Mr. THOMAS J. LANE, House Office Building, Washington, D. C. HOUSTON, TEX., June 15, 1955. DEAR MR. LANE: I listened with a great deal of interest to the hearing before your subcommittee last week on the Texas City disaster claims. I represent 55 death and personal injury claims and 3 corporate property damage claims, and was a member of the working committee which represented the plaintiffs in the tort-claims suits. I enclose, with the request that it be made a part of the committee record, a form of amendment to H. R. 4045 which I believe would furnish a satisfactory method of limiting payments to Texas City disaster victims. This form provides for a 40-percent settlement to both "excess claims" and insurance company subrogation claims. It would give the excess-claim group full settlement of actual damage sustained up to 40 percent of the amount of excess claim sued for in the tort-claims suit. While it would be a large limit for such claims as those of Monsanto and Pan American, it is limited to the actual damage sustained by those firms, over and above payments received from insurance companies. (Much of this damage was to uninsurable property, such as foundations and underground piping.) It would be much more equitable to the death and personal injury claims than a straight $20,000 limitation. The total prayer in the suits (excluding the $40 million claim for unknown plaintiffs) was $170 million, of which $41 million was for insurance company subrogation, leaving $129 million of excess claim. Under this amendment the maximum possible payment would be $52 million to excess claimants and $16 million to insurance companies. I think the actual payment would be around $44 million to excess claimants and $16 million to insurance companies. I hope this suggestion may be of assistance to your committee. Yours very truly, VERNON ELLEDGE. Amend section 3 of H. R. 4045 by adding thereto the following: "(g) Claims for death, personal injuries and property damage made by individuals, firms, companies, associations and corporations, other than insurance companies, shall be approved by the Commission for payment in an amount not exceeding the actual damage sustained, as determined by the laws of the State of Texas, less any payment received by the claimant from an insurance company, and not exceeding 40 percent of the net amount of claim remaining after deducting any payment received by the claimant in a civil action filed against the United States in a United States district court prior to April 25, 1950. The term 'an insurance company' as used herein means an insurance company which has a right of subrogation. No insurance company shall have any right to receive any part of any claim approved under the provisions of this subsection. No part of any claim approved under the provisions of this subsection shall be paid over to any insurance company, and whoever violates the provisions of this sentence shall be fined not to exceed $5,000. "(h) Claims filed by insurance companies (as defined in subsection (g) of this section 3) for reimbursement to them of amounts paid out by them in payment of claims under policies based on losses sustained in the Texas City disaster shall be approved by the Commission for payment in an amount equal to 40 percent of the amount so paid out." HOUSTON, TEX., June 16, 1955. Mr. THOMAS J. LANE, House Office Building, Washington, D. C. DEAR MR. LANE: My letter of yesterday tendering a proposed limitation upon the amounts to be paid Texas City disaster claimants was for use only in event it should be decided to put a limitation of some kind upon the amount to be paid. I would of course prefer a bill which contains no limitation. Yours very truly, VERNON ELLEDGE. To: House Commitee on the Judiciary. THE LIBRARY OF CONGRESS, Subject: Memorandum in support of contention that insurance companies who have paid persons suffering property losses arising out of the Texas City, Tex., disaster will not be entitled to recover from such persons any part of the moneys distributed to them under an act of Congress enacted subsequently to the judicial rejection of claims filed by such persons under the Federal Tort Claims Act. (Attention: Mr. Brickfield.) 1. Any recovery of payments previously made to an insured by an insurer is predicated on the principle of insurance law that the insurer is entitled to succeed to the legal rights of the insured against a wrongdoer for purposes of recoupment. Inasmuch as an attempted assertion by Texas City claimants of a right of recovery against the United States under the Tort Claims Act proved abortive (Dalehite v. United States (1953), 346 U. S. 15), it follows that there do not now exist any legal rights of recovery to which the insurance companies may succeed (Phoenix Ins. Co. v. Erie Transportation Co. (1886), 117 U. S. 312, 321; Washtenaw Mut. Fire Ins. Co. v. Budd (1919), 208 Mich. 483; 175 N. W. 231; Pasley v. Amer. Surety Co. of N. Y. (Tex., 1952), 253 S. W. (2d) 86). That broader definitions of the recoupment rights of insurer have been advanced in prior litigation cannot be denied; but contentions, as for example, that an insurer, under principles of equity, is entitled to succeed to all the ways and means by which an insured receives reimbursement for his loss, have been rejected in controversies factually comparable to the instant one. Thus, in 1874, Congress by law (18 Stat. 245, 247, sec. 12) authorized payments to be made to persons who had suffered losses at the hand of the Confederate privateers, Alabama and others, but limited such disbursements, in the case of claimants who had been compensated by insurers, to the difference between the amount of such compensation and the true value of the loss sustained. When marine underwriters sued to recover any portion of the moneys thus disbursed, they were defeated in British courts on the ground that "title to the indemnity granted in particular terms out of a particular fund at the disposal of the United States by an act of Congress is not a title which can possibly result in law from the [insurance] contract itself. [If such right of recoupment existed, the British judges noted] it must exist by the combined effect of the contract between the insurer and the insured and the act of Congress. It cannot follow from the contract of insurance alone, without the act of Congress. *** Whatever views of moral obligation may be entertained with regard to the act of Congress, *** it is correctly described * * as an act of pure gift from the American Government ***. If once the right had vested to recover any such sum, of course an act of Congress could not take it away; but when Congress in express terms say, 'We do not pay the money for the purpose of repaying or reducing the loss against which the insurance company has indemnified, but for another and different purpose,' it effectually prevents the right arising. *** In this case the act of Congress declares in very express terms, ** * that no compensation is to be given * * * on account of loss which has been * * covered by insurance, and secondly that underwriters are not to receive any benefit from the funds distributed under the act. *** It was an act of grace on their part to assign [this fund], and give it either to one or to the other of the losers by the acts of the Alabama, and *** in giving it as they have done, they were attaching a condition to the gift, which condition was not only entirely within their power but which they might attach without violating any legal responsibility or moral obligation" (Burnand v. Rodocanachi (1882) 7 Law Reports (App. Cas.) 333, 335-336, 341, 343: Md. Casualty Co. v. Lincoln Bk. and Trust Co. (1937), 18 F. Supp. 375; (Col. L. R. (1928), 28:208). * By way of deduction from a partially relevant New York decision, it also may be appropriate to contend that such rights as Congress intended to confer under the proposed enactment are entirely "personal, and can be neither assigned nor subrogated; and that Congress contemplated only the victims of the disaster as beneficiaries and not the insurance companies (Sun Indemnity Co. of N. Y. v. Bd. of Education of New York City (1942) 34 N. Y. S. (2d) 475). Another deduction 1 deriving support from the cited cases is that, notwithstanding 1 This supporting argument has been attached pursuant to request; but the merit thereof is open to question. 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." 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. In 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, as 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. |