the reservation to the States under the 10th amendment of the function of defining contractual rights and relationships, it is entirely within the constitutional competence of Congress to attach conditions to acceptance of moneys which it disburses, and in the exercise of such power to incorporate within the contemplated statute a clause (see U. S. C. 31: 203) expressly excluding insurers from any share in such distribution by way of assignment, voluntarily or by law (see United States v. Aetna Surety Co. (1949) 338 U. S. 336).

2. A second principle of insurance law that will operate to bar recovery by insurers out of payments received from the United States by the insured persons is that which holds that a right to repayment does not accrue until the assured has been fully indemnified for his actual loss (Vance on Insurance (2d ed., 1930) pp. 668, 672; Propeck v. Farmers Mut. Ins. Assn. of Grayson County (Tex., 1933) 65 S. W. (2d) 390). Manifestly, considerations of equity may operate to prevent an insured person recovering twice for the same loss; and insofar as any one did in the instant case, recoupment by the insurance companies would appear to be just and proper. However, avoidance of such a result in the present case is to be assured by inclusion within the proposed law of a provision expressly limiting the amount to be distributed to an insured person to the difference between that received from his insurer and the value of the loss actually sustained. Consequently, unjust enrichment such as might serve as the basis for recovery by an insurer is not likely to arise (Vance, op. cit., pp. 671-673).

MEMORANDUM RE TEXAS CITY DISASTER RELIEF BILL SUBMITTED BY LIBERTY MUTUAL INSURANCE CO., A SUBROGATED INSURER

I. INTRODUCTION

Among the losses suffered at Texas City were those of workmen's compensation insurers who, having paid in accordance with the provisions of law and of their policies, became subrogated by operation of law, pro tanto, to the rights of their payees against those whose wrongful acts or omissions were responsible for the disaster.

Had the wrongdoers been private persons no court in the land would have denied recovery to those insurers on their subrogated claims. The doctrine of subrogation is universally recognized and applied.

But the wrongdoer was the United States-and the holding of the Supreme Court in Dalehite v. United States (346 U. S. 15), precluded recovery by legal action against the United States by any claimant on account of loss arising out of the disaster. Not because the Government was held free from negligence but only because the Court held the case to be within the "discretionary function" exception to the waiver of governmental immunity granted under the Federal Tort Claims Act.

If any recovery against the United States had been allowed in the action brought under the Federal Tort Claims Act the claims of subrogated insurers also would have been allowed (United States v. Aetna Casualty & Surety Co., 338 U. S. 366).

The claimants, including subrogated insurers, who suffered losses at Texas City and whose claims were finally determined in the Dalehite case to be not cognizable under the Federal Tort Claims Act subsequently petitioned Congress for relief, on the theory that the United States was responsible and should in fairness and justice take over the losses from the shoulders of those on whom they fell.

H. R. 296, 83d Congress, 1st session, authorized the Committee on the Judiciary to make a full and complete investigation and study of the matter, and to report to the House.

This was done and the report of the special subcommittee of the Committee on the Judiciary, unanimously adopted by the full committee, concluded:

"*** the committee is of the considered opinion that the Government is wholly responsible for the explosions at Texas City and the resulting catastrophe. It therefore recommends that Congress take appropriate action, through legislation, to compensate claims for property damage, personal injuries, and death caused by the explosions which occurred at Texas City, Tex., on April 16 and 17, 1947."

The committee submitted a draft of a bill (H. R. 9785, 83d Cong., 2d sess.) to provide a method for compensating losses sustained as the result of the explosions at Texas City. Since the bill provided that the Secretary of the Army

would administer its provisions, his views on the bill were requested. In spite of his having been furnished a copy of the report of the Committee on the Judiciary detailing its exhaustive investigation and study which led it to conclude unanimously that the United States was "wholly responsible for the explosions at Texas City and the resulting catastrope," the Secretary of the Army took an unfavorable position on the bill, stating:

"No legal or equitable basis can be found to support the position that the Government is responsible, or should assume responsibility for the explosions at Texas City."

Since the evidence had been overwhelming that the Army was the chief architect of the Texas City disaster, the reluctance of its Secretary to yield up any part of the protective cloak of the Supreme Court's decision in the Dalehite case is perhaps not too difficult to understand. But, the committee observed:

"*** the Army's report fails to recognize the very careful findings of this committee holding the Government responsible. It undertakes to argue the facts and the law as though the report of the Committee on the Judiciary had never been made. This attitude on the part of the Army becomes all the more significant when it is remembered that the Army was fully aware of the committee's investigation of the Texas City disaster and, in fact, had an assistant judge advocate general of the Army attend the hearings of the special subcommittee at Galveston, Tex., on November 16, 17, and 18, 1953. Certainly, there can be no doubt that the Army was fully aware of all the facts developed at the hearings and could, at that time, have offered testimony and other evidence contrary to that presented by the claimants, and in support of the conclusions now appearing in its report. In any event, the Army report presents no new or novel arguments and, as noted earlier, there is set out in the appendix the earlier report of this committee containing a full analysis of the problems relating to the disaster, together with conclusions of the committee, and its reasons for finding the Government responsible (pp. 7, 8, H. Rept. 2024, 83d Cong., 2d sess.).

