Texas (R. 89). The McKinney Agency delivered the

policy to petitioners at their place of business in Denison,

Texas (R. 61) and the policy was made payable at Denison,

Texas (R. 168). The McKinney Agency transmitted the

order for insurance to respondent insurance company through

the H. H. Cleaveland Agency, of Rock Island, Illinois, whose

authority to issue policies of insurance was limited to the

Rock Island, Illinois area.?_ R. L. McKinney examined, in-

spected and evaluated the risk and made a survey of the

boat for respondent and reported to respondent concerning

the risk (R. 64, 193). Prior to the loss of the WANDERER,

R. L. McKinney requested respondent to increase the insur-

ance coverage from $10,000.00 to $40,000.00 (Rossow

Deposition pp. 29, 30). For an additional premium re-

sponden: agreed to increase the valued policy to 340,000.00

(R. 167). After the increased risk was accepted, respondent

sent the Denison, Texas agency an application form for the

coverage in question. Mr. McKinney typed in the answers to

numerous questions propounded by respondent and had J. F.

Wilburn sign the application (R. 65, 67, 68, 190 to 194).

This application stated that the WANDERER was to be

used for commercial purposes and was to be chartered

(R. 68, 191). The application was ferwarded to respondent

on February 9, 1949 and was in respondent’s possession at

the time the WANDERER was destroyed (R. 69, 97).

The R. L. McKinney Agency knew that the Wilburn

brothers incorporated their partnership and thought he had

so advised respondent (Rossow Exhibit #41). All cor-

respondence between the parties concerned is found attached

2 Depositions of White, p. 12 and Rossow, p. 42. White Exhibit

No. 1.

to the depositions of P. B. White and E. H. Rossow, sent to

this Court as an original exhibit.

Effective as of June 9, 1948, respondent issued a policy of

marine insurance to “Frank and Henry Wilburn d/b/a

Wilburns Bros., Denison, Texas,” covering the WANDERER

against fire loss (R. 168, 169). This was accomplished by

attaching an endorsement on a “Port Risk” policy issued to

Marshall and Shuler, the former owners of the Wan-

DERER. On July 10, 1948, the three brothers changed

their partnership to a corporation (R.197) and each of

the named assureds retained their same interest in the boat,

in that they each owned one-third of the stock of the cor-

poration (See Appendix B). After the three brothers incor-

porated their partnership the respondent by written en-

dorsement changed the named assureds to read as follows:

“Glen, Frank and Henry Wilburn d/b/:. Wilburns Boat

Company” (R. 165). This endorsement wa; effective August

6, 1948. No provision in the policy req) .ired the Wilburn

brothers to do business as a partnership 0° corporation while

they conducted their business in the name of Wilburn Boat

Company.

(b) ALLEGED POLICY VIOLATIONS

1. MORTGAGING THE WANDERER

Respondent seeks to avoid liability under the terms of the

policy on the grourds that the policy in question is null

and void because petitioners admit that they mortgaged the

WANDERER without the written consent of respondent.

(R. 23, 24) The pertinent policy provision reads as follows

(R. 176):

“It is Also Agreed that this insurance Shall be void in

case this Policy or the interest insured thereby shall be

* * * pledged without previous consent in writing of

the Assurer.”

The insurance statutes of Texas declare that the above

policy provision is null and void.*

Respondent contends, and the lower court ruled, that this

Te-as statute cannot apply to a marine insurance policy

because it is contrary to general admiralty law and that

admiralty law governs to the exclusion of State insurance

regulatics regarding the encumbrance of prorerty

(R. 205). The lower court held that the above encumbrance

clause involves characteristic features of substantive ad-

miralty law (R. 204) and that under admiralty law marine

insurance contracts must be enforced as written. (R. 202).

This legal axiom is as common to common law as

it is to admiralty law. It is significant that admiralty law

does not recognize a common law mortgage * and it is not

a characteristic feature of admiralty law.

2. BREACH OF WARRANTY OF USE

Respondent also contends that since petitioners admit

that they chartered the WANDERER several times prior to

the loss (R. 62), without an appropriate endorsement on

the policy, they thereby breached the contract of insurance

and cannot recover for the loss of the WANDERER. The

warranty alleged to be breached reads as follows (R. 173):

8 Vernon’s Texas Civil Statutes, Article 4890.

“Any provision in any policy of insurance issued by any

company subject to the provision of this law to the effect

that if said property shall be encumbered by a lien of any

character or shall after the issuance of such policy become

encumbered by a lien of any character then such encum-

brance shall render such policy void shall be of no force

and effect. Any such provision within or placed upon any

such policy shall be null and void.”

4 Bogart v. The John Jay (1854), 17 How. 58 U.S.) 399; The J. E.

Rambell (1892), 148 U.S. 1, 15, 16.

“Warranted by the assured that the within named ves-

sel shall be used solely for private pleasure purposes

during the currency of this policy and shall not be

hired or chartered unless permission is granted by en-

dorsement hereon.”

This defense is urged by respondent notwithstanding the

fact that the Texas legislature has declared that a breach

of a warranty, of any contract of insurance upon personal

property, will not constitute a defense to a suit for the loss

thereof, “unless such breach or violation contributed to

bring about the destruction of the property.” °

The chartering of the WANDERER at som remote

time previous to the loss did not, and could not, contribute

to the loss of the vessel. Several days previous to her de-

struction the WANDERER returned to her mooring at

Burns Run Resort on the Oklahoma side of Lake Texoma,

after having left a shipyard on the Texas side of the lake,

and was unmanned and was not being used for any purpose

when she was lost (R. 63).

