BROOKLYN LAW REVIEW. ADMIRALTY, FEDERALISM, AND THE NEW YORK DIRECT ACTION STATUTE: SEAMEN'S RIGHTS TO ENFORCE JONES ACT JUDGMENTS Richard Alexander*

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1 BROOKLYN LAW REVIEW Volume 49 Winter 1983 Number 2 ADMIRALTY, FEDERALISM, AND THE NEW YORK DIRECT ACTION STATUTE: SEAMEN'S RIGHTS TO ENFORCE JONES ACT JUDGMENTS Richard Alexander* Seamen injured or taken ill while in the service of a vessel have traditionally been entitled to wages for the duration of the voyage and medical care until they have recovered. 1 The general maritime law, however, precluded seamen from recovering for personal injuries caused by the negligence 2 of either the master of a vessel or a member of its crew. 8 This obstacle was overcome * B.A., Ohio Wesleyan University, 1966; J.D., University of Chicago, 1969; Member, California and Michigan Bars; Diplomate, National Board of Trial Advocates; Partner, The Boccardo Law Firm, San Jose, California. 1 The crew members of a vessel have a right to "maintenance" and "cure" from their employer when an illness or injury sustained aboard ship is treated ashore. See Vella v. Ford Motor Co., 421 U.S. 1, 3 (1975). "Maintenance," the cost of food and lodging, and "cure," the cost of medical care, see Mahamras v. American Export Isbrandtsen Lines, Inc., 475 F.2d 166, 172 (2d Cir. 1973), are substitutes for the care the seaman could have received aboard ship. Maintenance and cure are granted regardless of fault, see Vella v. Ford Motor Co., 421 U.S. 1, 4 (1976), and are payable until the seaman's illness or injury is diagnosed as permanent and incurable, id. at 3. See generally G. GIL- MORE & C. BLACK, THE LAW OF ADMIRALTY (1957); Shields, Seamen's Rights to Recover Maintenance and Cure Benefits, 55 TUL. L. REV (1981). 9 Although negligence was unavailable as a theory of recovery, seaman could still obtain compensation under the admiralty doctrine of "unseaworthiness." This doctrine imposes a duty upon shipowners to provide safe working conditions, that is, a "seaworthy" vessel. See 2 M. MORRIS, THE LAW OF SEAMEN (3d ed. 1970). Any defective conditions of a ship that causes injury gives rise to an unseaworthiness claim; negligence need not be proven. See Seas Shipping Co. v. Sieracki, 328 U.S. 85, 93 (1946). The Supreme Court has greatly expanded the duty to provide a seaworthy vessel in recent years, see, e.g., Waldron v. Moore-McCormack Lines, 386 U.S. 724 (1967) (unseaworthiness includes owner's failure to provide sufficient number of crewmen), and some members of the Court have criticized this expansion as essentially imposing strict liability on shipowners. See Gutierrez v. Waterman S.S. Corp., 373 U.S. 206, 216 (1963) (Harlan, J., dissenting). 8 The rights of injured seamen under the general maritime law were summarized in 179

2 180 BROOKLYN LAW REVIEW [Vol. 49: 179 in 1920 by the passage of the Jones Act. 4 Intended as a remedial statute to expand the admiralty's protection of its wards/ the Jones Act expressly authorizes recovery for personal injuries arising out of negligence occurring in the course of a seaman's employment. 6 Although a seaman's right to recover for maritime torts is firmly established, 7 his ability to enforce a judgment obtained the famous four "propositions" set forth by the Supreme Court in The Osceola, 189 U.S. 158, 173 (1903). The first two propositions described the seaman's right to maintenance and cure benefits, and his right to a seaworthy vessel. Id. In the third proposition, however, the Court held that seamen were subject to the fellow servant rule, and thus were unable to recover for the negligence of crew members. Id. The fourth proposition expressly limited the seaman's recovery to maintenance and cure. Id. In 1915, Congress first attempted to provide a right of recovery for negligence by simply abolishing the fellow servant rule. See Act of Mar. 4,1915, ch. 153, 20, 38 Stat. 1164, 1185 (codified as amended at 46 U.S.C. 688 (1976)). However, three years later, the Court held that Congress had misread The Osceola to mean that the fellow servant rule was the only impediment to recovery for negligence and that the Act of 1915 did not alter the fourth proposition of The Osceola, that the general maritime law prohibited recovery for the negligence