The refusal of the Army to concede at any stage that the Government may have been responsible, on the Army's account or at all, for the losses at Texas City has its counterpart in the advocacy of the Army's view by the Department of Justice.

The Department of Justice, however, as if recognizing that it could not persuade Congress that no responsibility whatever should attach to the Government for the losses at Texas City, turned its attack on the "subrogated insurance company plaintiffs."

In

It is true that subrogated insurers were largely responsible for tracking down the causes of the disaster, for pointing the finger at those whose acts or omissions contributed in any way to bringing it about, and for the assiduous prosecution of the actions against the Government under the Federal Tort Claims Act. fact, were it not for the substantial interests of the subrogated insurers it is extremely unlikely that the facts could ever have been unearthed. The vast expenditures necessarily involved in the conduct of factual investigation, scientific research and testing, and in the prosecution of the legal actions, would virtually have eliminated any possibility of relief for those who suffered injuries, the widows and orphans of those who died, and those whose property was damaged or destroyed in the disaster.

The argument that subrogated insurers are for some reason not entitled to have their losses considered and provided for in a congressional relief bill is an old one. It has been advanced and rejected many times in the past.

We shall now demonstrate that the validity and fairness of a subrogated incurer's claim for reimbursement has long been recognized and honored not only by the courts but also by Congress.

In passing, we deem it advisable to refer to and clear up an apparent misimpression as to the grounds on which we seek relief from losses which we suffered. by reason of the disaster at Texas City. In the course of hearings on H. R. 9785, held August 6 and 7, 1954, before a subcommittee of the Committee on the Judiciary of the Senate, the following observation was made by one of the members of the subcommittee:

"Now, the insurance companies have paid up, as I understand you, dollar for dollar, everything that they owed, in accordance with law and in accordance with their policy, and so forth. Are we, the Government of the United States, paying. back the money to the insurance companies? That is what I want to know. If we are, then there is no necessity for any insurance companies any more. The Government should be the insurer of everybody" (p. 10, hearings on H. R. 9785). This comment fails to recognize that we do not seek reimbursement from the

Government on the theory that it is an insurer, but rather because the Government is the wrongdoer. The basis on which subrogated insurers are seeking relief is not that the sovereign must afford them relief, but rather that when the sovereign elects to view itself as a wrongdoer, and thus to shed the cloak of immunity, the subrogated claimants then become fully entitled to recover, aş any other claimant, those losses for which the United States in equity and good conscience should be answerable. Put in another fashion, the sugrogated insurers suffered injury at the hands of the wrongdoer just as much as did any individual or corporate claimant who suffered loss of or damage to his property and are entitled to share equitably in any relief granted.

II. SUBROGATION: THE DOCTRINE OF A SQUARE DEAL

Subrogation is an ancient doctrine "* * * founded on principles of justice and equity, and its operation is governed by principles of equity. It rests on the principle that substantial justice should be attained regardless of form; that is, its basis is the doing of complete, essential, and perfect justice ***" (83 C. J. S., Subrogation, sec. 2).

The right of subrogation rests not upon contract but upon principles of natural justice. It is the mode which equity adopts to compel the ultimate discharge of a debt by him who, in good conscience, ought to pay it. It is "*** a doctrine which equity borrowed from the civil law and administered so as to secure justice, without regard to form or mere technicality." The principle "is broad enough to cover every instance in which one person is required to pay a debt for which another is primarily answerable, and which in equity and good conscience should be discharged by the latter" (Couch, Cyc. of Ins. Law, S. 1996. See also Pomeroy, Equity Jurisprudence (1905), vol. 2, secs. 920-925; Dixon, Law of Subrogation (1862), ch. VIII; Sheldon, The Law of Subrogation (1882), sec. 3).

The subrogee stands in exactly the same position with respect to the wrongdoer as does the subrogor (Aetna Life Ins. Co. v. Town of Middleport, 124 U. S. 534; Ocean A & G v. Hooker, 240 N. Y. 37, 47). One who rests on subrogation stands in the place of one whose claim he has paid, as if the payment giving rise to the subrogation had not been made (United States v. Munsey Trust Co., 332 U. S. 234).

