Furness Withy and Co Ltd v Duder [1936] 2 K.B. 461
Where, pursuant to the terms of a towage contract between the owners of a steamship and the owner of the only tugs available at a port, the former pay to the latter a sum in respect of damage to a tug resulting from a collision during towage between the steamship and the tug caused solely by the negligent navigation of the tug, the owners of the steamship cannot recover the amount of that sum from the underwriters of a policy of marine insurance on the steamship containing a running-down clause in the usual form, inasmuch as that clause applies only to liabilities arising from tort and not to liabilities arising from contract.
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The Issues
Insurance (Marine)—Policy on ship—Running down clause—Indemnification of ship-owner against damages paid in consequence of collision—Contract between ship-owner and Admiralty for use of Admiralty tug—Ship-owner to make good all damage to tug—Collision between insured ship and tug caused by negligence of tug—Payment by shipowner to Admiralty for damage to tug—Liability of underwriter to indemnify shipowner—Payment arising from contract and not from tort.
The Facts
"The plaintiffs are and were at all material times the owners of the ss Monarch of Bermuda”. By a policy of marine insurance dated November 9, 1932, which was subscribed to by the defendant for 15/100ths of £9090 part of £1,000,000 the defendant insured the plaintiffs in respect of the s.s. Monarch of Bermuda upon the terms and conditions therein set out including the running down clause.
"On October 30, 1933, the said s.s. Monarch of Bermuda was in collision with the Admiralty tug St. Blazey in Two Rock Passage, Bermuda. The collision was solely caused by the negligent navigation of the said tug, and resulted in the tug sustaining damage amounting to $579.62, or £119. 12s. 8d.
"The plaintiffs, believing that in consequence of the collision they had become liable to the Admiralty under the said towage contract have paid to the Admiralty the said sum of £119. 12s. 8d. For the purposes of this action the defendant admits that the plaintiffs did in fact become liable to pay the said sum to the Admiralty under the towage contract, but denies that he is liable under the policy to contribute towards the sum so paid by the plaintiffs.
"If the Court be of opinion that the plaintiffs are entitled under the policy to contribution from the subscribers to the said policy towards the sum so paid by them, the amount of the defendant's contribution is 4s. 8d."
The policy of insurance had attached to it a slip containing the running down clause, which was in these terms:
"And it is further agreed, that if the ship hereby insured shall come into collision with any other ship or vessel, and the assured and/or charterers shall in consequence thereof become liable to pay, and shall pay by way of damages to any other person or persons any sum or sums not exceeding in respect of any one such collision the value of the ship hereby insured, we will pay the assured and/or charterers such proportion of such sum or sums so paid as our subscription hereto bears to the policy value of the ship hereby insured"; and the slip also contained a clause which provided: "should any clause or clauses in the policy not accord with those in this slip the latter are hereby accepted as binding on both parties."
The towage contract between the plaintiffs and the Admiralty, which was in the terms of Form D. No. 461, provided (inter alia) that the plaintiffs agreed "to make good to the Admiralty all damage suffered by the Admiralty through injury to Admiralty property or any other cause by reason of or arising out of or in any way connected with the service and to indemnify the Admiralty against all liabilities and claims whether in respect of injuries to persons or property or otherwise which may be incurred by or made against the Admiralty by reason of or arising out of or in any way connected with the service and if any claim shall be made by any person whatsoever against any officer or representative or servant of the Admiralty in respect of or arising out of or in any way connected with the service and whether in respect of any breach of duty alleged breach of duty or otherwise and if any such claim shall be satisfied or disposed of by any payment as an act of grace by the Admiralty to indemnify the Admiralty against and to make good to the Admiralty the amount of every payment so made."