of crew members. See Chelentis v. Luckenbach S.S. Co., 247 U.S. 372, 381 (1918). Congress enacted the Jones Act in order to overcome this holding. See G. GILMORE & C. BLACK, supra note 1, at Merchant Marine Act of 1920, ch. 250, 33, 41 Stat. 988, 1007 (codified at 46 U.S.C. 688 (1976)). The Jones Act provides in relevant part: Any seaman who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law, with the right of trial by jury, and in such action all statutes of the United States modifying or extending the common-law right or remedy in cases of personal injury to railway employees shall apply; and in case of the death of any seaman as a result of any such personal injury the personal representative of such seaman may maintain an action for damages at law with the right of trial by jury, and in such action all statutes of the United States conferring or regulating the right of action for death in the case of railway employees shall be applicable. 46 U.S.C. 688 (1976). ' See, e.g., Cosmopolitan Shipping Co. v. McAllister, 337 U.S. 783, 790 (1949) ("The Jones Act was welfare legislation that created new rights in seamen for damages... land] is entitled to a liberal construction to accomplish ita benificent purposes."); Garrett v. Moore-McCormack Co., 317 U.S. 239, 248 (1942) ("[The Jones Act] is to be liberally construed to carry out its full purpose, which was to enlarge admiralty's protection to its wards."); Socony-Vacuum Oil Co. v. Smith, 305 U.S. 424, 431 (1939) (because seamen are the wards of admiralty, "remedial legislation for [their] benefit and protection... has been liberally construed"). Accord The Arizona v. Anelich, 298 U.S. 110, 123 (1936); United Continental Tuna Corp. v. United States, 650 F.2d 569, 573 (9th Cir. 1977). * See note 4 supra. The Jones Act also provides a cause of action for wrongful death, see 46 U.S.C. 688 (1976), which had previously been unavailable unless afforded by a state or foreign wrongful death act, see Edelman, Recovery for Wrongful Death Under the General Maritime Law, 55 TUL. L. REV. 1123, 1128 (1981). 7 See generally G. GILMORE & C. BLACK, supra note 1, at

3 1983] SEAMEN'S RIGHTS 181 under the Jones Act has not received commensurate federal protection. 8 The absence of a federal policy in this area has proven especially troublesome in New York, as the application of provisions of the New York Insurance Law effectively bars the enforcement of Jones Act judgments under certain conditions. Because New York is the home of numerous shipping companies and their maritime insurers, application of its Insurance Law at the expense of injured seamen substantially undermines the remedial policies of the Jones Act. This article examines how the New York Insurance Law operates to undercut a seaman's Jones Act rights. 9 It explores the historical origin of the New York law, and addresses the validity of the reasons offered in its support. 10 Finally, it examines the basis for the federal courts' reluctance to interfere with state regulation of maritime insurance," the underlying cause of a seaman's inability to vindicate fully his Jones Act rights under New York law. I. THE PROBLEM: NEW YORK INSURANCE LAW AND THE EXEMP TION OF A DIRECT ACTION AGAINST MARINE INSURERS An injured seaman's difficulty in collecting a Jones Act judgment stems from New York's irregular treatment of insurers. Section 167(1) of the New York Insurance Law 12 obligates insurers to include in their policies a clause providing that the insolvency of the insured will not release the insurer from liability under the policy. 13 It also requires the inclusion of a provision affording a right of direct action against the insurer in the event that a judgment against the insured remains unsatisfied for thirty days. 14 Seamen, however, have no such right of action against a marine insurer under the Insurance Law; a maze of statutory provisions specifically exempt marine insurers from the obligation to provide a right of direct action in their contracts. Section 167(4) of the New York Insurance Law is the * See notes and accompanying text infra. See notes and accompanying text infra. 10 See notes and accompanying text infra. 11 See notes and accompanying text infra. " N.Y. INS. LAW 167 (McKinney 1966 & Supp ). 18 Id. 167(l)(a). " Id. 167(l)(b).

