proposition that, although the federal tax may increase cost of state governments, it may be imposed if it does not curtail functions essential to their existence. Expressly or sub silentio, it overrules a century of precedents. Cf. James v. Dravo Contracting Co. (December 6, 1937) 302 U. S. 134, 152, 161; Helvering v. Mountain Producers Corporation (March 7, 1938) 303 U. S. 376. As they stood when the cases now before us were in the Circuit Court of Appeals, our decisions required it to hold that the salaries paid by the Port Authority to respondents are not subject to federal taxation. I would affirm its judgments.

MR. JUSTICE MCREYNOLDS concurs in this opinion.

AETNA INSURANCE CO. v. UNITED FRUIT CO.*

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

No. 773. Argued April 25, 26, 1938. Decided May 23, 1938. 1. The purpose of a stipulation fixing the value of the vessel in a marine hull insurance policy undertaking to indemnify insured irrespective of the actual value is to dispense with proof of value in establishing the extent of liability assumed on the policy. P. 434. 2. Such a valuation clause, beyond its controlling effect in determining the insurance liability, does not operate, either as an estoppel or by agreement, to exclude proof of actual value, when relevant. P. 435.

3. The valued policy, like an open policy, is a contract of indemnity; in either case the indemnitor is entitled to share in the insured's recovery of damages for loss of the ship only by

*Together with No. 774, Union Marine & General Ins. Co. v. United Fruit Co., and No. 775, Boston Insurance Co. v. Same, also on writs of certiorari to the Circuit Court of Appeals for the Second Circuit.

430

Statement of the Case.

way of subrogation, the sole object of which is to make indemnity to the insured up to the amount of the policy the measure of the liability of the insurer. P. 436.

4. There is no analogy between the insurer's right to be subrogated to the fruits of the insured's recovery from a wrongdoer and the insurer's right to a wreck which is his by abandonment. P. 437. 5. Underwriters insured the hull of a vessel by policies in which the value of the hull was agreed upon at an amount stated, and each of which provided for a stipulated indemnity to the owner irrespective of the actual value of the vessel. The agreed value was less than the actual value of the hull, so that the owner was uninsured for the difference. As protection against the risk, the owner procured from English underwriters additional P. P. I. (policy proof of interest) policies, which waived all right of subrogation and were "honor" policies payable only at the option of the insurers because unenforceable under the applicable Act of Parliament. Upon a total loss of the vessel by collision with a vessel of the United States, all the policies were paid in full. Thereafter the owner and the underwriters upon the valued policies joined in pressing their claims against the United States, and, in a suit under a special Act of Congress not allowing recovery of interest, there was recovery of the value of the vessel, much exceeding the total insurance. Held that in the adjustment, the insurers upon the valued policies were entitled by way of subrogation to no more than the amounts they had paid on their policies, without interest, less their respective shares of the expenses attending the recovery. North of England Iron S. S. Ins. Assn. v. Armstrong, (1870) L. R. 5 Q. B. 244, disapproved. P. 438.

The insurers submitted no interest computations and made no effort to sustain the burden of proving that the owner had received more than indemnity for the delay in payment of so much of the loss as was not covered by insurance.

92 F. 2d 576, affirmed.

CERTIORARI, 303 U. S. 631, to review affirmances, with modifications, of judgments for interest and expenses recovered by three marine insurance companies in actions at law against the owner of a lost vessel. By agreement, the actions were tried together to the court and one juror. The trial court directed verdicts.

Mr. D. Roger Englar, with whom Messrs. T. Catesby Jones, Oscar R. Houston, and Martin Detels were on the brief, for petitioners.

Mr. Cletus Keating, with whom Mr. Richard Sullivan was on the brief, for respondent.

MR. JUSTICE STONE delivered the opinion of the Court.

The question for decision is how far hull insurers upon a valued marine insurance policy are entitled, in case of total loss, to participate by way of subrogation in a recovery by the insured against a tortfeasor responsible for the loss.

