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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