4 182 BROOKLYN LAW REVIEW [Vol. 49: 179 source of this exemption. 18 The New York courts have consistently recognized that section 167(4) precludes a judgment creditor from bringing a direct action against a marine insurer. 16 Although this preclusive effect is not limited to Jones Act plaintiffs, two recent federal decisions illustrate how seamen have suffered from the application of the statute. In Ahmed v. American Steamship Owners Mutual Protection & Indemnity Association, 11 injured seamen sought recovery in a California state court for personal injuries sustained while in the employ of three shipping companies, collectively known as Amercargo. 18 The seamen obtained default judgments, but the judgments went unsatisfied because of Amercargo's intervening bankruptcy. 19 After submitting their judg- 15 Section 167(4) provides that the provisions of 167 generally, including the right of direct action, "shall not apply... to the kinds of insurances set forth in paragraph (c) of subsection two of section one hundred twelve." Id. 167(4). Section 112(2)(c) describes "marine insurance of the following kind or kinds," id. 112(2)(c), including "[ijnsurance in connection with ocean going vessels against any of the risks specified in paragraph twenty-one of section forty-six," id. 112(2) (c)(2). In turn, 46(21) specifies: '[mjarine protection and indemnity insurance,' meaning insurance against, or against all legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person. Id. '* Meridian Trading Corp. v. National Auto. & Casualty Ins. Co., 45 Misc. 2d 847, 258 N.Y.S.2d 16 (Sup. Ct. N.V. County 1964) is illustrative. In Meridian, the assignee of a first preferred mortgage sought reimbursement from the marine insurer of the vessel owner-mortgagor for funds paid in settlement of a claim against the vessel. Id. at 848, 258 N.Y.S.2d at 17. The morgagee alleged that the insurer's failure to pay the settlement constituted a breach of the insurance contract. Id. at 849, 258 N.Y.S.2d at 17. The court held that although 167 allows certain parties to sue on insurance contracts, marine protection and indemnity insurance is specifically excluded. Id. at 849, 258 N.Y.S-2d at 18. Meridian was followed in Cucurillo v. American S.S. Owners Mut. Protection & Indemn. Assoc, 1969 A.M.C (Sup. Ct. NY. County 1969), a case arising out of the bankruptcy of the AH. Bull Steamship Co. Cucurillo had obtained a prior judgment against Bull and directly sued Bull's insurer for reimbursement. Id. at The court granted the insurer's motion for summary judgment on the ground that New York law prevented injured third parties from bringing direct actions against marine insurers. Id. at See also Cowan v. Continental Ins. Co., 86 A.D. 2d 646, 446 N.Y.S.2d 412 (2d Dep't 1982) (decedent's administratrix prevented from bringing direct action against marine insurer of tug boat on which decedent was crew member) F. Supp. 569 (N.D. Cal. 1978), aff'd, 640 F.2d 993 (9th Cir. 1981) F.2d at 994. " Id.

