
    409 F. 2d 1363
    MARYLAND SHIPBUILDING AND DRYDOCK COMPANY v. THE UNITED STATES
    [No. 350-64.
    Decided April 11, 1969]
    
      
      Numa L. Smith, Jr., attorney of record, for plaintiff. David B. Owen, Clarence T. Kipps, Jr., Miller & Chevalier, and George D. Hubbard, Semmes, Bowen & Semmes, of counsel.
    
      Edna G. Parker, with whom was Assistant Attorney General Johnnie M. Walters, for defendant.
    Before Cowen, Chief Judge, Laramore, Dureee, Davis, Collins, Skelton and Nichols, Judges.
    
   Per Curiam: This case was referred to Trial Commissioner George Willi with, directions to make findings of fact and recommendation for conclusion of law under the order of reference and Pule 57(a). The commissioner lias done so in an opinion and report filed on November 26,1968. Exceptions to the commissioner’s opinion were filed by the parties on January 9, 1969; however, on February 17, 1969, the parties filed a stipulation wherein they withdrew their respective notices of intention to except to the commissioner’s opinion and report and further stipulated that the court may adopt the opinion, findings of fact and recommended conclusion of law contained in the commissioner’s said report and enter judgment based thereon. Further, plaintiff has agreed that it will withdraw or take no further action on its protective alternative refund claims, Form 843, for the years 1958 and 1961, which were filed with the District Director of Internal Kevenue, Baltimore, Maryland, on or about March 12,1965. Since the court agrees with the commissioner’s opinion, findings, and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case without oral argument. Therefore, plaintiff is entitled to recover and judgment is entered for plaintiff with the amount of recovery to be determined pursuant to Kule 47(c).

OPINION OP COMMISSIONER

Willi, Commissioner:

This tax refund suit for 1960 presents two issues, both concerned with the tax treatment to be accorded certain insurance proceeds that the plaintiff received on account of an accident that occurred in its Baltimore shipyard. The factual details surrounding this occurrence 'and its aftermath are set forth 'at length in the findings of fact accompanying this opinion. Only those facts central to the decision reached will be restated here.

Plaintiff, an accrual-basis taxpayer, operates a shipbuilding and ship repair business that utilizes piers, buildings, cranes, and four floating drydocks.

On October 28, 1960, through the negligence of plaintiff’s employees, a merchant ship developed a serious list while being berthed in drydock #1. Before the vessel could be righted it suffered extensive damage and, in addition, damaged drydock ’#1 to the extent that it sank. Lesser damage to another drydock, adjacent piers, and other structures and equipment, also resulted.

On the date of the accident Maryland had two sets of insurance polices in effect, Shiprepairers Liability policies (hereafter referred to as “SEL” policies) and Hull policies, issued by Lloyd’s of London and by the Institute of London Underwriters. There was a Hull policy issued by Lloyd’s and a Hull policy issued by the Institute; there were two SEL policies issued by Lloyd’s (one primary coverage and one excess coverage) and two SEL policies issued by the Institute. The total SEL coverage here was $8,000,000 ($2,000,000 primary coverage and $6,000,000 excess). The Lloyd’s syndicates, the companies, and the percentage of risk underwritten by each were the same on the Hull policies as on the SEL policies; the risk apportionment being approximately 70 percent with Lloyd’s and 30 percent with the companies.

The Hull policies contained a Section C, entitled “DOCKS — LOSS OF EAENINGS” which provided as follows:

If in consequence of an accident or occurrence which would be covered under SECTION B -of this Policy [SECTION B — DOCKS] * * * the Dry Docks are prevented from operating, this Section is to indemnify the Assured for a complete stoppage $5,000 per day, or proportionately for a partial stoppage, in excess of the first Five (5) days, for the period any Dry Dock is so prevented from operating but for not exceeding Sixty (60) days (irrespective of the expiry date of this insurance) in respect of any one accident or occurrence.
It is hereby agreed that the sum of $300,000 (THEEE HÜNDKED THOUSAND UNITED STATES DOLLAES) is agreed by the Underwriters and the Assured as correctly representing the Loss of Earnings in respect of each Dry Dock which the Assured would sustain if they were entirely prevented from operating any one of the said Dry Docks during a period of Sixty (60) days.

As will be seen, the accident permanently disabled drydock #1. Accordingly, plaintiff received the $300,000 referred to in the policy language quoted above. For federal tax purposes, it declared this sum on its 1960 return as gain resulting from an involuntary conversion under Section 1231 of the Internal Revenue Code of 1954. The Commissioner of Internal Revenue disallowed this treatment, contending that the $300,000 was taxable as ordinary income to plaintiff. Unreconciled disagreement as to this item represents one of the two issues presented for decision.