The lower court disregarded the Texas causal relation

insurance statute*® on the grounds that since a maritime

contract was involved general admiralty would govern to

5 Vernon’s Texas Civil Statutes, Article 4930.

“No breach or violation by the insured of any warranty,

condition or provision of any fire insurance policy contract

of insurance, or application therefor, upon personal property,

shall render void the policy or contract, or constitute a de

fense to a suit for loss thereon, unless such breach or viola-

tion contributed to bring about the destruction of the prop-

erty.”

Also see—Springfield Fire and Marine Insurance Co. v. K.M.A.

Fuel Co., 78 S.W. 2d 1053 (1935) construing the above statute in

a case where the use of a motor vehicle was involved.

See Footnote 5.

the exclusion of State statutes. The rule that warranties

must be literally complied with in an insurance contract

is as much a part of the common law as of admiralty law.

See Fire Insurance Co. v. Coos County (1894), 151

U.S. 452, a common law action of assumpsit upon a fire in-

surance policy insuring a court house. This case was relied

upon by the lower court to establish the rule that general ad-

miralty law governs (R. 203}. It was because of the rule in

Coos County case that Texas enacted a statute requiring the

insurance company to prove that the breach of warranty

contributed to the loss. The people in Texas felt that foreign

insurance companies doing business in Texas should not issue

policies limiting their insurance coverage by a continuing war-

ranty unless the breach of the warranty contributed to the loss.

Respondent questions the right of Texans to so limit war-

ranties in a marine insurance policy. The answer to the

objection is that petitioners contracted to do business with

the people of Texas in accordance with the provisions of

their insurance statutes and the premiums charged Texans

should take into account the statutory limitations herein

presented.

3. THe SALE OF THE WANDERER

Respondent also seeks to avoid liability under the terms of

the policy in question on the grounds that on September 28,

1948, petitioners transferred the WANDERER from J. H.

Wilburn, J. F. Wilburn and L. G. Wilburn to their cor-

poration, Wilburn Boat Company (R. 51) without the

written consent of respondent. The policy provision relied

upon by respondent reads as follows (R. 176):

“Tt is Also Agreed that this insurance shall be void in

case this Policy or the interest insured thereby shall be

sold, assigned, transferred or pledged, without previous

consent in writing of the Assurer” (Emphasis Supplied).

There is no proof in the record that the insured interest

of the three named individuals changed when they trans-

ferred their boat to their corporation. Except for the cor-

porate fiction, the one-third interest of each of the Wilburn

brothers in the WANDERER remained unchanged. Never-

theless, the lower court held that the petitioners sold their

boat to their corporation and this sale was a breach of the

warranty quoted above and that petitioners thereby lost

whatever contractual rights they had. On this point peti-

tioners take issue on common law grounds.

Additional defenses, based on alleged concealment and

misrepresentation were pleaded by respondent but the lower

courts did not rule on same and they present no issue here.

There is no question that the loss of the WANDERER

was covered by the standard marine perils and fire clause, in

the marine hull policy now being considered. The pertinent

part of this clause reads as follows (R. 173):

“Touching the adventures and perils which we, the

assurers, are contended to bear, and do take upon us,

they are of the seas, man-of-war, fire, * * *.”

Respondent raises no issue concerning the coverage of

this standard marine insurance clause. There is no issue and

no proof as to the cause of the fire which destroyed the

WANDERER or the applicability or construction of the

above clause. The insurance company’s attack is based upon

the breach of other policy provisions designed to cut down

the above sea peril and fire coverage. On the one hand, re-

spondent relies on the sanctity of their finely printed

mazine insurance contract and on the other hand, peti-

tioners rely on the sanctity of the State insurance statutes

which are designed to prevent insurance companies from

whittling down liability on an accepted risk. It therefore

appears that the controlling issue presented for review is

whether or not Texas insurance laws apply to a marine

insurance policy issued to Texans by a foreign corporation

authorized to do business in Texas when the policy insures

a small inland vessel against fire loss. According to the Texas

insurance statutes, Texas laws govern this policy.’ If the laws

of Texas are applicable to a foreign corporation authorized

to do business in Texas then, in spite of the argument that

general admiralty law governs, petitioners are entitled to

recover the amount oi their valued policy plus interest from

February 25, 1948.

Argument

Point I

General Admiralty Law does not outlaw the State

Insurance Statues regulating foreign corporations

doing business within the State.

(a) INsuRANCE Is Not COMMERCE

Ever since insurance became an established business in

this country repeated efforts have been made by foreign

insurance corporations to shake themselves loose from the

insurance regulations of the several States. To accomplish

this purpose efforts were made to have this Court declare

7 Vernon's Texas Statutes—Chapter 21, Revised Civil Statutes,

1936, Article 5054, entitled “Texas Laws Govern Policies” (Article

21.42 of 1951 Texas Insurance Code). Quoted on page 4.

that insurance is commerce and that under the U. S. Con-

stitution a State is prohibited from regulating companies

engaged in interstate commerce. This Court, however, has

repeatedly held that as between the assured and the insur-

ance company the issuing of insurance is not a transaction

of commerce but a simple contract of indemnity and like

other personal contracts they are local transactions and are

governed by local law. Insurance is not a commodity, it is

a personal service.*

(b) Potice PowER oF THE STATES Vv. MariTiIME Law

In Osborn v. Ozlin (1939), 310 U.S. 53, 65, 66, this

Court held:

“Government has always had a special relationship to

insurance. The ways of safeguarding against untoward

manifestations of nature and other vicissitudes of life

have long been withdrawn from the benefits and ca-

prices of free competition. The State * * * may cur-

tail drastically the area of free contract, * * * .”