A. T. Miller K.C. and Stephen Furness for the plaintiffs. The plaintiffs are entitled to recover from the defendant as an underwriter of the policy of insurance on their steamship his proportion of the sum paid by them to the Admiralty under the towage contract. It was only by entering into that contract that the plaintiffs could obtain the necessary towage assistance at Bermuda. By the terms of that contract the plaintiffs were liable to pay to the Admiralty a sum sufficient to make good to the Admiralty the damage to the tug caused by the collision between the steamship and the tug during the towage service, even though the collision was solely caused by the negligent navigation of the tug: see The President Van Buren (1924) 132 L. T. 253; and the plaintiffs duly paid that sum to the Admiralty. The sum so paid by the plaintiffs is a sum which the underwriters of the policy are bound to pay to the plaintiffs, and of which the defendant is accordingly bound to pay his proportion, inasmuch as it is, within the meaning of the running down clause in the policy, a sum which the plaintiffs became liable to pay and paid in consequence of the steamship having come into collision with another ship or vessel, namely, the tug, and which they became liable to pay by way of damages.
H. U. Willink K.C. and W. L. McNair for the defendant. The defendant is not liable to the plaintiffs under the policy of insurance for the sum claimed.
The sum which the plaintiffs paid to the Admiralty was paid in discharge of a purely personal liability, and not by way of damages for negligence or any other tort, or even for breach of contract. That sum was paid in pursuance of the towage contract by which alone the plaintiffs were bound to indemnify the Admiralty against cost, damage, and claims arising out of the towage service. The plaintiffs in their points of claim have to allege that the sum paid by them to the Admiralty is a sum which they became liable to pay to the Admiralty under the towage contract which provided that they "agreed" to make good all damage suffered by the Admiralty. If it had been necessary for the Admiralty to sue the plaintiffs for that sum, the action must have been founded on contract and not on tort. Apart from their contractual liability the plaintiffs did not incur any liability in respect of the collision. The collision did not result from any negligence or other tort of the plaintiffs, but was solely caused by the negligent navigation of the tug. The collision may no doubt have been a causa sine qua non of the particular payment made by the plaintiffs to the Admiralty, but the causa causans of the payment was the contractual liability of the plaintiffs under the towage agreement: see per Lord Sumner in Admiralty Commissioners v. S.S. Amerika. [1917] A. C. 38, 60, 61.
The liability contemplated by the running down clause is of a different nature from that created by the towage contract. That clause insures the shipowner against any sum which he may become liable to pay by way of damages in consequence of the ship having come into collision with any other ship or vessel. Its object is to insure the shipowner against liability for damages in respect of a collision caused by his own negligence. The insertion in the running down clause of the words "by way of damages" appears to be of comparatively recent origin. They would seem to have been introduced as words of limitation for the purpose of restricting the liability of the insurer to damages caused by a collision resulting from the negligence or other tortious act of the insured. They exclude any case of liability which is not by way of damages, and the most obvious case of that kind is a case of contractual liability. The towage contract creates a liability to provide an indemnity for damage however caused: the running down clause creates a liability to insure against damage caused by the negligence of the insured. There is a distinction between an indemnity and damages. An indemnity is a contract securing against loss; damages on the contrary are a recompense for breach of a contract or for tort: Birmingham and District Land Co. v. L. & N.W. Ry. Co. (1886) 34 Ch. D. 261, 274, 276.
That being so, a sum paid by the plaintiffs pursuant to their contractual liability under the towage agreement to indemnify the Admiralty against loss by collision, cannot be recovered by the plaintiffs as collision damages under the running down clause in the policy.