It is undisputed that the insurance money that plaintiff received for the property loss of drydock #1, as later discussed, constituted involuntary conversion proceeds. In contending for similar treatment as to the $300,000, plaintiff urges that this was simply compensation for loss of the right to use the dock in its business — an appurtenant and inseparable attribute of outright ownership of the dock. Whatever the conceptual appeal of such an approach to the problem as an original proposition, the argument is foreclosed by the express language of the policy. After specifying $5,000 as the indemnity payment for each day of total downtime experienced by plaintiff, up to a 60-day maximum, the policy goes on to recite precisely what plaintiff and the insurer have agreed that the payments are to represent. The payments are characterized “* * * as correctly representing the Loss of Earnings in respect of each Dry Dock which the Assured would sustain if they were entirely prevented from operating any one of the said Dry Docks * * (Emphasis added.) No reason is offered, and none is apparent, for rejecting the parties’ explicit contractual understanding as to the nature and purpose of the daily indemnity monies. The fundamental principle that the taxable status of such monies to the recipient is identical to that of the profits that they are intended to replace is long-established and generally unquestioned. Miller v. Hoching Glass Co., 80 F. 2d 436, 437 (6th Cir. 1935), cert. denied, 298 U.S. 659 (1936); Marcal Pulp & Paper, Inc. v. Commissioner, 30 T.C. 1345, 1350 (1958), aff’d per curiam, 268 F. 2d 739 (3d Cir. 1959), cert. denied, 361 U.S. 924 (1959); Oppenheim's, Inc. v. Kavanagh, 90 F. Supp. 107, 111-112 (E.D. Mich. 1950); Massillon-Gleveland-Alaron Sign Co. v. Commissioner, 15 T.C. 79, 84-85 (1950). See also Sec. 1.1033 (a)-2(8), Treasury Regulations under the 1954 Code.

Each of the three decisions on which plaintiff relies for its involuntary conversion contentions expressly approves the authorities set forth above and pointedly distinguishes them factually. The holdings in ’Williams Furniture Corp. v. Commissioner, 45 B.T.A. 928, 937 (1941), acg., 1942-1 Cum. Bull. 17; Shakertown Corp. v. Commissioner, 277 F. 2d 625, 628 (6th Cir. I960); and Darlington Veneer Co. v. Commissioner, P-H Tax Ct. Mem. 124, ¶ 42,056 (1942), were expressly predicated on the fact that, unlike the coverage here involved, the policies provided for a flat daily indemnity payment basically unrelated in amount to profits or the loss thereof.

In May of 1961, plaintiff received a lump-sum payment of $3,000,000 from the underwriters in final settlement of its rights under the property damage coverage on dry dock #1 pertaining to the October 1960 accident. Plaintiff declared the gain resulting from this involuntary conversion on its 1961 return, and the Internal Revenue Service took the position that the entire payment had accrued to plaintiff for federal tax purposes in 1960 and was therefore reportable in that year. A deficiency was 'assessed and issue was thus joined on the remaining issue in this case, i.e., whether any part of the $3,000,000 payment was properly accruable in 1960.

As is usual where the question is that of accrual, the dispute here turns on the application, not the selection of controlling legal principles. With an accrual-basis taxpayer such as plaintiff, it is crystallization of the right to receive income, not prior expectation nor subsequent receipt, that determines the year in which the income must be declared for federal tax purposes. Spring City Co. v. Commissioner, 292 U.S. 182, 184-85 (1934). As this court observed in Breese Corporation, Inc. v. United States, 127 Ct. 01. 261, 267, 117 F. Supp. 404, 407 (1954), “* * * before an item of income may be accrued, there must be a fixed, determined and enforceable right to receive a reasonably ascertainable amount.”

The Government contends that by the end of 1960, $1,500,-000 of the $3,000,000 received in May of the following year met the test for tax accrual because of the interaction of then-known facts and plaintiff’s rights under its valued insurance policies — the Hull policies.

Plaintiff’s property damage exposure was covered under both its SEL and Hull policies.

As previously noted, the SEL property damage coverage was $8,000,000; $2,000,000 primary coverage and $6,000,000 excess. The insured value of drydock #1 under the Hull policies was $1,500,000.

In the event of a casualty such as occurred here, the insured had two types of claim options under the Hull policies. Upon a satisfactory showing that the cost of raising and repairing the drydock would exceed its insured value of $1,500,000, the insured could claim a constructive total loss and, after filing a timely notice of abandonment of the damaged property to the underwriters, collect $1,500,000. The insured’s other alternative under this coverage was to claim reimbursement, up to a maximum of $1,500,000, for the cost actually incurred in raising and repairing the drydock.

In addition to the described coverage respecting property damage to the drydock itself, the particular Hull policies here involved contained a provision unique to this type coverage — a third-party liability feature embodied in a so-called Protection 'and Indemnity [P&I] clause. See finding 7, infra. Whether,, in the event that a $1,500,000 constructive total loss had been claimed and allowed, the coverage afforded by the P&I clause would have reimbursed plaintiff for the cost of removing the drydock wreckage from its premises was never determined. Though there was not unanimity, either way, on the question among the underwriters, plaintiff always assumed that a clause dealing with liability to third parties would not cover, removal costs of wreckage located on the insured’s own property.

SEL policies of the type held by plaintiff conventionally cover the insured’s liability to third parties for the cost of repairing damages to their property. These particular policies, however, contained a clause extending the coverage to the repair of damages sustained by the insured’s own property and caused by vessels or other craft under construction or repair in the insured’s yard. This was the provision on which plaintiff relied for the recovery, albeit a cash recovery for unrepaired damages, that it sought and ultimately obtained from the underwriters.

Finally, these particular SKL policies included’ still another clause that was generally alien to such coverage. It provided:

This insurance is in no event to be liable for any loss, damage and/or expense to the vessel or vessels or property which may be recovered under any other insurance except as to any excess over and above suck amounts recovered in respect of any claim for which this insurance would otherwise have been liable, and excepting the liability of the Assured under rights subrogated to such other insurers. (Emphasis added.)