5 1983] SEAMEN'S RIGHTS 183 ments in Amercargo's New York bankruptcy proceedings, they were still unable to recover. 20 Accordingly, the seamen began a direct action against Amercargo's insurer in a California federal court. 21 After determining that New York law applied to the controversy, 22 the court dismissed the case on the basis of section 167(4), noting that New York's direct action statute "is made expressly inapplicable to marine insurance contracts." 88 Miller v. American Steamship Owners Mutual Protection & Indemnity Co. 24 also demonstrates the obstacle section 167(4) presents to injured seamen. In Miller, as in Ahmed, an injured seaman obtained a default judgment against his employer that went unsatisfied because of the employer's insolvency. 25 The seamen then brought a direct action against the insurer in the United States District Court for the Southern District of New York. 26 Judge Sofaer, persuaded by the reasoning in Ahmed, dismissed the suit on the ground that "no direct action is allowed on any marine insurance policy." 27 Perhaps contributing to seamen's inability to recover against marine insurers is the distinction, recognized in New York, between indemnity and liability policies. Under a liability policy, the insurer is required to pay as soon as a judgment is obtained against the insured. In contrast, the insurer's obligation under an indemnity policy does not attach until the insured has actually paid the injured party. 28 Most marine insurance policies " Id. " 444 F. Supp. 569 (N.D. Cal. 1978). " Id. at The court first determined that, as the question was one involving marine insurance, state law, not federal maritime law, governed the case. Id. at 571. See notes and accompanying text infra. However, applying federal choice of law rules, see note 143 infra, the court concluded that New York law was applicable under the most significant relationship test. 444 F. Supp. at F. Supp. at 672. On appeal to the United States Court of Appeals for the Ninth Circuit, the plaintiffs contended that the marine insurance exemption violated the equal protection clause. 640 F.2d at 996. Despite the fact that this issue had not been raised at trial, the court remanded the case in order to permit its further development. Id. at 997. In so doing, the court was strongly influenced by the traditional judicial solicitude for the welfare of seamen. See id. at 996; note 120 infra. " 509 F. Supp (S.D.N.Y. 1981). " Id. at Id. 87 Id. at See 7 J. APPLEMAN, INSURANCE LAW AND PRACTICE 4261 (1979); 11 G. COUCH, INSURANCE 44:4 (2d ed. 1982).

6 184 BROOKLYN LAW REVIEW [Vol. 49: 179 covering third party liabilities 29 are contracts of indemnity 30 and, typically, provide that the insurer will pay only that amount "which the assured... shall have become legally liable to pay and shall have paid. " 31 At common law, New York courts recognized the distinction between liability and indemnity policies, holding that an injured party could not sue the insurer on an indemnity policy when a judgment against the insured remained unsatisfied. 82 This distinction continued to be relied upon as a basis for denying relief against marine insurers in cases brought under the direct action statute. 38 This reliance would suggest that removing the statu- " Marine insurance covering third party liability was developed in England by the so-called protection and indemnity (P & I) clubs. Shipowners banded together in these clubs and contributed their proportionate share of any loss suffered by a member. See Libby, Some Aspects of Protection and Indemnity Insurance, 1952 INS. L.J This form of insurance spread rapidly to the United States during the interwar period, and was relied upon heavily by the government during World War II. See id. at See Kierr, The Effect of Direct Action Statutes on P & I Insurance, on Various Other Insurances of Maritime Liabilities, and on Limitations of Shipowners' Liability, 43 TUL. L. REV. 638, 669 (1969). 81 Id. at (emphasis added). 88 Prior to the enactment of the direct action statute, New York common law prohibited an action by an injured third party against an insurer when the insurance contract was one of indemnity. See Coleman v. New Amsterdam Casualty Co., 247 N.Y. 271, 275,160 N.E. 367, 369 (1928); Burke v. The London Guar. & Accident Co., 47 Misc. 171, 172, 93 N.Y.S. 652, 653 (Sup. Ct. Kings County 1905), aff'd, 126 A.D. 933, 110 N.Y.S (2d Dep't 1908), aff'd, 199 N.Y. 657, 93 N.E (1910). As a result, recovery by an injured third party could be defeated simply by interpreting the insurance contract as one of indemnity. See Jackson v. Citizens Cas. Co., 277 N.Y. 385,389,14 N.E.2d 446, 448 (1938). Section 109 of the Insurance Law, the predecessor of 167, was a remedial statute intended to eliminate this distinction. The effect of the statute was to provide an injured third party with a cause of action against the insurer in the event of the insured's insolvency. See Skenandoa Rayon Corp. v. Halifax Fire Ins. Co., 245 AD. 279, 281, 281 N.Y.S. 193, 196 (4th Dep't 1935), aff'd, 272 N.Y. 457, 3 N.E.2d 867 (1936). 