8 Paul v. Virginia ‘1868), 8 Wall. (75 U.S.) 168; Hooper v. Cali-

fornia (1895), 155 U.S. 648; New York Life Insurance Company v.

Cravens (1900), 178 U.S. 389; New York Life Insurance v. Deer

Lodge County (1913), 23) U.S. 495; United States v. Southeastern

Underwriters Association (1944), 322 U.S. 533: Rebertson v. Cali-

fornia (1946), 328 U.S. 440: Vance on Insurance (3rd Edition 1951),

pages 125-139. “Rights of Foreign Insurers” where the above cases are

discussed. Also see a discussion of these cases at the Joint Hearing

Before Subcommittees of Committees on the Judiciary, 68th Congress on

S 1362, HR 3269 and HR 3270, bills “To Affirm the Intent of Congress

That the Regulation of the Business of Insurance Remain Within the

Control of the Several States * * * " (McCarran Act of 1945). Statement

of Senator Bailey, pages 2 to 9, and statement of Hon. Francis Biddle,

Attorney General of the United States, pages 29 to 35, 54, to the effect

that the insurance companies are reversing their attack and fighting

Federal regulation when heretofore they fought State regulation; that

what th~ insurance companies really want is no regulation and that no

Court has ever held that the power of interstate commerce excludes

appropriate police powers of the State.

lin order to eliminate State insurance regulations the re-

spondent advocates that Hooper v. California (1895), 155

U.S. 648, a marine insurance case, be disregarded. Ths

case held that State insurance regulations must be followec.

by foreign insurance companies authorized to do business

within the State. As a substitute for the valid exercise of

the police power by the State, respondent suggests that the

terms of a marine insurance policy be governed solely and ex-

clusively by general admiralty law. Since a national bill

regulating marine insurance would be unconstitutional °

this would be equivalent to granting to marine insurance

companies a blanket license to operate without legal re-

straint. The marine insurance business is too complex to

be regulated by decisional law. Regulations as to available

defenses must by necessity be handled by the legislative

branch of the State governments so that the public interest

is protected.’°

The lower Court apparently takes the position that the

general admiralty law overrides the above inherent police

power of the several States on the grounds: first, that the

marine insurance policy is a maritinse contract *' and there-

fore all terms or defenses to the policy must be governed

exclusively by general admiralty law. Second, that all State

* Congressional Record, 67th Congress, Vol. &2-—-Part III, pages

2521 and 2522, Debate on Bill S 2265.

1© Article X, Amendment to the United States Constitution.

United States v. South-Eastern Underwriters Ass'n. (1944), 322

U.S. 533, 544: Robertson v. California (1946), 328 U.S. 440, 447.

11 De Lovio v. Boit (1815), 2 Gall 399, Fed. Case No. 3,776, and

New England Mutual Marine Ins. Co. v. Dunham (1870), 11 Wall.

(78 U.S. 1) held that a marine insurance policy is a maritime con-

tract and within admiralty ju.isdiction but these cases do not go

so far as to outlaw State statutes regulating the terms and defenses

available to foreign corporations doing business within the State.

statutes relating to a marine insurance policy are rendered in-

applicable upon the authority of Knickerbocher Ice Co. v.

Stewart '* (1920), 253 U.S. 149; a tort case involving State

Workman’s Compensation Acts; and Union Fish Co. v.

Erickson ** 1919), 248 U.S. 308; and Just v. Chambers **

(1941), 312 U.S. 383, a death claim involving a State sur-

vival statute. None of these cases involve a conflict between

the police power of a State and admiralty law relating to

maritime contracts. It is interesting to note that Justice

Reynolds said in Southern Pacific v. Jensen (1917), 244

U.S. 205, 216:

“In view of these Constitutional provisions and the

Federal Act it would be difficult, if not impossible, to

define with exactness just how far the general mari-

time law may be changed, modified, or affected by

State legislation. That this may be done to some extent

cannot be denied.”

In the same case on pare 228, Justice Pitney, referring to

the Judicial Code (now 28 U.S.C. 1333) said:

124 companion case to Southern Pacific v. Jensen (1917), 244

U.S. 205.

18 Reliance on this case is obviously misplaced because there

the State of California attempted to legislate in a field already

taken over by Federal legislation. To-wit: laws relating to seamen

contracts, whereas in the case at bar Congress has declined to

legislate on insurance contracts. See Red Cross Line vy. Atlantic

Fruit Co. (1924), 264 U.S. 109, a contract case involving an arbi-

tration clause in a charter party. State law prevailed.

14A death claim which is supplementary to admiralty law. See

Western Fuel Co. v. Garcia, 257 U.S. 233 at 242. “The subject is

maritime and local in character, and the specified modification of

or supplement to the rule applied in admiralty courts when fol-

lowing the common law will not work material prejudice to the

characteristic features of general maritime law, nor interfere with

the proper harmony and uniformity of the law in its international

and interstate relations.”

“I have been unable to find anything even remotely

suggesting that the judicial clause was designed to es-

tablish the maritime code or any other system of laws

for the determination of controversies in the courts by

it established, much less any suggestion that the mari-

time code was to constitute the rule of decision in

common-law courts, either Federal or State.’’

