Lusitania Disaster
and the Mixed Claims Commission
Part XI.A

Michael Sean Quinn

(For Further Information, See
Below)

The “Allied Powers”–most
significantly France, England, and the United States—won the First World War
and Germany-Austria, and others,  lost
it.  The European powers imposed upon
Germany the Treaty of Versailles.  The United
States congress rejected it party because it established the “League of
Nations,” something like a predecessor of today’s United Nations and partly
because the reparations provisions were too onerous and would therefore
probably have disastrous consequences for European stability and peace.

As a result, the United States and
Germany entered into a separate peace treaty,all be it, one that included many provisions taken  from the Versailles Treaty.  The U.S.-German treaty was entitled the
“Treaty of Berlin,” and it was officially signed August 25, 1921 in Berlin and
then ratified by both governments shortly thereafter.  It did not contain was a draconian rule of
reparations. In fact it created a separate, German-American only Mixed Claims
Commission (“MCC”).  This is quite a
story, and it has many and larger dimensions than those pertaining to the Lusitania.

The MCC was formed in on August  10, 1922, was extended by agreement on
December 31, 1928, functioned until 1939, and money was changing hands through
bond payments until long after the close of World War II—1979 perhaps. It
consisted of three members: a Commissioner (i.e., representative) of each
government and an umpire.  In other
words, MCC was an arbitration panel. Interestingly German insisted that the
“ump” be an American.  Cases were
presented and argued by “agents” for each government. Some of these “hearing
lawyers” lasted a long time.  Live
testimony was not heard. Witness testimony was presented by affidavit.  The agents explained and argued, but mainly
they negotiated settlements. 

MCC disposed of 20,433 claims. Awards
were entered in 7,025 of them, and they amounted to $181,351,008.45 not
including interest. Awards ranged from quite small to very large, with the
former being the vast majority.  Most of
the dispositions and awards were resolved very quickly, although a few—and one
in particular—took years and was eventually obstructed. Another source states
that by June 1925 more than 6700 cases had been settled and paid out. Chad
Millman, THE DETONATORS: THE SECRET PLOT TO DESTROY AMERICAN AND AN EPIC HUNT
FOR JUSTICE, 118± (2006).

The system was that amounts were paid
to the United States federal government, under the Settlement of War Claims Act
of 1928, in amounts determined by the MCC, and it then decided how to
distribute the recoveries. The MCC had nothing to do with deciding exactly who
got paid and how.

A fragmented record of some of  the MCC activities is to
be found in Volume VII, pp. 1-391 of the REPORTS OF INTERNATIONAL ARBITRAL
AWARDS (R.I.A.A. being the official bibliographical designation). The R.I.A.A
is now a United Nations document dated 2006. Most of the pages of Volume VIII
concern two very large claims caused by sabotage designed and carried out by
Germany. These were the most contested case, and the two books already
mentioned spend most of their time on them. 
They will be mentioned later.

It is not possible in this relatively
short blog-essay to cover all of the contents of the R.I.A.A. report, so I have
restricted my discussion to several small sections, mostly pertaining to
insurance in one way or another.

“Opinion in the
Lusitania Cases”

The foregoing title comes directly
from the R.I.A.A.  Report. The “court”
began receiving cases were decided on November 1, 1923.  In all cases before the MCC, only American nationals
has standing to seek recovery or be granted an award.  Some of them are real human persons; some are
companies of various sorts.  Those
involved in the Lusitania cases are all real human persons.  

In all cases, German was liable only
if it was the efficient and proximate cause of the injury or death.  If someone were injured or killed “merely”
because of the war, because of the existence of a war, or because of the
existence of that war (the “Great War”), there would be no recovery. That was
not terribly important in the context of the
Lusitania disaster, but it was important in other contexts, as we shall
see.  At the same time, it is important
to remember that Germany took responsibility for injuries and deaths inflicted
upon American nationals—a defined term–before the United States entered the
war.