This clause in the SRL policies, coupled with the factual aspects of liability and damage questions developed early in the accident investigation, is the mainspring of the Government’s contention that as of December 31, 1960, plaintiff had to accrue $1,500,000 of its $3,000,000 1961 insurance recovery. Simpliciter, the argument is that the quoted language denominates the unvalued SKL coverage as excess to that of the valued Hull policies; that the insured was therefore compelled to first exhaust its recovery rights und'er the Hull policies; and that on the facts extant as of December 31, 1960, there is no question but that the underwriters would have declared drydock #1 a constructive total loss under the Hull policies and paid plaintiff the valued sum of $1,500,000.

The Government’s theory of 1960 accrual is invalidated both by the fallacy of its construction of the policy language and, more importantly, by its omission of one decisive factual consideration.

It is plain from the quoted policy language, and especially the underscored portion of it, that the SKL clause relied on by the Government is nothing more than an anti-windfall device. As such., it simply gives contractual recognition to the statutory prohibition in British law against double insurance recoveries for the same loss. Marine Insurance Act, 1906, 6 Edw. 7, Ch. 41, Sec. 32(2) (c), (finding 9, infra). Contrary to the Government’s assertion, the clause does not tell the insured that he must first proceed under any outstanding valued coverage; only, that in claiming under the SEL coverage, he must give effect to any amounts that he has already recovered under valued policies in respect to the same loss. This, coupled with the fact that plaintiff never asserted a claim under its Hull policies because of the limited cash-recovery possibilities offered by them, relegates the Government’s policy language argument to the status of an inaccurate abstraction.

The factual flaw in the Government’s theory of mandatory 1960 accrual of potential though unclaimed Hull policy proceeds, lies in the erroneous assumption that, without more, the case for such accrual is established once it is found, as it is herein, that within the year 1960 the insurers would have accepted plaintiff’s claim for a constructive total loss and paid it $1,500,000. The theory fails because it is equally clear from the record, essentially undisputed by the Government, and so found, that within 1960 the insurers would only have unequivocally agreed to pay the valued sum of $1,500,000 if plaintiff had reciprocally agreed, generally, to accept that amount in total settlement of its drydock property damage claim and, specifically, to forego the right to assert any further claim in respect thereto under the SEL policies. The attachment of such a condition to a willingness to pay prevents the recipient’s accrual of the amount involved.

When the cases speak of “a fixed right to receive” an amount as the touchstone of its accruability for federal tax purposes, they plainly comprehend a “right” that is enforceable with no strings attached — not a “right” the exercise of which must be purchased by the beneficiary with the surrender of some other related and valuable right such as, in tbis case, the right to pursue the possibilities for an additional recovery under the SEL policies.

The applicable principle is well-illustrated by the decision in American Hotels Corp. v. Commissioner, 134 F. 2d 817 (2d Cir. 1943). There the taxpayer operated a hotel for a life insurance company under a management contract. It was discovered that the taxpayer’s resident manager misappropriated $42,000 for which he could not make current restitution. The insurance company called on the taxpayer to make good the loss. Because maintenance of the insurance company’s goodwill was vital, the taxpayer was prepared to do whatever was necessary to resolve the matter in a maimer satisfactory to its landlord. It kept this decision to itself, however, and in December 1937, offered the insurance company $4,200 (10 percent of the loss) in full settlement of the entire matter. This offer was rejected and in April 1938, the parties concluded a settlement for $25,000. The taxpayer claimed a $25,000 deduction on its 1937 return which the Commissioner of Internal Eevenue disallowed on the ground that the expense had not been incurred in that year. The Tax Court upheld the Commissioner’s view. In affirming, the Second Circuit said (134 F. 2d at 819):

* * * when, as here, the taxpayer keeps its books on an accrual basis, such a deduction can be taken only for the taxable year in which the expense was “incurred.” That means that there must be some reasonably clear definitization, within that year, of the amount of the expenses. Whether or not there was, depends upon the peculiar facts of each particular case. We think that here there was substantial evidence to sustain the finding of the Tax Court that there was no such definitization in the taxable year 1937.
In that year the taxpayer offered to pay $4,200. Had it then said unconditionally that it would pay that sum, leaving open for further negotiations any greater liability, perhaps it could have deducted $1¡.$00 for 1937. But that it did not do; it offered that amount only on condition that it be released in full. The amount claimed by Metropolitan was $42,000, and the taxpayer, although it did not so advise Metropolitan, was then prepared to go even beyond that limit; but taxpayer, in 1937, did not know how far it would go; it was ready to pay 'anything from $4,200 up to an undetermined maximum. In fact, in 1938, it agreed to pay $25,000. But, as there was no expression in 1937 of a willingness u/nconditionally to pay any definite amount, we cannot say that the Tam Oourt was not justified in finding that no expense was then incurred. (Emphasis added.)

The status of the taxpayer’s 1937 settlement offer of $4,200 in American Hotels, supra, is precisely analogous to that of the $1,500,000 Hull policy proceeds throughout 1960 in the instant case. The 'bare fact that plaintiff could have had those proceeds, or an ironclad promise for them, in 1960 does not furnish a basis for accrual any more than it did as to the $4,200 tendered in American Hotels.