88 For example, in Cucurillo v. American S.S. Owners Mut. Protection & Indemn. Assoc, 1969 A.M.C (Sup. Ct. N.Y. County 1969), see note 16 supra, the court, after noting that 167(4) exempted marine insurers from the direct action statute, indicated that the policy at issue was one of indemnity, and that this also barred recovery against the insurer A.M.C. at In so doing, the court relied upon Burke v. The London Guar. & Accident Co., 47 Misc. 171, 93 N.Y.S. 652 (Sup. Ct. Kings County 1905), aff'd, 126 AD. 933,110 N.Y.S (2d Dep't 1908), aff'd, 199 N.Y. 567, 93 N.E (1910), a case decided before New York's direct action statute was enacted. The Cucurillo court completely ignored New York cases expressly holding that the distinction between liability and indemnity policies is irrelevant under the direct action statute. See notes and accompanying text infra. Although superficial and poorly-reasoned, Cucurillo has been relied upon by the federal courts in denying relief to injured third parties against marine insurers. See Ahmed

7 1983] SEAMEN'S RIGHTS 185 tory exception for marine insurers would not correct the problem, since they could escape liability purely as a matter of contract. However, as early as 1928, the New York Court of Appeals held that the direct action statute is generally applicable to indemnity policies. 34 Prior to the enactment of the marine insurer's exemption, this rule was applied to marine indemnity policies. 35 Accordingly, the real obstacle to seamen recovery under the New York direct action statute is section 167(4). 3 * v. American Steamship Mut. Protection & Indemn. Assoc, 640 F.2d 993, 995 (9th Cir. 1981); Liman v. American S.S. Owners Mut. Protection & Indemn. Co., 299 F. Supp. 106, (S.D.N.Y.), aff'd per curiam, 417 F.2d 627 (2d Cir. 1969), cert, denied, 397 U.S. 936 (1970). Nonetheless, the courts in Miller v. American S.S. Owners Mut. Protection & Indem. Assoc, 509 F. Supp. 1047, 1049 (1969), and Ahmed v. American Steamship Mut. Protection & Indem. Assoc, 640 F.2d 993, 995 (1981), acknowledged that New York's direct action statute applied to both liability and indemnity policies. M See Coleman v. New Amsterdam Cas. Co., 247 N.Y. 271, 275, 160 N.E. 367, 369 (1928) ("The policy was one of indemnity against loss... [and] [tjhe effect of the statute is to give the injured claimant a cause of action against the insurer for the same relief that would be due to a solvent principal seeking indemnity and reimbursement after the judgment had been satisfied."). Accord Brustein v. New Amsterdam Cas. Co., 265 N.Y. 137, 142, 174 N.E. 304, 305 (1931); Skenandoa Rayon Corp. v. Halifax Fire Ins. Co., 246 AD. 279, 281, 281 N.Y.S. 193, 196 (4th Dep't 1935), aff'd, 272 N.Y. 457, 3 N.E.2d 867 (1936). «See, e.g., Hansen v. Continental Ins. Co., 262 N.Y. 136, 139, 186 N.E. 420, 421 (1933) ("That the traditional contract of marine insurance was one of indemnity for money actually paid or loss actually suffered, is no reason for exempting such policies from the operation of section 109 [predecessor of 167], when the companies issuing marine insurance chose to insure against loss arising from personal injuries."). M A recent New York Court of Appeals decision, 175 East 74th Corp. v. Hartford Accident & Indem. Co., 51 N.Y.2d 685, 416 N.E.2d 584, 435 N.Y.S.2d 584 (1980), appears to cast doubt on the applicability of 167 to indemnity policies. In Hartford, the court held that a fidelity bond covering losses sustained through any illegal conduct of the insured's employees was not a "contract or policy insuring against liability," see N.Y. INS. LAW 167(1) (McKinney 1966), so as to permit a direct action against the insurer upon the insured's insolvency. 51 N.Y. at 593,416 N.E.2d at 587, 435 N.Y.S.2d at The court noted that "if the policy is not one of liability, section 167 does not operate in favor of a person who has suffered a loss through some act of the insured ' Id. at 592,416 N.E.2d at 587, 435 N.Y.S.2d at 587 (emphasis added). This suggests that indemnity policies are excluded from the direct action statute. However, it appears that the court meant nothing more than that the policy must cover legal liabilities to third parties or actual losses arising out of those liabilities. In Hartford, the fidelity policy merely covered losses sustained through the conduct of the employee, not losses related to the employee's legal liability to a third party. See id. at 692, 416 N.E.2d at 587,435 N.Y.S.2d at 587.