For both periods of time, Germany was
responsible only for injuries it directly caused and those must be connected in
some crucial ways to bodily injury, including death, or property damage.   A child or spouse of a decedent might seek
and be awarded amounts for lack of income and/or for mental anguish, as it is
often called today, but a bystander might not or someone who read a news paper
about the drowning of a law partner.  Not
even a business associate of a decedent could recover. In Part XI.B, there will be a brief discussion as to how the Alfred Vanderbilt matter was handled. 

Under the Treaty of Berlin the MCC
has jurisdiction only to decide amounts of actual damages.  It had no jurisdiction to award fines,
penalties, and either exemplary or punitive  damages. 
Given all these facts, it should come as no surprise that the Lusitania cases were decided fairly
quickly. This is especially true in the Lusitania
cases, apparently. “In 1925, the commission assessed Germany $2.5 million to
be paid to American claimants in the Lusitania
sinking. By 1933, all but a relatively few of the claims were settled.”
Jules Witcover, SABOTAGE AT BLACK TOM: IMPERIAL GERMANY’S SECRET WAR IN AMERICA
– 1914-1917, 264 (1989). It appears that the average payment in the Lusitania Cases was $12,000, plus or minus. 
It might be well to
remember that figured in 1915 dollars an award of $12,000 would be $282,540.59
and that in 1925 dollars the 2015 sum would be $163,066.29.
The Umpire, Edwin B. Parker, a
Houston, Texas lawyer, wrote the “Opinion” setting up a criteria for deciding
the “Lusitania Cases,”  and both
Commissioners eventually concurred. The cases were treated at least very much
the same way as wrongful death cases are treated in America today.  An award to a plaintiff would not be reduced
by the amount of life insurance that person had received as a beneficiary under
a decedent’s policy. The German Commissioner disagreed with this view, but the
Umpire took the simple view that the beneficiary took directly under a contract
involving the inured, and s/he had that right independent of the cause of
death.  Life insurance, he said, was not
an indemnity agreement, unlike first party insurance, e.g., marine and fire
policies.  The Umpire took it that
reducing Germany’s liability would be a reward to a wrong doer.

So far as I can tell, those related
to the late-drowned, Alfred Vanderbilt did before the MCC.  Remember: actions of American nationals
before the MCC were (or were like, wrongful death claims) so the war risk
exclusions would be irrelevant.

Life Insurer Claims

The case of Provident
Mutual Life Insurance Company and [10] Others
v. Germany was an odd case. The plaintiffs, life insurers, sought recovery
on the basis of payment they had made under their policies. The argument was
that the payments were premature and so they did not receive premiums they
would otherwise have received. Instead of simply adding up the payments to some
degree accuracy (assuming that might be possible), the companies sought damages
on the basis that the early cutting off of premium collection caused by the
events of May 7, 1015, the company’s profits were wrongfully reduced, so they
were entitled to damages from Germany.

The Commissioners disagreed, so the Umpire decided the case. The
insurers did not recover.

American Commissioner: Chandler P.
Anderson.  The American view was quite simple. The
insurers were American Nationals. They had lost money, and a German U-boat was
the proximate cause. Therefore, German was liable to the insurers.

German Commissioner: Wilhelm. Kiesselbach.    The German view was rather more complicated and a paradigm of
subtle legal argument based upon sophistry. 
Kiesselbach started with the language of the Treaty.  It makes Germany liable for losses to
American nationals based on bodily injury or property damage—and that would
include destruction. He argues that when all the  language of the treaty is taken together and
given a uniform reading, the term “property” was intended to refer to “tangible
property.” Hence no property of any of the insurer plaintiffs was damaged or
destroyed. (Wilhelm Kiesselbach wrote a short book,  PROBLEMS OF THE GERMAN-AMERICAN CLAIMS COMMISSION. Edwin Zeydel translated it, and the Carnegie Endowment for International piece published it in 1930. It was reviewed at 41 YALE LAW REVIEW 650-51 (1932).)

The Umpire: Edwin B. Parker. The Umpire rejects
the American Commissioner’s view and doesn’t get as far as that of the German
Commissioner. According to Mr. Parker a life insurance policy can contain a war
risk exclusion or not.  If it does not,
and the insurer sells the insurance , and can be presumed to have calculated
death caused by war in various ways and that its computations will be found in
the premiums.