The uncontradicted evidence in this case shows that in late December 1960, the plaintiff, through its London insurance broker, unsuccessfully attempted to secure an unconditional agreement from the insurers to adjust the drydock loss under the SEL policies, first giving effect to the $1,500,000 valued coverage of the Hull policies. The insurers specifically refused to agree to “pay” under this adjustment format, being willing only to say that they would “consider” such an approach. (Finding 32, infra.) This express equivocation by the insurers conclusively deprives the Hull policy proceeds of the fixed and autonomous status essential to accrual. In short, even though all facts known in 1960 pointed to the likelihood that plaintiff would eventually recover the amount of the Hull proceeds for its drydock loss, accrual at that time would have been premature because the insurer-obligors refused in good faith to denominate the amount of such proceeds as a floor figure within the context of the claim at large.

Luckenbach Steamship Co., 9 T.C. 662 (1947), demonstrates the degree of definiteness that is prerequisite to the tax accrual of an item of potential receipt. The accrual issue concerned the tax treatment to 'be accorded indemnity payments ultimately made to the owners of ships lost at sea while under charter to the War Shipping Administration. The full Tax Court stated (at 674) that even a tender of partial payment to the owners with the unqualified right in them to file suit for just compensation as to the balance of their claims did not Constitute “* * * an unconditional offer of payment upon which an accrual of income could be based.”

In the particular area of accrual of insurance proceeds it has been held that the amount thereof, even after the amount of the loss has been fully 'adjusted, is not accruable at all until the insurer 'has formally waived co-insurance requirements that applied to only a part of the property items comprising the loss. Georgia Carolina Chemical Co., 3 Tax Ct. Mem. 1213, 1216 (1944).

An example of insurance proceeds meeting the criteria for accrual in a taxable period prior to that of receipt is found in Max Kurtz, et al., 8 B.T.A. 679, 684 (1927), where the Board found a prompt admission of liability by the insurer coupled with an unqualified concession as to the bulk of the loss claimed 'by the insured to be sufficient to sustain an accrual in the earlier period. Such a situation is far removed from that at hand where, during 1960, the insurers studiously avoided making any firm commitment as to either overall policy coverage or total amount of the loss. An unqualified recognition of liability by the obligor is the essence of accrual by the prospective recipient. 2 MERTENS, LAW OF FEDERAL INCOME TAXATION Sec. 12.61 (1967 Rev.). An insurer’s tacit recognition of the fact and general extent of damage suffered by its insured, which is all that occurred here in 1960, does not meet or displace this central requirement of admission of liability.

The insurers’ equivocal stance respecting liability throughout 1960 assumes controlling significance for accrual purposes when coupled with the fact that there is no suggestion in the record that plaintiff acted in any way to forestall agreement as to the basic principles of liability and damage on which a settlement could be founded. In short, there is no indication that for tax or other extrameritorious reasons plaintiff attempted to influence or manipulate the timing of a settlement agreement. Cf. E. Morris Cox, 43 T.C. 448, 457, n. 3 (1965). The bar to earlier agreement was simply plaintiff’s persistence in asserting recovery rights under the higher-limit SRL policies — 'an approach that it initially adopted for sound business reasons and under which it finally prevailed in 1961.

In summary, the business interruption proceeds received by plaintiff are taxable as ordinary income and no part of the property damage proceeds received in 1961 is taxable to plaintiff in 1960.

Findings on Fact

1. During the period in suit, Maryland Shipbuilding and Drydock Company (“Maryland”) operated a shipbuilding and shiprepair business at Baltimore, Maryland. For federal tax purposes it kept its books and filed its returns on a calendar-year basis.

2. The property owned by Maryland and used in its business included four floating drydocks, piers, buildings, and cranes.

3. On October 28, 1960, an accident occurred while the SS MOKMACPENN was being raised in drydock #1, one of Maryland’s four drydocks. The vessel listed and struck the side of drydock #1, extensively damaging the vessel, dry-dock #1, another drydock, adjacent piers, and other structures and equipment owned by Maryland.

4. Drydock #1 consisted of seven sections joined by pins roughly comparable to the coupling of railroad cars. Six of the seven sections were made almost entirely of wood. Each section consisted of a water-tight pontoon, which is the buoyancy chamber upon which the vessel rests, and two wing-walls, one on each side, attached to the pontoon in a flat U-shape. The purpose of the wingwalls is to keep the pumping mechanism above water when the pontoon is flooded and sunk to the extent necessary to take the vessel on top of it. The interiors of the pontoons and the wingwalls were a very highly complicated mass of wooden members and steel trusses all secured together by giant steel spikes, bolts, and other fastenings. All of the strength members of each section were on the inside of the pontoon and the wingwalls.

5. On October 28,1960, Maryland had two sets of insurance policies in effect, Shiprepairers Liability policies (hereafter referred to as “SEL” policies) and Hull policies, issued by-Lloyd’s of London and by tbe Institute of London Underwriters. There was a Hull policy issued by Lloyd’s and a Hull policy issued by tbe Institute; there were two SEL policies issued by Lloyd’s (one primary coverage and one excess coverage) and two SEL policies issued by the Institute.

