Respondent issued a war risk insurance policy for $27,690 upon a cargo of gasoline, owned by petitioner's predecessor in interest and valued in the policy at $212,000, on board the tanker Gulflight, bound from Port Arthur, Tex., to Rouen. On the voyage the Gulflight was torpedoed and put into a port of refuge, where, in consequence of the injury to the ship, damages and expenses of a general average nature were incurred. A general average contribution of $49,088.04, the correctness of which is not questioned, was assessed against the cargo on the basis of the actual value of the cargo at destination, which was taken to be $417,178. Petitioner made claim on the policy for indemnity of $6,411.54, the proportion of the general average contribution which the amount of the policy bore to the agreed policy value of the cargo. Respondent paid only $3,258.25, that portion of the indemnity claimed which the agreed policy value bore to sound value at the time of the contribution, or that portion of the general average contribution which the amount of insurance bore to sound value.
In a suit in admiralty in the District Court for Southern New York to recover the balance claimed, that court confirmed the report of its commissioner (1927 A. M. C. 1669), and gave judgment for petitioner, which was reversed by the Circuit Court of Appeals for the Second Circuit. 27 F.(2d) 678. This court granted certiorari November 26, 1928 (278 U.S. 595, 49 S.C.t. 82, 73 L. Ed. -), because of a conflict of opinion between that and the Circuit Court of Appeals for the Ninth Circuit. British & Foreign Marine Insurance Co. v. Maldonado & Co. (C. C. A.) 182 F. 744, certiorari denied, 220 U.S. 622, 31 S.C.t. 724, 55 L. Ed. 613.
The sole question presented here is whether, in adjusting a general average loss upon cargo insurance under a valued policy, the insured is coinsurer to the extent that the sound value of the cargo at the time of contribution exceeds its agreed value, or, stated in somewhat different form, whether the effect of a valued policy on cargo, in limiting the liability of the insurer, is the same in the case of a general average as of a particular average loss.
It has long been the accepted rule that in the case of a partial loss of cargo insured under a valued policy, with the valuation honestly made, the insured, in case of increase or decrease in its value, recovers that proportion of his loss which the agreed value. or so much of it as was assumed by the particular insurer, bears to the sound value. In case of an increase in value, his recovery is thus limited as though he were a coinsurer. Lewis v. Rucker, 3 Burr. 1167; Johnson v. Sheddon, 2 East, 581. See Tunno v. Edwards, 12 East, 488; Lawrence v. New York Insurance Co., 3 Johns. Cas. (N. Y.) 217, 218; Forbes v. Manufacturers' Ins. Co., 67 Mass. (1 Gray) 371; London Assurance v. Companhia de Moagens, 167 U.S. 149, 171, 17 S.C.t. 785, 42 L. Ed. 113; British & Foreign Ins. Co. v. Maldonado & Co., supra; International Navigation Co. v. Atlantic Mutual Insurance Co. (D. C.) 100 F. 304, 317, 318, affirmed (C. C. 108 F. 987, certiorari denied 181 U.S. 623, 21 S.C.t. 926, 45 L. Ed. 1033. So applied, the rule permits the adjustment of the premlum to an assumed certain and unchanging value of the subject of the insurance, and protects the underwriter against increases in liability because of increase in value of the cargo, as it protects the insured against diminution of his right to recover which might otherwise result from a decrease in value. It recognizes that the purpose of valuing the cargo is not to fix the maximum amount of recovery, which is accomplished by limiting the amount of the policy, but to eliminate from the risk which the insurer assumes so much of it as is consequent upon fluctuations of the market value of the cargo, whether the loss be total or partial. For under it the insurer's liability for the loss suffered can never be greater or less than if the actual value were the agreed value. Agreed value thus stands in the place of prime value under an open marine policy, where the insured recovers covers such part of his loss as prime value bears to sound value. See Lewis v. Rucker, supra, 3 Burr. at page 1171; Usher v. Noble, 12 East, 639, 646; Clark v. United Fire & Marine Insurance Co., 7 Mass. 365, 5 Am. Dec. 50.