8 186 BROOKLYN LAW REVIEW [Vol. 49: 179 II. 167(4) HISTORICAL PERSPECTIVE: THE OBSOLESCENCE OF SECTION Marine insurers were not always exempt from the operation of New York's direct action statute. Prior to 1940, New York courts recognized that the policy of fairness to injured plaintiffs underlying the statute applied with equal force to marine insurance contracts. 87 In that year, however, section 167(4) was amended to exclude marine insurance from the scope of the statute, largely due to efforts by the American Institute of Marine Underwriters (the Institute). 38 The legislative history preceeding the amendment to section 167(4) is sparse. The only available materials are a memorandum from the Institute to New York's Superintendent of Insurance, outlining the Institute's reaons for the proposed amendment, 88 and a letter from the Superintendent to the governor of New York briefly describing the bill. 40 These materials reveal that the concerns supporting the marine insurers' exemption are both narrow and insubstantial. In its memorandum, the Institute offered four major reasons in support of the exemption, none of which remain relevant. The first, and of primary concern to the Institute, was that the direct action statute put them at a competitive disadvantage with outof-state marine insurers. 41 Although New York insurance brokers generally have access only to insurers authorized to do business in New York, 42 an exception exists for marine insurers. 48 Because the direct action statute only applies to policies issued " See note 35 and accompanying text supra. " See 1940 N.Y. LAWS ch. 507, 1 (codified at N.Y. INS LAW 167(4) (McKinney 1966)). A memorandum from Louis Pink, then New York's Superintendent of Insurance, to the Governor, indicates that the amendment "was introduced at the request of the American Institute of Marine Underwriters." Memorandum from Louis Pink, New York Superintendent of Insurance, to the Governor of New York (Apr. 11, 1940) [hereinafter cited as Pink Memo]. 89 Memorandum from Barry, Wainwright, Thatcher & Summers (attorneys for the Institute) to Louis H. Pink, New York Superintendent of Insurance (Apr. 8,1940) [hereinafter cited as Institute Memo]. 40 Pink Memo, supra note See Institute Memo supra note 39, at 1-3. The Institute stated that it was "primarily for this reason" that the proposed exemption from the direct action statute was limited to marine insurers. Id. at 3. «N.Y. INS. LAW 112(1) (McKinney 1966). 48 Id. 112(2)(c).

9 1983] SEAMEN'S RIGHTS 187 or delivered in New York, 44 it is unlikely that unauthorized marine insurers would be subject to it. Thus, the Institute argued, to the extent that such insurers are also not subject to direct action in their home jurisdictions, they would theoretically be able to offer cheaper rates than New York insurers. 45 Although this may have been a legitimate concern in 1940, the situation has changed dramatically. Most of the important maritime jurisdictions have enacted direct action statutes, none of which exempt marine insurers. 48 Indeed, New York marine insurers may now enjoy a competitive advantage, assuming that a relationship exists between direct action and higher insurance premiums. The Institute's second argument in support of the exemption was that the admiralty doctrine of liability in rem would furnish adequate security to claimants. 47 Under this doctrine, the plaintiff brings an action directly against the insured's vessel. 48 Upon receiving a favorable judgment, the plaintiff obtains a lien on the vessel that is "good against the world," including good faith purchasers without notice. 48 Unfortunately, the maritime lien is unavailable to Jones Act plaintiffs. In Plamals v. "Pinar Del Rio/' 60 the Supreme Court interpreted the venue section of the Jones Act as reflecting an intent to limit actions under the Act to in personam proceedings. 