The doctrine of the Jensen line of cases, which includes

Knickerbocher Ice Co. case, has been questioned by this

Court in Standard Dredging Corp. v. Murphy, 319 U.S.

306, 309 (1943) where an attempt was made to apply the

Jensen doctrine to the field of unemployment insurance.

The Court said:

“Indeed, the Jensen case has already been severely lim-

ited, and has no vitality beyond that which may con-

tinue as to State workman’s compensation laws.”

The Jensen doctrine permits matters of “local concern”

to be regulated by State statutes.'® Since the early cases of

Paul v. Virginia (1868), 8 Wall. (75 U.S. 168), and Hooper

v. California (1895), 155 U.S. 648, 654, a marine insurance

policy has been declared a local transaction or a matter of

local concern. If an insurance policy is a local transaction

under the commerce clause of the U. S. Constitution, Art.

1, Sec. 8, Cl. 3, as the last two cases clearly hold, then it

would be inconsistent to rule that under Article ITI, Sec-

tion 2 of the same Constitutien the same insurance policy

15 Miller Indemnity Underwriters v. Brand, et al. (1926), 270

U.S. 59, 64. See Cooley v. Board of Wardens of Philadelphia (1851)

(12 How.), 53 U.S. 299, and The General Smith (1819), 4 Wheat

438, 4 L. Ed. 609. The last two cases no doubt are the basis of the

“local concern” exception to the Jensen line of cases. Also see The

Lottawana (1874), 21 Wall. 88 U.S.) 558, 580, 581.

is not a local transaction and must be governed by ad-

miralty law to the exclusion of State law. If the commerce

and admiralty clause of the Constitution are both appli-

cable to the field of marine insurance then the only way

this Court can be consistent is to rule that the Jensen line

of cases outlawing State law are inapplicable to a marine

insurance policy. It would be far safer and infinitely inore

practical to follow the rationale in Cooley v. Board of War-

dens, 53 U.S. 299 than attempt to apply the uniformity

doctrine to a marine insurance policy.

(d) CHARACTERISTIC FEATURES OF ADMIRALTY Law

In a Limitation of Liability Proceeding ** which is a char-

acteristic feature of maritime law, the proceeds from a

marine insurance policy cannot be reached by individuals

having a claim against an offending vessel or her owner be-

cause an insurance policy has been held to be a personal con-

tract.'’ For the same reason a maritime lien-holder cannoz

reach marine insurance proceeds in event the vessel is de-

stroyed and neither does a marine insurance contract import

a maritime lien which is a characteristic feature of ad-

miralty law.** If a contract of marine insurance is so personal

that it cannot be reached in admiralty litigation involving

1646 U.S.C. 181-189.

17 Maryland Casualty Co. v. Cushing (1954) —U.S.—, 98 L. Ed.

519, 1954 A.M.C. 837; The City of Norwich (1886), 118 U.S. 468.

18 A. M. Bright Grocery Co. v. Lindsey (1915), 225 Fed. 257, 261;

also see Insurance Co. of Pennsylvania v. Proceeds of the Sale of

the Barge Waubanshene, 24 F. 559 (1885, N.Y.), where the Court

held that a policy of marine insurance on a vessel is not such a

contract as to import a maritime lien. The insurance company

could not collect marine insurance premiums by an “in rem” pro-

ceeding because a maritime lien does not extend to contracts which

do not aid the vessel but are merely for the personal benefit of

the owner.

characteristic features of maritime law then it would be

inconsistent to rule that such a maritime contract is by itself

a characteristic feature of admiralty and cannot be governed

by State insurance statutes which regulate the issuing of this

type of contract and the defenses thereto. Certainly, the

Petitioners, who are grocerymen in a small town many miles

removed from the sea, did not have in mind any character-

istic features of maritime law when they entered into the

contract in question. It is safer to assume that they bought

this coverage with the Local Laws in mind.

Congress, in Public Law 162 (1922). defines marine in-

surance as follows:

“Marine insurance” means insurance against any and all

kind of loss of or damage to vessels, craft, cars, aircraft,

automobiles, and other vehicles, whether operated on or

under water, land, or in the air, in any place or situation,

and whether complete or in the process of or awaiting

construction; also all goods, freights, cargoes, merchan-

dise, effects, disbursements, profits, money, bullion,

precious stones, securities, choses in action, evidences of

debt, including moncy loaned on bottomry and re-

spondentia, valuable papers, and all other kinds of prop-

erty and interests, therein, including liabilities and liens

of every description, in respect to any and all risks and

perils while in the course of navigation, transit, travel,

or transportation on or under the sea or other waters, on

land or in the air or while in preparation for or while

awaiting same or during any delays, storage, transship-

ment or reshipment incident thereto, including builder’s

risks, and any loss or damage to property or injury or

death of any person, whether legal liability results there-

from or not, during awaiting or arising out of naviga-

tion, transit, travel or transportation, or the construc-

tion or repair of vessels; * * *.” (District of Columbia

Code, 1951 Edition, Title 35, Sec. 1101).

This Congressional definition sets up marine insurance as a

multiple line insurance business. It is obvious that what is

labelled marine insurance today would not necessarily come

within the decision of New England Mutual Marine Ins. Co.

v. Dunham (1870), 11 Wall (78 U.S.). So if a policy of

marine insurance must be exclusively governed by maritime

law to the exclusion of State insurance statutes then a large

number of fringe and marginal insurance cases can be ex-

pected in all Federal Courts. If the laws of the 48 States re-

lating to marine insurance are not uniform what will happen

ty uniformity when the various Federal Judges in this

country rule on a marine policy and attempt to allocate com-

mon law and maritime law to an insurance contract in order

to determine whether or not State insurance statutes are

applicable. Suppose a sack of flour is sent from Kansas to

Switzerland and is insured under a standard marine insur-

ance cargo policy with a standard warehouse to warehouse

clause in the contract. The flour is thus insured ducing land

storage and transportation by rail, truck, airplane and ship.