A. T. Miller K.C. in reply. The running down clause rightly construed is sufficiently wide to include the payment made by the plaintiffs under the towage contract. The expression "by way of damages" would appear to have been included in the running down clause from the first and not to have been recently introduced into it: see per MacKinnon J. in Young v. Merchants' Marine Insurance Co. (1932) 42 Ll. L. 134, 136, affirmed [1932] 2 K. B. 705; 43 Ll. L. 277 The presence of that expression in the clause does not limit the clause to a sum paid in consequence of a collision by way of damages, but admits of the clause including a sum paid in respect of a collision by way of contract. The policy is a commercial document, and as the running down clause is inserted in it for the business purpose of protecting the shipowner that clause should be construed as applying to any liability incurred by the shipowner for damages in connection with a collision whether arising from contract or tort. The construction of that clause which is proposed by the defendant purports to introduce into it words which it does not contain - namely, the words "by reason of negligence." There is, no doubt, a distinction between a liability to indemnify against a claim and a liability to pay damages; but that distinction is here immaterial, because the towage contract imposes upon the plaintiffs not only a liability to indemnify the Admiralty against all claims arising out of the towage service, but also a liability to make good to the Admiralty all damage arising out of the service. The running down clause insures the plaintiffs against liability for damages in consequence of collision, and under the towage contract the plaintiffs have incurred and paid a liability in respect of damages in consequence of collision.
BRANSON J.
This case raises a short point upon an agreed statement of facts. [His Lordship read that statement and continued as follows:] The amount involved is negligible, and the action is brought merely to get the point in issue cleared up. That point, I think, turns entirely upon the wording of the first two lines of the running down clause in the policy of insurance:
"And it is further agreed that if the ship hereby insured shall come into collision with any other ship or vessel, and the assured and/or charterers shall in consequence thereof become liable to pay and shall pay by way of damages to any other person or persons any sum" the underwriters will pay their respective proportions of that sum to the assured. The question here is whether the £119 odd which the plaintiffs have paid to the Admiralty is a sum which, within the meaning of that clause, in consequence of the ship having "come into collision with any other ship or vessel," they become liable to pay "by way of damages."
The argument for the plaintiffs is that, in view of the incident of their having in the circumstances to contract with tug owners for the assistance of tugs under terms which made them as owners of the ship responsible to the tug owners for any damage which the tug might sustain while engaged in towing the ship, or which the tug might do to third persons whilst so employed, these words in the policy are sufficiently wide to cover the damages which they have had to pay to the Admiralty under the contract between themselves and the Admiralty.
Mr Miller urges on behalf of the plaintiffs that the real cause of the payment was the collision, none the less because without the fact that the plaintiffs had entered into the contract the collision would in this instance have given rise to no liability. He says that the collision was an operating cause and the proximate cause of the arising of the liability of the plaintiffs to pay, and therefore that it can correctly be described as the cause in consequence of which the plaintiffs became liable to pay under the running down clause.
In my view that clause must be read as it is written. I do not think it is permissible to divide it into two limbs, and ask oneself first, whether the payment arose in consequence of the collision, and then, whether, if it did so arise, it was or was not a payment by way of damages. To my mind it leads to a clearer apprehension of the meaning of the clause to read it as it is written, in one sentence, and to ask oneself what the parties meant when they said that if the ship should come into collision and the assured should in consequence thereof become liable to pay something by way of damages, the underwriters would indemnify them. What are the circumstances which the parties contemplated? I do not think that any of the cases cited help in any way towards answering this question, unless some support is to be found for the view which I am going to suggest in the observations made by Lord Sumner near the end of his judgment in Admiralty Commissioners v. S.S. Amerika. [1917] A. C. 38, 60, 61. His Lordship, however, was there dealing with considerations which are not present in the case before me, and this case must be dealt with as a case of first impression, in which one has to construe the clause and say what one thinks it means without the assistance of any previous decision. Approaching the case from that point of view, I think the clause means that where in consequence of a collision there arises a legal liability upon the shipowners to pay a sum which can properly be described as damages for a tort, then the underwriters will indemnify them. The expression “becomes liable to pay .... by way of damages" indicates, to my mind, a liability which arises as a matter of tort, and not as a matter of contract.
I do not think I need pursue the matter further, except perhaps to add that if one were to hold that this language in the running down clause was sufficient to cover any sort of liability which a shipowner might undertake by way of contract if and when his ship got into collision, the obligation of the underwriters would, I suppose, only be limited by the pity which the shipowner might be willing to extend to them.
The question, however, as I have said, is what is the real meaning of the clause. I think it means what the defendant says it means, and that this action should be dismissed.
Judgment for defendant.
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