The identity of the cause of action against the wrongdoer is not changed by the subrogation of the insurer to the rights of the insured. The cause of action in both cases is the combination of the same primary right and its violation. The subrogation results only from a change in the beneficial ownership of the cause of action, and affects the underlying cause not at all (Phoenix Ins. Co. v. United States, 3 F. Supp. 112, 114).

"Subrogation is an equitable remedy, 'a device adopted or invented by equity to compel the ultimate discharge of a debt or obligation by him who in good conscience ought to pay it.' 25 R. C. L. 1312 * * *. It is merely the doctrine of a square deal and it is for a court of equity to say who, in good conscience, should bear a loss" (Martin v. Federal Surety Co., 58 F. 2d 79, 84).

Entirely apart from the justifications which historically have been advanced in support of the doctrine of subrogation, the very antiquity of the doctrine and its uninterrupted application are of great significance. Thus, the insurer makes its contract in the knowledge that if it be required to pay a loss by the wrongful act or omission of a third party it has a right to seek to recoup its payment from the wrongdoer. That knowledge as respects the future, coupled with actual subrogation recoveries on past losses, have a material bearing on the insurance premium charge.

Respecting recoveries by subrogated insurers, Mr. Justice Brandeis observed in Luckenbach v. McCahan (1918) 248 U. S. 139, 149:

"Such claims, like tangible salvage, are elements which enter into the calculations of actuaries in fixing insurance rates; and, at least in the mutual companies the insured gets some benefit from amounts realized therefrom."

III. CONGRESS HAS CONSISTENTLY RECOGNIZED THE VALIDITY OF SUBROGATED CLAIMS

Congressional recognition of the validity of the subrogation idea, that loss should ultimately fall upon the one who in good conscience should bear it, has assumed various forms. We shall now discuss several illustrations of such recognition.

(1) The Federal Tort Claims Act

Recognition of the validity of the principle of subrogation occurred when the Federal Tort Claims Act was enacted in a form which included subrogated claims. Full acceptance of the truth of this statement was obtained only after several ·legal battles in which the lawyers for the Government found themselves on 'the losing side. Only the persistent efforts of subrogated claimants prevented the will of Congress from being frustrated by the Government's lawyers. Finally, -United States v. Aetna Casualty & Surey Co. (338 U. S. 336), fully established that the act includes such claims.

Earlier, Judge Medina had observed: “* * * one of the principal reasons given for the passage of this * * * legislation was the shifting from the Congress of the burdensome and expensive task of passing upon the increasingly large number of claims *** and the undoubted fact that a substantial number of such claims were and had for many years been those of subrogees, which were evidently acted upon and paid in pari passu with those of original claimants; it is hard to find in the history of this legislation any justification or basis for distinguishing between original claimants and subrogees" (Niagara Fire Ins. Co. v. United States, 76 F. Supp. 850 (D. C. S. D., N. Y., 1948)).

And Judge Duffy said, in Wojciuk v. United States (74 F. Supp. 914), at page 916:

"It would be a strained and unwarranted interpretation of the intention of Congress to say it planned to give the district courts jurisdiction of cases brought by claimants originally suffering loss, but to reserve to itself the consideration of the claims of those standing in the shoes of original claimants by operation of law."

The Supreme Court in the Aetna case, satisfied that Congress intended to include the claims of subrogees within the scope of the Federal Tort Claims Act, commented:

"The broad sweep of its language assuming the liability of a private person, the purpose of Congress to relieve itself of consideration of private claims, and the fact that subrogation claims made up a substantial part of that burden are also persuasive that Congress did not intend that such claims should be barred." (2) The Small Tort Claims Act

: An earlier congressional recognition of the essential justice of the subrogation principle was the enactment of the Small Tort Claims Act (December 28, 1922; 42 Stat. 1066; 31 U. S. Code 215).

On June 29, 1932, the Attorney General had occasion to consider (36 Op. Atty. Gen. 553) whether subrogated claims were included within the scope of the act. He concluded that the act included subrogated claims, and said: "*** it seems entirely clear that upon payment of the damage by an insurance company, and proof of this fact, you would upon plain principles of law be required to recognize the insurance company as the claimant to whom the amount of the adjusted claim is due, within the meaning of the statute."

He then went on to discuss the legislative history of the 1922 act, stating: "Nothing in the legislative history of the act of December 28, 1922, indicates that Congress intended to bar insurance companies from securing relief under the statute."