Suppose that the sack of flour is destroyed when a motor

truck carrying this shipment is involved in an automobile col-

lision on the Pennsylvania furnpike. Would a controversy

over an alleged breach of warranty be governed by mari-

time law, to the exclusion of all State laws? How much

maritime flavor must a marine insurance policy have before

it would work material prejudice to any characteristic

feature of maritime law? Would the rule be different for

cargo and for hull policies?

Whatever characteristic features of admiralty law are in-

volved in the controversy between petitioners and respond-

ent concerning the common law chattel mortgages and the

warranty of use, it must be conceded that they involve as

much of a characteristic of common law as of admiralty

law. We are not dealing here with the construction of a

perils of the sea clause, or an Inchmaree clause, or a marine

watchman clause '* but rather with the validity of State

insurance statutes regulating defenses that an admitted for-

eign insurance company cannot use in order to escape con-

tractual liability. Under the circumstances serious considera-

tion should be given to the observation made by Jus¥ice Holmes

in the Jensen case:

“If admiralty adopts common law rules without an act

of Congress, it cannot extend the maritime law as

understood by the Constitution. It must take the rights

of the parties from a different authority, just as it does

when it enforces a lien created by a State. The only

authority available is the common law of a State. For,

from the often repeated statement that there is no

common law of the United States * * * the natural

inference is that, in the silence of Congress, this Court

has believed the very limited law of the sea to be sup-

plemented here as in England by the common law, and

that here that means, by the common law of the State.

* * * Even where the admiralty has unquestioned juris-

diction the common law may have concurrent power

* * *. The common law is not a brooding omnipresence

in the sky, but the articulate voice of some sovereign

or quasi sovereign that can be identified; * * *.

“* * * It is too late to say that the mere silence of

Congress excludes the statute or common law of a state

from supplementing the wholly inadequate maritime

law of the time of the Constitution, in the regulation

of personal rights, and I venture to say that it never has

been supposed to do so, or had any such effect.” *°

19 Aetna Ins. Co. v. Houston Oi) & Transport Co. (5 Cir. 1531),

49 F. 2d 121, Cert. Den. 284 U.S. 628.

20 Southern Pacific v. Jensen (1917), 244 U.S. 205, 221, 222. Also

note dissenting opinion of Justice Pitney (pgs. 226, 227). He in

(e) HistortcaL SKETCH OF MARINE INSURANCE **

When marine insurance was first conceived it was an

accepted rule that it had to be regulated by a governing

body. At first the business was controlled by groups of

merchants and then at the local level by municipal regula-

tion. The local law became known as “law merchant”.

These laws form the foundation of our present concepts of

all property insurance, marine and otherwise. When F ng-

land grew to be a leading commercial nation she used marine

insurance to foster her commerce and develop other branches

of insurance. On the other hand marine insurance business

in the United States developed out of the fire insurance busi-

ness which has always been regulated by the several states.

It is significant that in this country today fire insurance

comp:uies control the marine insurance business and that is

why we find fire policy restrictions in marine insurance poli-

cies. These fire policy restrictions became so comprehensive

that the states had to regulate the terms of fire insur-

ance policies and finally establish statutory forms. In the

marine business there are no statutory forms of insurance

and underwriters mold the terms and conditions of the

policy to fit the unregulated rates or vice versa.

The regulation of the marine insurance business by the

judiciary was never looked upon with favor. Controversies

over marine insurance policies were purposely kept out of

the early English courts, and were handled by committees

effect says that if the States have concurrent jurisdiction—and they

have over a marine insurance policy—then in the absence of legis-

lation by Congress—concerning the terms and conditions in a marine

insurance policy—the States are at liberty to administer their own

laws when exercising concurrent jurisdiction with admiralty and

are at liberty to change those laws by statute.

21 Winter on Marine Insurance, 1952, Third Edition, 1 to 32.

made up of merchants familiar with marine risks and ship-

ping. The jealousy of the early common law courts and ad-

miralty courts of England was so great that insurance mat-

ters were finally removed from both courts and referred

to a special insurance court.”” As the insurance business

developed in England, Parliament took over the regulation

of the business and today British marine insurance business

is regulated and governed by the Marine Insurance Act,

1906.** On the other hand, Congress has consistently declined

to regulate any type of insurance business and by the McCar-

ran Act declared that it is the policy of the United States

government to leave the regulation of insurance to the States.

An examination of the history of this Act reveals the fact

that this Court set the pattern for the McCarran Act by its

decisions in Paul v. Virginia (1868), 75 U.S. 168 and

Hooper v. California (1895), 155 U.S. 648.

Point It

Congress has declared that the Marine Insurance

husiness shall be governed by State Laws.