The SEL coverage here was $8,000,000 ($2,000,000 primary coverage and $6,000,000 excess). The Lloyd’s syndicates, the companies, and the percentage of risk underwritten by each were the same on the Hull policies as on the SEL policies; the risk apportionment being approximately TO percent with Lloyd’s and 30 percent with the companies.

6. The Hull policies covered damage to or loss of particular items of property, such as piers and drydocks, with specific insured values assigned to each item. The insured value of drydock #1 under the Hull policies was $1,500,000.

7. The Hull policies also contained a Protection and Indemnity (hereafter referred to as “P&I”) clause. It was unusual to have a P&I clause in a Hull policy, because such a clause normally covers liability to third parties. The terms of this particular P&I clause were also unusual and read as follows:

AND WE FUETHEE AGEEE that if the Assured shall become liable to pay and shall pay any sum or sums in respect of any responsibility, claim, demand, damages and/or expenses or shall incur any other loss arising from or occasioned by any of the following matters or things during the currency of this policy in respect of the Drydock hereby insured * * *.
We will pay the Assured such proportion of such sum or sums so paid, or which may be required to indemnify the Assured for such loss as our respective subscriptions bear to the policy value of the Drydock hereby insured * * *.

The Hull policies also contained Section C, entitled “DOCKS — LOSS OF EAENINGS” which provided as follows:

If in consequence of an accident or occurrence which would be covered under SECTION B of this Policy [SECTION B — DOCKS] * * * the Dry Docks are prevented from operating, this Section is to indemnify the Assured for a complete stoppage $5,000 per day, or proportionately for a partial stoppage, in excess of the first Five (5) days, for the period any Dry Dock is so prevented from operating but for not exceeding Sixty (60) days (irrespective of the expiry date of this insurance) in respect of any one accident or occurrence.
It is hereby agreed that the sum of $300,000 (THREE HUNDRED THOUSAND UNITED STATES DOLLARS) is agreed by the Underwriters and the Assured as correctly representing the Loss of Earnings in respect of each Dry Dock which the Assured would sustain if they were entirely prevented from operating any one of the said Dry Docks during a period of Sixty (60) days.

8. SRL policies normally cover liability to third parties for the cost of repaired damages. Maryland’s SRL policies contained a unique clause, however, (clause 4) which provided that:

This insurance is also extended to cover damage and/or expense to wharves, docks, marine railways, and other property of the Assured caused by vessels and/or craft and/or structures in their charge or otherwise, whilst under repair or under construction or being completed or converted or fitted out or being berthed, shifted, moored or docked, or caused by the Assured’s floating equipment. * * *

Maryland’s SRL policies also contained an unconventional clause which provided that:

This insurance is in no event to be liable for any loss, damage and/or expense to the vessel or vessels or property winch may be recovered under any other insurance except as to any excess over and above such amounts recovered in respect of any claim for which this insurance would otherwise have been liable, and excepting the liability of the Assured under rights subrogated to such other insurers.

&. The Marine Insurance Act, 1906, 6 Edw. 7, Ch. 41, Sec. 32, provides as follows:

DOUBLE INSURANCE. 32. — (1) Where two or more policies are effected by or on behalf of the assured on the same adventure and interest or any part thereof, and the sums insured exceed the indemnity allowed by this Act, the assured is said to be over-insured by double insurance.
(2) Where tbe assured is over-insured by double insurance—
(a) The assured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may think fit, provided that he is not entitled to receive any sum m excess of the indemnity allowed by this Act:
(b) Where the policy under which the assured claims is a valued policy, the assured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the sub j ect-matter insured;
(c) Where the policy under which the assured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any other policy;
(d) "Where the assured receives any sum in excess of the indemnity allowed by this Act, he is deemed to hold such sum in trust for the insurers, according to their right of contribution among themselves.

10. On the afternoon of October 28,196,0, after the accident occurred, Maryland’s insurance manager assured its president that the company’s loss was covered by its insurance policies. Maryland’s New York Insurance broker, S. N. Eben Corporation, was promptly notified of the accident, as was Mr. Harry G. Webber, the principal United States surveyor for the Salvage Association.

11. Salvage Association (hereafter referred to as “SA”) is a non-profit organization which serves as the engineering arm of Lloyd’s and the insurance companies in the London marine insurance market. SA acts as an agent of the underwriters of both Lloyd’s and the companies, and its functions are to determine the nature and extent of physical damage, make recommendations as to repairs, determine the cost of repairs, and in appropriate cases determine the cause of the casualty. The underwriters rely on SA almost completely as to engineering matters. Mr. Webber was a highly qualified marine engineer who had been employed by SA since 1937. He had no authority, and therefore no concern, with respect to questions of insurance policy terms or coverage; nor did he participate in the settlement of claims from the standpoint of liability, as opposed to damage assessment.

12. The New York broker, S. N. Eben Corporation, and its London counterpart, Hartley, Cooper & Co., were agents of and advocates for Maryland, the latter dealing only with the New York broker and not with Maryland. The principal claims man for Lloyd’s, P. H. Mitchell, and the principal claims man for the companies, L. J. Downham, were agents of the underwriters and they dealt only with Hartley, Cooper. There was no contact between the underwriters and Eben or between the underwriters and the assured. The two brokers and the two principal claims men were experienced in handling marine insurance claims, although neither of the claims men had received formal technical or engineering training. They had a high regard for Webber’s ability as a marine engineer. The two principal claims men were the chairman and a member, respectively, of the governing Committee of SA in London.