He noted that the practices of the various executive departments under the 1922 act were not consistent, the Post Office, Navy, and Labor Departments con'sistently certifying subrogated claims to Congress, and the War, Interior, and Agricultural Departments and the Veterans' Administration taking a contrary position apparently as the result of a ruling by the Comptroller General (6 Comp. Gen. 770) wherein he construed a prior act (41 Stat. 131) as not including subrogated claims. The Attorney General then pointed out that whenever department heads had certified subrogated claims to it, Congress had uniformly appropriated the money to pay them. He concluded:

"As the ultimate question is the intention of Congress, this practical construction by the legislative body is impressive. Our objective being to ascertain the purpose of Congress in the enactment of this statute and since no claim may be paid under the statute until it has been certified to Congress and an appropriation made for that purpose, a ready means is afforded of obtaining a final and conclusive legislative construction. By refusing certification we might obtain ultimately a judicial determination of the question through a mandamus suit brought by some claimant to compel certification of his claim, but that would involve expense and delay, and the sensible course is to have the question cleared up by legislation or by legislative action amounting to a conclusive legislative construction.

"For these reasons I believe the practical course is to resolve any doubts by construing the statute to require certification, thus giving the Congress an opportunity to consider and decide whether it intended by this statute that such claims should be paid. In making the certification special attention should be called to the fact that it is a subrogation claim by an insurer and the attention of Congress should be drawn to the point involved so that it may receive deliberate consideration."

Thereafter department heads uniformly certified subrogated claims to Congress which in turn appropriated moneys to pay them. This appears from a letter dated October 6, 1939, from the Federal Works Administrator to the Comptroller General, reproduced in 19 Comptroller General 503, 504, in which the former observed:

“***The act of December 28, 1922 (42 Stat. 1066, U. S. C. 31, sec. 215), confers authority upon the heads of governmental agencies to consider and determine claims of a similar nature for certification, if favorably determined, to Congress for appropriation for payment. The Attorney General of the United States, on June 29, 1932, rendered an opinion (vol. 36, p. 553), to the effect that subrogation claims of insurance compantes could be considered under that act and certified to the Congress in order that it might determine whether the act covered such claims by making appropriations for their payment. Since that time, it appears that the Congress has consistently appropriated, usually in the deficiency bills, sums to pay for claims of subrogees, thereby evidencing that they are properly for consideration under the act cited."

The consistent policy of Congress of appropriating funds for the benefit of subrogees under the Small Tort Claims Act was termed by the Supreme Court in the Aetna case "a unique interpretation by Congress of its own statute." (3) The Emergency Relief Appropriations Act of 1939

In 1939 the Federal Works Administrator asked the Comptroller General for his opinion as to whether section 26 of the Emergency Relief Appropriations Act of 1939 (53 Stat. 936) included subrogated claims. That act authorized the Administrator to pay damages caused by the negligence of any employee of the National Youth Administration while acting within the scope of his employment. The Comptroller General refused to follow an earlier contrary opinion (6 Comp. Gen. 770, supra) and held that the statute in question included subrogated claims, stating:

"***There is nothing either in section 26 or in section 20 specifically providing for the payment of subrogation claims, and the legislative history of said section 20 fails to shed any light upon that particular phase of the matter. However, the explanation quoted above with reference to section 20 would appear to indicate that what was intended was the prompt payment of the claims in question under funds appropriated for relief purposes rather than requiring such claims be reported to the Congress for appropriation under the 1922 act, when the claims are not in excess of $500 * * *.

“*** The apparent purpose of section 26 of the Emergency Relief Appropriation Act of 1939 and of section 20 in the prior act was, *** to partially remove or surrender this immunity from liability so as to permit payment from funds provided by said act of 'any claim' of $500 or less arising out of the operations thereunder and involving damage to or loss of privately owned property caused by negligence of Work Projects Administration employees * * *.

"The law is well settled that an insurance company * ** is entitled to be subrogated to the rights of the insured against the person legally responsible for the loss. See 33 CJ 43, and cases there cited. There is nothing in the language of the provision of law here in question nor in the legislative history thereof to indicate an intention that this rule of subrogation should not apply with respect to claims filed under said provision."

(4) The act of June 22, 1934

A similar question was similarly answered by the Comptroller General on October 17, 1941, in a decision furnished the Postmaster General (21 Comp. Gen. 341) wherein he ruled that the act of June 22, 1934 (48 Stat. 1207; 5 U. S. C. A., sec. 392), conferring authority on the Postmaster General to settle "any claim" for damage to person or property not exceeding $500 included subrogated claims. He held:

"*** the use of the broad and comprehensive term 'any claim' in the act here involved would appear to cover all claims of the class described in the act when filed by any person to whom the United States would have been liable prior to the enactment of the act but for its sovereign immunity."