(a) THE Mopet Marine INsuRANCE Act Passep By

CONGRESS IN 1922

For three years, 1919-1922, the marine insurance business

was investigated from top to bottom by government experts,

and by the House Commitvee on Merchant Marine &

Fisheries and the Senate Committee on Commerce. As a

result of this extensive study it was concluded that the

States had the right to control and regulate the marine in-

surance business and that the only way to secure uniform

22 Vance on Insurance, 1951 Edition, pp. 11 to 20.

23 A copy of the Act is set ovt in Arnould on Marine Insurance,

3rd Edition (1950), Vol. 2, pages 1202-1227.

marine insurance regulations was for Congress to set up a

model code of marine insurance law for the District of

Columbia in the hopes that all other States would copy this

code.**

At a Senate hearing on S. 210, a bill “To Regulate Insur-

ance in the District of Columbia, and for other Purposes’,

Senator Nelson asked Mr. Rush, president of Insurance

Company of North America, whether or not it would be

possible for Congress to enact a law governing strictly

marine insurance in view of the recent Supreme Court de-

cisions.” Mr. Rush answered that it would require a con-

stitutional amendment to pass a federal insurance act regu-

lating the marine insurance business.*® The general counsel

for the marine underwriters stated on page 158 of the same

hearing:

“That as you cannot constitutionally legislate on a

national bill which would override and control all such

matters within the States you do the next best thing to

it, namely; set an example within the territorial sphere

where your will is supreme; and by so doing you blaze

the way; that to use perhaps a more maritime term,

you lay the buoys which should mark the channel to a

proper method to that which is in its nature an inter-

national transaction, and therefore you teach the States

what they should follow. If the proper note is sounded,

if the proper example is set in Washington by you

2462 Congressional Record, pp. 2521, 2522, 67 Cong., 2nd Ses-

sion (1922).

25 The Senator no doubt referred to the then recent decision of

Southern Pacific v. Jensen (1917), 244 U.S. 205, and Knickerbocher

Ice Co. v. Stewart (1920), 253 U.S. 149.

26 Page 140 of Hearings before the Senate Committee on Commerce,

67th Congress (1921) on S. 210, a bill “To Regulate Marine Insurance in

the District of Columbia and for other Purposes.”

gentlemen, the States are a hundred times more inclined

to follow that example, to fall in line, and say “This is

a matter which we have looked at zoo long and too nar-

> 99

rowly’.

Counsel for the marine underwriters explained that he

relied upon Hooper v. California (1894), 155 U.S. 648 and

other Supreme Court decisions cited to support the above

statement.”

The Model Marine Insurance Act (S. 210) became law

in 1922.*° By agreement between the underwriters and

steamship owners, Section 20, of the proposed bill (S. 210)

relating to “just enforcement of policy forms and condi-

tions; the formulation and enforcement of uniform, efficient

and economical practices * * * ” by insurance groups or-

ganized for “concerted action” was deleted from the bill.

It was then argued that there cannot be uniform terms and

conditions in a marine insurance policy because these are the

competitive elements of the business.”

(b) THE MERCHANT MarINE AcT oF 1920

Prior to the enactment of The Model Insurance Code,

Congress enacted a law declaring that Federal antitrust laws

27 Pages 154 and 155 of Senate Hearing cited in footnote 26.

The other decisions are: Allgeyer v. Louisiana, 165 U.S. 578 (1896);

Nutting v. Massachusetts, 183 U.S. 553 (1901); Thames & Mersey v.

U. 8., 237 U.S. 19 (1914); Peck & Co. (Inc.) v. Lowe, 247 U.S. 165

1917).

2862 Congressional Record, 67th Congress, 2nd Session, page

3408, Public Law 162 of Mar. 4, 1922, 42 Stat. 408, ch. 93, title 5 & 15.

Also see District of Columbia Code, 1951 Edition, Title 35, Section

1101-1134.

29Statement of Ira Campbeli, General Counsel for Steamship

owners, pages 76 and 77 of Senate Hearing referred to in footnote 26.

would not apply to the marine insurance business*’. With the

aid of the Federal government, marine insurance syndicates

were established so that we could compete with the foreign

marine insurance market.”

It may be illuminating to know that the Attorney Gen-

eral of the United States, on October 20, 1943, many months

prior to this Court’s decision in the Southeastern Under-

writer’s case,*” requested the Joint Committee of Congress

considering the McCarran Act, to leave his department alone

in the Southeastern Underwriter’s case because “* * * it

would be a little more sporting to let the Supreme Court

decide the questions of law and then determine the policy

of Congress”.** Based on the Transcript of the Joint Hear-

80 Merchant Marine Act of 1920, 46 U.S.C. 885 (b) “Nothing con-

tained in the ‘anti-trust laws’ as designated in Section 12 of Chap-

ter 1 of Title 15, shall be construed as declaring illegal an as-

sociation entered into by marine insurance companies for the

following purposes: To transact a marine insurance and rein-

surance business in the United States and in foreign countries

and to reinsure or otherwise apportion among its membership

the risk undertaken by such association or any of the component

members.”

81Statement of Professor S. S. Huebner, pages 16 and 17 of

the Senate Hearing referred to in footnote 26. Syndicates were

formed to insure the hulls of ocean going vessels only. The in-

surance on the WANDERER comes within the inland marine in-

surance classification and that classification is further broken down

into “dry” and “wet.”

82 United States v. South-Eastern Underwriters Ass'n. (1944),

322 U.S. 633.

33 Pages 59 and 60—VJoint Hearings before Subcommittees of the Com-

mittees on the Judiciary, 78th Congress, Ist Session, on S. 1362, H.R.