13. All important decisions on the handling of Maryland’s claim were made by its president, W. P. Hall. Though not an engineer, he had had considerable experience with engineering problems, particularly as they involved the company’s dryd'ocks and other capital improvements.

14. The day after the accident Webber visited Maryland’s yard, along with one of his assistants who was also a well-qualified marine engineer. All that they could see of the sunken drydock were the tops of certain of the wingwalls. These were examined from the adjacent piers. On October 31, 1960, Webber’s New York office sent a cable to the London S A office stating that:

CONSIDER COST REPAIRS PLUS SALVAGE WILL EAR EXCEED ONE MILLION FIVE HUNDRED THOUSAND DOLLARS WHICH UNDERSTAND IS AMOUNT INSURED FOR THIS DRY-DOCK * * * SEEK CONFIRMATION P AND I CLAUSE IN PAGE THREE INCLUDES LIABILITY FOR COST REMOVAL WRECKAGE OF DOCK FROM ASSUREDS OWN PREMISES BEFORE MAKING FURTHER RECOMMENDATIONS STOP LOCATION NOT ONE WHERE OWNERS CAN ABANDON TO US ARMY ENGINEERS

15. For the purpose of estimating the extent of the damage and the cost of repair, the direct knowledge of Maryland and SA as to the actual condition of the drydock was limited to what could be seen of the damage to tops of certain of the wingwalls which were still above water, 'and' to what divers reported from their partial external examination of the submerged portions of the dock. The vast majority of the physical conditions of the drydock from which an accurate estimate might be made were unknown.

16. The normal procedure followed by SA in surveying the damage to a sunken vessel or drydock is to wait until the object has been raised and placed on drydock where SA’s surveyor physically sights the damage and agrees upon the repair cost with the owner and the shipyard. Webber had had many previous cases of drydock damage. In each of them the normal survey procedure had been followed of having the drydock sections raised and put on drydock where the damage was subjected to a sight examination by SA. SA’s report is normally completely factual, and not conjectural. Webber had never before had to estimate the physical damage and the cost of repairs to a submerged drydock. This case was unique in 'his experience as to both nature and magnitude.

17. The SA cable of October 31,1960, quoted in finding 14, above, was circulated in London to the underwriters, claims men, and Maryland’s London broker. Among some of the underwriters a question arose as to whether or not the P&I clause in the Hull policies would cover the cost of removal of the drydock from Maryland’s own premises. The principal claims man for the companies, in particular, felt that the P&I clause covered only Maryland’s liability to third parties, and that Maryland could not be liable to itself for removal of the dock from its own premises. Although the principal claims man for Lloyd’s felt that the unusual phrase “or shall incur any other loss” in the P&I clause might broaden the coverage beyond third-party liability, he supported the contrary view of the companies’ principal claims man in dealing with the insured’s London broker. Maryland thought that removal expenses were not recoverable under the P&I clause.

18. The “far exceed” $1,500,000 language in the October 31, 1960 cable was Webber’s preliminary estimate or expression of opinion and was based on his years of experience in the marine engineering field. Ait that time he felt the repairs alone could approximate or exceed $1,000,000, 'and that the salvage cost could be in the vicinity of $500,000 to $600,000.

19. When the October 31, 1960 cable was circulated in London, none of the underwriters expressed any disagreement with Webber’s “far exceed” $1,500,000 estimate. From the date of receipt of that cable, the principal claims man for Lloyd’s was reasonably satisfied that the cost of salvaging and repairing drydock #1 would exceed $1,500,000, and nothing ever occurred to change his mind. The principal claims man for Lloyd’s was authorized to act for the “leader” on these policies. The “leader” in the London marine insurance market is the first person who accepts a line of risk on the insurance, regardless of the percentage of risk he underwrites, and the views of the “leader” carry great weight, particularly the views of Toby Green who was the leading underwriter here.

20. Under the Hull policies, Maryland could claim for either a constructive total loss (hereafter referred to as “CTL”) or 100 percent particular average (“average” meaning damage), but the maximum recovery under either form of claim would be $1,500,000, unless the P&I clause in those policies permitted a greater recovery. To claim a CTL, an assured must show that the cost of raising, plus repairing, exceeds the insured value, and the assured must give a timely notice of abandonment to the underwriters. If the underwriters accept a tender of abandonment, they are entitled to become the owners of the property, but the underwriters invariably decline to accept the insured’s tender.

21. On November 2, 1960, Maryland’s London brokerage firm, Hartley, Cooper, cabled the New York broker, Eben, as follows:

MARYLAND DRYDOCK I AS DOCK APPEARS CONSTRUCTIVE TOTAL LOSS PLEASE CABLE OWNERS INTENTIONS AND WHETHER NOTICE ABANDONMENT TO BE GIVEN TO UNDERWRITERS STOP HAVE OWNERS ANY THIRD PARTY OR STATUTORY LIABILITY FOR REMOVAL OF WRECKAGE OF DOCK

The New York broker had earlier, on October 31,1960, prepared a cable giving notice of abandonment and claiming a CTL for $1,500,000, but that cable was not dispatched and Maryland never gave a notice of abandonment, because it felt that would limit the amount it could recover for drydock #1 to the maximum coverage under the Hull policies.