51 Plamals thus effec- 4 Id. 167(1). 45 The Institute did not attempt to demonstrate any relationship between higher insurance premiums and direct action statutes. See Institute Memo, supra note 39, at See CAL. INS. CODE (West Supp. 1982); CONN. GEN. STAT. ANN (West 1969); III. ANN. STAT. ch. 73, 1000 (Smith-Hurd 1965); LA. REV. STAT. ANN. 22:655 (West 1978); ME. REV. STAT. ANN. tit. 24-A, (1974); MD. ANN. CODE ART. 48A, 481 (1979); MICH. COMP. LAWS (West 1983); N.J. STAT. ANN. 17:28-2 (West 1970); OHIO REV. CODE ANN (Page 1971), (Page Supp. 1982); PA. STAT. ANN. tit. 40, 117 (Purdon 1971); P.R. LAWS ANN. tit. 26, 2001 (1977); R.l. GEN. LAWS (1979). In 1969, Florida became the first state to establish a wholly judicially created right of direct action. See Shingleton v. Bussey, 223 So. 2d 713 (Fla. 1969). The Florida courts have interpreted this right to apply to marine insurance policies. See Quinones v. Coral Rock, Inc., 258 So. 2d 485 (Fla. Diet. Ct. App. 1972). 47 See Institute Memo, supra note 39, at See G. GILMORE & C. BLACK, supra note 1, at " See id. at 482, U.S. 151 (1928). 81 The Court noted that the Jones Act permits a seaman's employer to be sued only in the district where he resides or has his principal office. As in rem actions may be

10 188 BROOKLYN LAW REVIEW [Vol. 49: 179 tively subordinates a seaman's Jones Act claim to all other liens. 58 Moreover, even assuming its availability, an in rem admiralty decree has severe disadvantages that lessen its value to a Jones Act plaintiff. Such a decree, following a judicial sale, executes all liens and releases the vessel from all claims, regardless of whether the lienors intervened or even received notice of the proceedings. 88 Because in rem admiralty decrees are internationally recognized, 04 a seaman may find that his lien has been executed in a foreign court in a proceeding of which he was unaware. Furthermore, the priority system among maritime liens may still prevent recovery. Claims arising out of maritime torts rank third in the priority hierarchy, behind claims for salvage and seamen's wages. 05 In addition, among claims of the same type, the inverse order rule gives priority to the most recent lien - the last in time is the first in right. 56 The Institute also asserted that direct action would conflict with the traditional maritime practice under which claims are asserted only after the insured has defended an action and paid any judgment rendered. 57 That this practice amounts to a "tradition" among marine insurers hardly constitutes a substantial policy justification for maintaining it. Indeed, the Institute, in effect, merely restated the fact that marine insurance policies are typically indemnity contracts. 58 However, this rationale alone could not have been a valid reason for exempting marine insurers, as the direct action statute had been applied to indemnity policies both before and after section 167(4) was amended. 59 brought wherever the ship is located, the Court read the venue provision to negate any implication that seamen may bring in rem proceedings. See id. at 155. " See G. GILMORE & C. BLACK, supra note 1, at 287. " See Toy, Introduction to the Law of Maritime Liens, 47 TUL. L. REV. 559 (1973). 84 See G. GILMORE & C. BLACK, supra note 1, at 482. " See id. at M See id. at See Institute Memo, supra note 39, at 5 ("It is also the practice in admiralty matters for the assured to defend the litigation and to pay any final judgment that is rendered."). H See note 30 and accompanying text supra. 89 See notes and accompanying text supra. The real purpose underlying the amendment was to remedy the perceived competitive disadvantage of New York marine insurers. In recommending its passage, the New York Superintendent of Insurance clearly regarded this to be the amendment's purpose, see Pink Memo, supra note 38, as did the Institute, see Institute Memo, supra note 39, at 3. Accord Miller v. American