In 1918 petitioners, with several other underwriters, insured the hull of respondent's vessel, the "Almirante," by policies in which it was agreed that the value of the hull was $632,610, materially less than its true value. The policies provided for a stipulated indemnity to the owner "irrespective of the value of the vessel," and that the owner was free to effect other insurance to any amount and without disclosure of the amounts so insured. As the total of the valued policies was $582,002.25, respondent was co-insurer for about $50,000; and so far as the valued hull policies were concerned it was uninsured, to the extent of any loss, in excess of the stipulated value. As protection against these risks, respondent procured from English underwriters additional P. P. I. (policy proof of interest) insurance, aggregating £65,105, partly upon hull and partly against other losses incidental to total loss of the vessel. The P. P. I. policies waived all rights of subrogation and were "honor" policies, concededly payable only at the option of the insurers because unenforceable under the Act of Parliament of December 31, 1906, § 4. Edwards & Co. v. Motor Union Ins. Co., [1922] 2 K. B. D. 249.

430

Opinion of the Court.

In 1918 the "Almirante" became a total loss as the result of a collision with the S. S. "Hisko," a vessel belonging to the United States Government. The underwriters of both the valued policies and the P. P. I. policies paid them in full. The former joined with respondent in retaining attorneys to press the claims for collision damages against the United States. Suit brought against the United States under a special act of Congress, resulted in a recovery which included $1,750,000 as the value of the vessel, but without interest since the act did not authorize allowance of interest. Compare Boston Sand & Gravel Co. v. United States, 278 U. S. 41, 47. Distribution of the proceeds of the suit was made in accordance with a computation by insurance adjusters who apportioned the expenses of the suit among respondent and the underwriters, and allotted to the latter the amounts they had paid on their policies without interest, less their respective shares of the expenses.

Petitioners, who are underwriters on some of the valued hull policies, brought the present suit in the district court for southern New York to participate in respondent's recovery against the United States. Relying on the valuation clause of their policies as conclusively fixing the value of the vessel for all purposes of the adjustment, they contest the allotment, insisting that they should bear no part of the expenses, and that they are entitled to interest on the amounts of their policies from the several dates on which they were paid. They also make, but do not stress here, the point that the hull insurers are entitled to the whole recovery. The district court gave judgment for the full amount which petitioners had paid on their policies without deduction. for expenses, but without addition of interest. 18 F. Supp. 441. On appeal by both parties, the Court of Appeals held that petitioners were entitled to neither

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Opinion of the Court.

304 U.S.

interest nor expenses, and modified the judgment accordingly. 92 F. 2d 576. We granted certiorari, 303 U. S. 631, because of the admitted conflict of the decision below with that of the Court of Queen's Bench in North of England Iron S. S. Ins. Assn. v. Armstrong (1870) L. R. 5 Q. B. 244. See Queen Insurance Co. v. Globe & Rutgers Fire Ins. Co., 263 U. S. 487, 493; Gulf Refining Co. v. Atlantic Mutual Ins. Co., 279 U. S. 708, 715.

Petitioners' argument turns upon their contention that the valuation clause, either by estoppel or by contract, is conclusive between the parties for all purposes and that as respondent has recovered from the Government more than the stipulated value of the vessel, petitioners are entitled to the benefit of the recovery, at least to the full extent of the payments on their policies with interest. We think that the valuation clause in its usual form does not operate as an estoppel or by agreement to foreclose proof that actual value exceeds agreed value when the question is of the insurer's right to subrogation. The application of the agreed value to the insurance adjustment does not depend upon estoppel, Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, 712; British & Foreign Marine Ins. Co. v. Maldonado & Co., 182 F. 744, and there can be no basis for an estoppel at least where, as here, the policy provisions undertake to indemnify the insured irrespective of the value of the vessel and contemplate that the insured may effect other insurance. The valuation stipulation fixes in advance of loss the value of the vessel, so as to avoid the necessity of proof of value in order to establish the extent of the liability assumed on the policy. The agreed value, honestly arrived at, thus stands in the place of prime value under an open marine policy, Gulf Refining Co. v. Atlantic Mutual Ins. Co., supra, 711; St. Paul Fire & Marine Ins. Co. v. Pure Oil Co., 63 F. 2d 771, and resembles, in its practical operation, a stipulation for liquidated damages.