## Facts

- Cooney, an export packer/bailee, contracted with the Army and Air Force Exchange Service (Exchange) to handle Exchange merchandise.
- The contract required Cooney to “accept full liability as an insurer” of the property while in his custody and to reimburse the Exchange in full for any physical loss or damage “arising from any cause whatsoever.”
- A fire originating on adjoining premises destroyed more than $350,000 in Exchange merchandise stored at Cooney’s warehouse; the loss occurred without negligence by Cooney.
- Atlantic issued the Exchange an open fire insurance policy that covered shipments and stock at Cooney’s warehouse, but with a $100,000 limit for that location.
- After the fire, Atlantic paid the Exchange about $354,000 (approximately the full loss, less an amount Cooney had paid), and the Exchange executed loan receipts and/or assignments transferring its claim against Cooney to Atlantic.
- Atlantic sued Cooney as assignee and subrogee; Cooney’s liability insurer, National Union, intervened.
- The district court treated Atlantic’s payment above $100,000 as a “volunteer” payment and denied recovery beyond a limited amount; Atlantic appealed.

## Issues

1. Whether Atlantic’s payment to the Exchange in excess of the policy’s stated $100,000 location limit made Atlantic a “volunteer” barred from subrogation or reimbursement against Cooney.
2. Whether Cooney’s contract to be liable “as an insurer” and to reimburse for loss from “any cause whatsoever” imposed strict, primary liability for the fire loss despite absence of negligence.
3. Whether the Exchange’s loan-receipt/assignment arrangement validly preserved Atlantic’s standing to pursue the Exchange’s claim against Cooney.

## Decision

- The Ninth Circuit reversed the judgment against Atlantic and remanded.
- The court held Atlantic was not a barred “volunteer” and could pursue recovery as subrogee/assignee to the extent of its payment.
- The court held Cooney’s contractual undertaking made him primarily liable for the loss as an insurer of the goods while in his custody, even absent negligence.
- The court treated the loan receipts/assignments as valid mechanisms for Atlantic to prosecute the Exchange’s claim and avoid a windfall to Cooney and his insurer.

## Legal Principles

- A bailee’s express agreement to accept “full liability as an insurer” and to reimburse for loss “from any cause whatsoever” creates insurer-like, strict contractual liability for losses occurring while the goods are in the bailee’s custody.
- Subrogation permits an insurer that pays a loss to step into the insured’s rights against a party primarily liable for that loss, to the extent of the insurer’s payment.
- A payment made pursuant to an insurer-insured arrangement that contemplates reimbursement from responsible third parties (including via loan receipts/assignments) is not treated as an officious, gratuitous payment defeating subrogation, even if it exceeds a stated limit, where the equities and contractual framework support enforcement of the responsible party’s primary obligation.
- Equitable subrogation aims to place the ultimate loss on the party who, under contract and fairness, should bear it, and to prevent unjust enrichment of the primarily liable party and its insurer.

## Conclusion

The Ninth Circuit recognized Atlantic’s right, as assignee and subrogee, to enforce the Exchange’s contract claim against Cooney for the full fire loss because Cooney had assumed strict insurer-like liability for goods in his custody and Atlantic’s payment under the loan-receipt/assignment arrangement was not an impermissible volunteer payment.


Atl. Mut. Ins. Co. v. Cooney, 303 F.2d 253 (9th Cir. 1962)