22. Several days after the casualty Maryland employed divers to examine the sunken drydock. The divers were able only to make a partial external examination. The depth of the water at this point was 43 feet, the visibility very poor, and the divers therefore had to operate largely by feel. They could not examine the bottom of the dock, the interior of the pontoons and wingwalls, the spikes, bolts, and other fastenings, or the strength members. The actual condition of all of these areas was of great relevance in determining the extent of the damage and the cost of repair.

23. On November 9,1960, Maryland sent Webber a copy of the divers’ report and advised him that Maryland was going to proceed with preparing a repair specification or damage report and an estimate of the cost of repairs. The normal practice was for an assured to put forth to the underwriters’ surveyors the assured’s allegations as to the extent of damage and cost of repair. Along with that same letter, Maryland enclosed copies of two proposals from Merritt-Chapman & Scott for raising drydock #1. Webber, who had been asked to advise SA in London as to Maryland’s proposals in regard to removing drydock #1, forwarded these Merritt-Chapman & Scott quotations to London.

24. Merritt-Chapman & Scott was the foremost salvor in the United States, and in Webber’s opinion was the only company with the experience and equipment necessary to salvage drydock #1, i.e., raise all seven sections of the dock in condition to be inspected and repaired. The salvor made two proposals: a “no cure-no pay” contract to salvage drydock #1 in condition for repair for $467,000 and a time-and-material proposal to simply cut up and remove the drydock without regard to the condition of the dock. The first of these procedures is a far more expensive undertaking than the second. Although a “no cure-no pay” contract is not an absolute guarantee, SA had a great appreciation for Merritt-Chapman & Scott, and Webber felt that the company would certainly make a sincere effort to salvage the drydock. Both the underwriters and Maryland assumed that the $467,000 quotation contained a profit for Merritt-Chapman & Scott.

25. Immediately after the casualty W. P. Hall decided that the dock would ultimately have to be removed. Not only was it blocking the slip, but it was a very bad advertisement for the company’s customers. Within a few weeks he further decided that it would not be to Maryland’s interest to have the dock repaired and restored to service because: (a) the possibility would always exist that some latent damage would cause a further casualty, and (b) customers would be reluctant to have their ships drydocked in a dock which had once been so severely damaged. For these reasons Hall decided that plaintiff’s objective in its dealings with the underwriters should be to effect the largest possible cash recovery. In addition, drydock #1 was of World War I vintage and was the second smallest of Maryland’s four drydocks, having a lifting capacity of only 9,500 tons. Moreover, for three or four years prior to 1960 Maryland had been studying the matter of acquiring a drydock with a lifting capacity 'greater than 18,000 tons, the capacity of the largest of Maryland’s four drydocks. In 1965 Maryland purchased a 32,000-ton drydock at an installed cost of approximately $2,500,000.

26. On November 10, 1960, Maryland’s New York broker analyzed the various claim possibilities under the Hull and SRL policies, and advised it that, in his opinion, $1,500,000 was all he could collect under the Hull policies for a CTL or a 100 percent particular average claim, with no expenses reimbursed for raising or removing the drydock. He further advised Maryland that the SRL policies covered damages to docks, piers, and other structures, but only for the excess of any specific insurance on those structures. Accordingly, to collect more than $1,500,000 on drydock #1 he could not agree to a CTL or 100 percent particular loss but would have to insist that the dock be raised, surveyed, and repaired. He pointed out the possibility that if the actual cost of repairs turned out to be less than $1,500,000, that was all Maryland could collect. At the time, the New York broker personally believed and advised Maryland that, in his opinion, Webber was anxious to settle on a CTL or 100 percent particular average basis in order to save the underwriters from the possibility of having to pay out an amount over and above the $1,500,000 limit of liability under the Hull policies.

27. Following receipt of the above advice from the New York broker and after consulting extensively with Maryland’s own insurance manager, Mr. Hall arrived at a firm conclusion as to the position that Maryland should take as a policy holder. He decided that its objective should be to secure the largest possible cash payment from the insurers. The Hull policies were not adapted to this end for several reasons. First, there was the specific $1,500,000 limitation on the amount of recovery as to dry dock #1. Second, even that figure would not have represented a net recovery to Maryland because it would have had to bear the cost of removing the sunken dock.

28. Meanwhile, Maryland’s own estimating and engineering staff had prepared a detailed report of the damage to dry-dock #1 and the cost of repairing it. The nature and extent of damage used for purposes of the repair cost aspect of this report consisted mainly of various engineering assumptions and inferences premised on the limited amount of physical damage that the divers had actually been able to observe.