3269, and H.R. 3270, “Bills to Affirm the Intent of Congress that the

Regulation of the Business of Insurance Remain within the Control of

the Several States and that the Acts of July 2, 1890 and October 15, 1914,

us amended, be not Applicable to That Business.”

ings it would be erroneous tu state that the McCarran Act

was passed because of the Supreme Court decision in the

Southeastern case. It would almost seem that the reverse

was true. When the Joint Hearings began on October 20,

1943, Senator Bailey, a co-sponsor of the McCarran Act

made the following statement: **

“More is involved than the pending litigation. It is

relevant only as informing us that the national policy

is involved. The Congress may at any time or under

any circumstances declare what that policy is or is

intended to be. The Courts interpret laws and determine

rights in controversy; the Congress enacts laws, declares

and determines public policy. It is the duty of the

executive branch to follow that policy as determined by

Congress. If any department or bureau of the Govern-

ment undertakes to determine public policy by judicial

process, or judicial definition or administrative regula-

tion, the Congress has the prior right to preserve and

the duty of preserving the public policy, of which it

is the creator and guardian, by plain and timely declara-

tion. This is no interference with judicial process but

affirmative exercise of the true function of the Congress.

What we have to deal with is the proposition to declare

insurance to be commerce and thus authorize Federal

control in place of State control, and also that Con-

gress shall substitute a Federal system for supervision

of insurance for the long established State systems.

“There is no twilight zone or no man’s land here: **

84 Pages 2 and 3—Same as preceding footnote.

85 No doubt referring to Davis v. Department of Labor and In-

dustries of Washington (1942), 317 U.S. 249, where the “Twilight

Zone” doctrine was adopted and where this Court said: “Too much

has happened in the twenty-five years since that ill starred de-

cision (Jensen case). Federal and State enactments have so ac-

commodated themselves to the complexity, and confusion intro

duced by the Jensen rulings that the resources of adjudication

can no longer bring relief from the difficulties which judicial pro-

cess itself brought into being.”

Either the Congress would take over the regulation of

fire insurance or it would be left to the States; and if

fire insurance is commerce among the States, there is

no room for doubt as to the instant effect: The States

will be eliminated from a field of far-reaching im-

portance to their citizens, to their revenue and their

powers and a business of the utmost importance to mil-

lions of the population as policyholders, which has been

built up into a great and necessary relationship and use-

fulness under State regulation, which has served and

grown admirably under State systems of supervision,

would be torn from the system to which it, the people

and the States have become adapted, and taken over by

a Federal Bureau—a far-reaching step in unnecessary

centralization. One hesitates to contemplate the conse-

quence; no one can foresee the extent of the disruption,

the confusion; nor may one say into what sort of cir-

cumstances one of the universal activities of the Ameri-

can people would be cast—without sound reason or any

justification in necessity or prospect of improvement.

‘“‘Manifestly more than the application of the antitrust

laws is involved. Manifestly more than the Georgia

district court case is involved. We stand here not only

upon the threshold of a public policy involving not

only the whole field of a great financial activity of the

utmost value and usefulness to the people but also at

the doors of every legislative hall in every State, pro-

posing to take from them a function under their in-

herent police powers, which, so far as I know, no one

challenges their competence to perform after more than

a century of beneficient experience.”

The above statement of Senator Bailey together with this

Court’s decision in the South-Eastern Underwriter’s case

and subsequent cases,”® leaves little doubt that the rule of

a6 South-Eastern Underwriters, 322 U.S. 533; Prudential Insur-

ance Co. v. Benjamin, 328 U.S. 316; Robertson v. California, 328

US. 443.

Hooper v. California, is still applicable to a marine insur-

ance policy *’ and that the McCarran Act has made the Texas

statutes, herein referred to, a part of the marine insurance

contract now being considered. The Texas statutes are as

much a part of this contract as if the parties had copied

them in full as part of the conditions of the policy and any

terms placed in the contract by respondent which are in

conflict with the Texas statutes are null and void.**

Point III

The fact that the Wilburn brothers transferred

the Wanderer from their partnership to their cor-

poration without Respondents approval cannot sup-

port a forfeiture of the policy because there is no

proof that there was a change of their insurable

interest in their vessel.

87 Hooper v. California, 155 U.S. 648, 655. “The State of California

has the power to exclude foreign insurance companies altogether

from her territory, whether they are formed for the purpose of

doing a fire or a marine business. * * * And, as a necessary con-

sequence of her possession of these powers, she has the right to

enforce any conditions imposed by her laws as preliminary to the

transaction of business within her confines by a foreign corpora-

tion. * * * The power to exclude embraces the power to regulate,

to enact and enforce all legislation in regard to things done within

the territory of the State which may be directly or incidentally

requisite in order to render the enforcement of the conceded

power efficacious to the fullest extent, subject always, of course,

to the paramount authority of the Constitution of the United

States.”

88 Vance on Insurance, Third Edition (1951), page 279. Also see

Camden Fire Insurance Co. v. Clayton, 4 S.W. 2d 1029, 1030 (1928,

Tex. Sup. Ct.), and New York Life Ins. Co. v. Cravens (1900), 178

U.S. 389. “Foreign corporations which do business in a State do

so, not by right but by grace and must in so doing conform to its

laws; they cannot avail themselves of the benefits without bearing

its burdens.”

This point was not raised in the petition for certiorari

because it involves principles of common law and not ad-

miralty law but in order that a complete determination of

the facts relating to aileged breach of warranties may be

made this point is presented.

Volume 29, American Jurisprudence 505, Section 630,

states the applicable rule in these words:

“Generally any material change of title, although not

by alienation, will avoid an insurance contract which

provides that any change in title shall avoid it; but if

the real ownership remains the same, although there is

a change in the evidence of title, such change being

merely nominal, and not of a nature calculated to

diminish the motives of the insured to guard it from

loss, the policy is not violated.”

