United States v. Atlantic Mutual Insurance Co.

A group of cargo owners (plaintiffs) shipped goods on the Nathaniel Bacon (the Bacon), a steamship owned by the United States (defendant) and operated as a cargo vessel for hire. The bill of lading for the shipment of the goods on the Bacon included a “both-to-blame” clause, which required the cargo owners to indemnify the Bacon for any losses the Bacon might be forced to pay in a both-to-blame collision with another ship. During the voyage, the Bacon was in a collision with another vessel, the Esso Belgium, and the cargo was damaged. The cargo owners and their insurers (plaintiffs) brought suit against the United States in federal district court. The litigation addressed liability for both the damages to be paid to the cargo owners and the physical damages to both vessels. The court determined that both vessels were at fault and that the Belgium must pay 100 percent of the cargo owners’ damages. The court additionally held that the combined total of all damages, including the cargo damages, must be split equally between the vessels, with the vessel-damages calculations to take into account the cargo damages to be paid by the Belgium to the cargo owners. The district court also ruled that the “both-to-blame” clause in the bill of lading for the Bacon cargo was valid. Upon appeal by the cargo owners and the insurers, the court of appeals held that the clause was invalid. The United States appealed.