11 19831 S^4^^S^^^S 189 ^hile tradition provides little reason to maintain arule under any circumstances,there is even less ofarationale when the policies underlying the rule have been abandoned, ^he marine insurers^ exemption conflicts with major philosophical changes regarding the relationship between insurers and injured third parties. Injured third partiesmaysue insurers directly ina substantial number of jurisdictions unhindered by regressive privityofcontractrules.^^hilevarious legal theories have been used to legitimise this practice,^they all e^pressabasic concern ^.S. Owners Mut. Protection^Indem. Co., 509^.^upp. 1047,1049n.2(^.l^.N.Y.1981). TheNinthCircuitinAhmedv.American^.^.Mut.Protection^Indem.Co., 640 ^.2d993(9thCir. 1981),suggestedthat the marineinsurers'exemption was enacted because of uncertainty whether direct action statutes were applicable in maritime law, ^d. at 996 n.5.this ^uncertainty" no longer exists, see notes and accompanying text ^^, and thus cannot be consideredajustification for the statute. ^^uiteapartfrom the jurisdictions that havespecificallyenacteddirect action statutes, see note 46 s^p^a, an even greater number of states have recognizedapohcy of granting to the injured plaintiff an interest in the wrongdoers insurance coverage under certain circumstances. See Continental Auto Ins. v.menuskin, 222 Ala. 370, , 132 ^o. 883, 884 (1931)^ Maryland Cas. Co. v. Waggoner, 193 Ark. 550, 555, 101^.W.2d 451, (1937)^ Morehouse v. ^n^ployer'sl^iab. Assurance Corp., 119 Conn. 416, 425, 177 A^568,573(1935)^Gothbergv.Nemerovski,58lll.App.2d372,383-85,208N.^2dl2, (1965)^unn v. clones, 143 I^an. 218, 223, 53P.2d 918, 921 (1936)^.S.^idelity^ Guar. Co. v. Williams, 148 Md. 289, , 129 A. 660, (1925)^ Mathewson v. Colpitts, 284 Mass. 581^ 585,188 N.^. 601, 602 (1933)^ Powers v. Wilson, 139 Minn. 309, 311,166 N.W.401, 402 (1918)^ Commercial Cas. Ins. Co^v.^kinner, 190 Miss. 533, 542,1 ^o. 2d 225, 226 (1941)^ Maryland Cas. Co. v. Martin, 88 N.^I. 346, 348, 189 A. 162, 164 (1937)^ Beacon l^amp Co. v. Traveller's Ins. Co., 61 N.^.^. 59, 68, 47 A. 579, (1900)^untzv.Stern, 135 Ohio 225, 230, 20 N.^. 2d 241, (1939)^ Aetna Cas.^ ^ur. Co. v. Gentry, 191 Okl. 659, , 132P.2d 326, 331 (1942)^ Boocks v. Cochran, 347 Pa. 36, 39, 31 A.2d 541, 542 (1943)^outhland Greyhound I^ines Inc. v.i^ennison, 62 ^.W.2d 500, 501 (Tex. App. 1933)^ State Perm Mut. Auto. Ins. Co. v.^iustis, 168 Va. 158, , 190 ^.^.163, 167 (1937)^ Nicktovich v. Olympic Motor Transit Co., 150 Wash. 278, , 272P.736, 738 (1928)^ Bro v. Standard^Accident Ins. Co., 194 Wis. 293, 296, 215 N.W.431, 432 (1927). ^Perhaps the most common approach is to characterize the injured third party asa third party beneficiary,seebes^a^eme^^(^eco^o^co^rac^^l33(l)^commentb (1973),under the insurance eontract.this position is illustrated by Gothberg v. Nemerovski, App. 2d 372, 208 N.^.2d 12 (1965), where thecourt held that the judgment creditors of an applicant for an automobile liability policy were entitled to sue the applicant's broker for failure to procure the policy, ^d. at , 208 N.^.2d at The broker argued that the creditors lacked standing to sue because of the absence of privity ofcontract.thecourtwasunpersuaded. Because of the importance of liability insurance to injured parties, the court was unwilling to regard such persons as mere ^incidental" beneficiaries of the insurance contract. See ^d. at 385, 208 N.^. 2d at 20. Accordingly, the court permittedadirect action against the broker. California has also taken the position that an injured claimant isathird party beneficiary of the wrongdoer's insurance policy inboththemotor vehicle, see Johnson v.