Each of the three Wilburn brothers originally purchased

an undivided one-third interest in the WANDERER and

when they lost their vessel each of them still had an un-

divided one-third interest in the vessel because they each

owned one-third of the stock of their corporation. The

name of their corporation was the same as the name of

their partnership. The act of changing their partnership

into a corporation was merely incidental to the coverage in-

volved and was not of a nature calculated to diminish their

motive to guard the WANDERER against loss. The bur-

den of proving that this was not the case rested upon the

respondent. There is no proof that the insurable interest

of the Wilburn brothers changed because the actual facts

would not support such proof. (Appendix B)

Courts will construe the terms of a marine insurance policy

to avoid forfeiture if it is possible to do so, and if necessary

lift the corporate veil to preserve the right of aggrieved as-

sureds. Here the named assureds are the three Wilburn broth-

ers doing business as Wilburn Boat Company. There is no re-

striction in the policy that the three brothers must conduct

their business as a partnership or as a corporation, so it is

only fair to conclude that any ambiguity in this respect

must be resolved in favor of the assured.**

Conclusion

It has been pointed out that this Court has consistently

held that an insurance policy is not a commodity but a

person! service and that the commerce clause of the U. S.

Consti.ution does not apply to a marine insurance policy

because it involves a personal transaction. That being the

case, the States have the power to admit foreign insurance

companies desiring to do business within the State under

the conditions imposed by the insurance statutes of the

State. It was further pointed out that the general police

powers given to the States take precedence over general

maritime law because the issuance of a marine insurance

policy is a matter of local concern. There are no character-

istic features of maritime law involved in reference to a

common law mortgage or a continuing warranty of use.

The McCarran Act declares the policy of the Federal gov-

ernment in plain, unequivocable terms, and the fact that

the marine insurance associations mentioned in the Mer-

chant Marine Act of 1920 were included in the McCarran

89See Thompson v. Phenix Insurance Company of Brooklyn

(1890), 138 U.S. 287, involving a successor receiver and an alleged

change of title. The Court held: “If a policy is so drawn as to re

quire interpretation, and to be fairly suscept:ble of two different

constructions, the one will be adopted that is most favorable to

the insured.”

Act is a clear indication that marine insurance business

comes within the scope of the latter act.

Marine insurance today is a multiple line business and

any attempt by the judiciary to regulate the terms of multi-

ple line marine insurance policies would create such con-

fusion that the resources of adjudication would complicate

an already complex business to the point where our economy

would suffer a serious set-back. The various States in the

Union have successfully regulated the marine insurance

business, as well as all other types of insurance business,

throughout the history of our country and the fact

that today our marine insurance business is prospering as

it has never prospered before should be a persuasive force

in determining the applicability of State regulation to ma-

rine insurance. An established system of State regulation

worked successfully for over a century and should not at

this time be overthrown by the questionable doctrine of the

Jensen and Knickerbocher decisions,

Respectfuily submitted,

Hosert Price,

Attorney for Petitioners,

761 San Jacinto Bidg.,

Houston 2, Texas

ALEXANDER GULLETT,

Of Counsel;

T. G. SCHIRMEYER,

Submitted Brief for

Petitioners

APPENDIX A

Certificate No. 2213 Company No. D 313

BOARD OF INSURANCE COMMISSIONERS

of the

STATE OF TEXAS

THIS IS TO CERTIFY THAT

FIREMAN’S FUND INSURANCE COMPANY

San Francisco, California

has, according to sworn statement, complied with all re-

quirements applicable thereto and is hereby authorized to

pursue the business of

Fire; Marine; Lightning; Tornado; Auto; Riot

and Civil Commotion; Explosion; Earthquake;

Accident; Health; Plate Glass; Liability; Work-

men’s Compensation; Common Carrier Liability;

Boiler and Machinery; Burglary; Theft and Lar-

ceny; Sprinkler; Team and Vehicle; Automobile

and Aircraft; Property Damage and Collision

insurance within this State for year ending May 31, 1949,

in accordance with provisions of Chapters 11 and 18, Title

78, R. C. S., Texas, 1925.

IN WITNESS WHEREOF, I hereunto sign

my name and affix my official seal at

Austin, Texas, this 19th day of April,

1948.

(SEAL) s/ GeorceE B. BUTLER,

Chairman of the Board

APPENDIX B

STATE OF TEXAS §

§ ss.

COUNTY OF GRAYSON §

AFFIDAVIT

Glenn Wilburn, Frank Wilburn, and Henry Wilburn

being duly sworn on oath depose and say that they are the

incorporators and sole stockholders of Wilburn Boat Com-

pany and are the same individuals as L. G. Wilburn, J. F.

Wilburn and J. H. Wilburn, mentioned in the articles of

incorporation of Wilburn Boat Company; that when the

Motorboat WANDERER became a total loss they each

owned one-third (1/3) of the stock of said corporation

and that their interest in the WANDERER did not change

during the period of time beginning June 7, 1948, the date

they acquired said inland craft, to the day it became a total

loss on February 25, 1949.

(s) GLENN WILBURN

Glenn Wilburn

(s) FRANK WILBURN

Frank Wilburn

(s) Henry Wi.BuRN

Henry Wilburn

Sworn to and subscribed before me this 19th day of July

A.D. 1954.

(s) James P. RitEy

(Seal)

Notary Public, Grayson

County, Texas

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.