Moreover, the Treaty itself does not include life insurers
among those who are entitled to reparation-damages. Surviving-dependent are,
but not one else is said to qualify. In addition this is how the Treaty of
Versailles was interpreted, and the Treaty of Berlin, in relevant part, was
based on that of Versailles.

In addition, there is no reason to conceive of life insurance
has having a right of subrogation against Germany.  In general, the life insurer does not have a
right to step into the shoes of its insured. It is not, after all, a contract
of indemnity.  According to Ms. Parker,
no case had been located which would permit such an award, and his opinion
cites cases in which such applications have been denied. This is the law today;
since they are contracts of indemnity, a life insurer has no right of subrogation.

War Risk Insurance

            Several American industries purchased
war risk insurance when the war in Europe commenced sought reimbursement for
the sums spent.  Naturally such insurance
was expensive, even though in 1914 Congress created the Bureau of War Risk
Insurance inside the Treasury Department.  The facts of the case before it were not in
dispute.

The Bureau had issues 2,590 policies,
and claims were made under 29 of them. There were 13 ships involved. Of those
losses, 5 were directly attributable to Germany; 4 were based on British
detentions and seizure; 3 were presumably caused by German mines, and 1
(unsettled and in litigation) was “due to the wrecking of an American vessel on
a submerged rock while under the control of a British naval prize crew.”

            The
MCC held that the industries that were claimants could not meet their burden of
proof in showing that it s losses are attributable to Germany’s acts as a
proximate cause. The three Commissioners agreed, and the Umpire that wrote the
opinion points out that the Reparations Commission constituted under the
Versailles Treaty handled damages for having to buy war risk insurance in the
same way.

            On
first sight, it may be difficult to see why the losses directly caused by
Germany would not be recoverable. But that is the wrong way to look at the
problem. If I have understood the opinion correctly, and I am not at all
absolutely sure that I have,  it is the
purchase that is being sought as damages. But the purchase of that insurance is
not proximately caused by Germany’s conduct of the war, but by the war
itself.  If so, then Germany is not
liable for that amount.

            (Interestingly,
there is a discussion of similar cases during the Nineteenth Century. The most
interesting are the so-called Alabama-cases
which followed upon the Civil War.)

Subrogation?

            By far, the largest claims and the
ones that lasted the longest arose out of German sabotage at Black Tom Island
on the New Jersey side of New York harbor and at Kingsland, New Jersey, further
in land.  Aside from the size of the
claims and the criminal conduct that lead to them, there were political and
eventually ideological reason why these claims could not be settled with
relative dispatch.

            For
the purposes of this discussion, however, there is one point that is worth
noting. According to once source, there were at least 40 insurance companies
involved in investigating the loss.  Id.
at 281. Now, the land itself—no longer an island—belonged to the Lehigh Valley
Railroad Company, but it was also a manufacturing and industrial storage
facility where many business had operations.

            I
have inferred that this is why so many insurance companies were involved.  This would be natural in the case of property
insurance. Naturally, the insurer would be trying to determine whether they had
coverage and whether they had rights of subrogation. The issue of subrogation
raises some interesting questions.  Under
the Treaty of Berlin only American nationals could recover.  Of
course, one of the usual images of subrogation is that the insurer “steps into
the shoes” of the insured.  That may not
be quite right in this case, however. If a foreign insurance company was the
insurer, then it is not clear that it could recover.  I have not yet determined the answer to this
question, so the paper will have to be supplemented or modified on this point
in the future.

            (Most
of Volume VIII of the R.I.A.A. report pertains to the Black Tom and to the
Kingsland investigation. One of the American agents, Colonel Christopher B.
Garnett, wrote a 480- page report on the event, the litigation, the diplomacy,
and the international politics principally on Black Tom but also on
Kingsland. I have not yet found the Garnett paper or pleading.)  

Michael Sean Quinn, Ph.D.,
J.D., C.P.C.U. . . .

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