29. On December 7,1960, Maryland officials met with their New York broker and Webber in New York City, and gave Webber a copy of Maryland’s repair specification or damage report, which estimated that the cost of repairs to dry-dock #1 would be $3,776,773, plus $467,000 for salvage expense as quoted by Merritt-Chapman & Scott. The following day, the New York broker wrote to the London broker advising that Maryland intended to present a total claim of $5,063,116 for all the damages, including the above two amounts for d’rydock #1. That December 8, 1960 claim letter stated as follows:

The present intention is to present the entire claim under Ship Eepairers Liability Coverage with relief under specific coverage on Drydocks, Piers, etc. * * * The total of all these damages is — $5,063,116 of which Ship Eepairers Liability Coverage would pay the excess of specific coverage on Drydocks, Piers, etc. as set forth in the Policies which should respond for the damages to the various installations as the damages lie, i.e.
Drydock #1 — Insured for $1,500,000. part of a present total of $8,400,000. on four Drydocks— the value of any one Dock not to exceed $3,000,-000.
$ $ * $ $

The letter also listed repair and salvage costs of $140,648 in connection with 'an accident to drydock #1 which had occurred earlier, in January of 1960, for a total property damage claim in the amount of $5,203,764. In addition, the letter referred to the $5,000 per day loss-of-eamings coverage, noted the time elapsed since the date of the accident, and requested the London broker to attempt to secure the underwriters’ agreement to a partial payment before the end of the year of $150,000 under this coverage.

30. The London broker explained to the underwriters’ representatives that the “with relief” terminology in the December 8, 1960 claim letter related to the clause in the SEL policies to the effect that the SEL policies were not liable for loss, damage, and/or expense to property which could be recovered under any other insurance, except as to any excess over and above the amounts recovered under the other insurance. (See finding 8 for text of SEL clause.)

31. In a letter dated November 17,1960, the London broker, at the underwriters’ request, had written to his New York counterpart and inquired about the assured’s intentions in regard to Merritt-Chapman & Scott. The December 8,1960 claim letter, among other things, replied to that letter, enclosed copies of the Merritt-Chapman & Scott proposals, and included the $467,000 quotation for salvage in the listing of items claimed. From this the London broker reasonably assumed that Maryland intended to raise and repair dry-dock #1.

32. In due course the London broker took the December 8, 1960 claim letter to the principal claims men for Lloyd’s and the companies for the two-fold purpose of (1) securing approval for a $150,000 partial payment under the loss of earnings coverage, and (2) obtaining agreement to honor the overall property damage claim under the SEL policies, giving effect to any valued coverage elsewhere in force. Eespecting the latter point, the broker prepared, and sought to have the underwriters sign, the following memorandum-type agreement:

Extract of letter received from the Adjusters dated 8th December, 1960:
“The present intention is to present the entire claim under Ship Eepairers Liability Coverage with relief under specific coverage on Drydocks, Piers, etc.”
Agree to pay claim adjusted on this basis provided all costs and expenses approved by Salvage Association’s New York Office.

The underwriters refused to agree to the memorandum in the form quoted above because they were unwilling to give a firm commitment recognizing SEL coverage. Accordingly, on December 22, 1960, the underwriters’ representatives ini-tialled the proposed memorandum after revising its last paragraph to read as follows:

Agree consider claim when adjusted on this basis provided _ all costs and expenses approved by Salvage Association’s New York Office.

33. After the October 31, 1960 cable with Webber’s “far exceed” $1,500,000 estimate, the underwriters were educated to think in terms of repair costs to dry dock #1 exceeding $1,500,000. The New York broker regarded Maryland as reputable and honest in making insurance claims; before the end of 1960, he was trying to collect over $4,000,000 for dry-dock #1 alone, and he thought Maryland had a good claim. Maryland’s London broker considered the December 8, 1960 letter from the New York broker as a claim for over $5,000,-000 which he, as the assured’s agent, was to try to collect. At least from the time of receipt of the December 8,1960 claim letter, the underwriters were educated by the London 'broker to tbink in terms of tbe possibility of a substantial payment in excess of tbe $1,500,000 limitation of tbe Hull policies.

34. Before tbe end of 1960, it was determined tbat tbe accident on October 28, 1960, had been caused by the negligence of Maryland’s personnel in drydockmg the SS MORMACPENN. Before tbe end of 1960, there was no doubt whatever tbat tbe underwriters bad some liability for the damages to drydock #1 even though tbe accident was caused by Maryland’s own negligence. Although never tbe subject of a concession by tbe insurers, tbe figure of $1,500,000 was tbe lowest figure ever mentioned in regard to damages to drydock #1. The other figures mentioned were Maryland’s estimate of $3,776,773 for repairs, plus $467,000 for salvage and Webber’s April 1961 estimate (based upon Maryland’s repair specification) of $3,299,276 for repairs alone. Maryland’s staff and Webber and his staff were tbe only engineers involved in this insurance claim.

35. Tbe principal claims man for Lloyd’s felt that Maryland could recover a CTL for $1,500,000 under tbe Hull policies, if it presented a claim in tbat form and gave a notice of abandonment, and be was certain Maryland’s London broker knew tbat. However, at least throughout 1960, tbe underwriters would have extracted a concurrent agreement from Maryland not to make a further claim for drydock #1 under tbe SRL policies before paying on a CTL basis.

36. On various occasions in 1960, Webber suggested to Maryland officials tbat at least one pontoon of drydock #1 be raised for damage ascertainment, but be received no response other than something to tbe effect that Maryland was looking into the matter. At tbe end of 1960, both Webber and Maryland’s London broker believed tbat Maryland intended to raise and repair drydock # 1.

37. SA’s survey reports of the extent of damage and tbe cost of repairs are normally completely factual and based upon a physical sighting of tbe damage. Because Webber considered physical sighting of tbe damage as tbe proper procedure and because he was under tbe impression tbat Maryland intended to raise tbe dock, either in part or completely, for a factual determination of damages, be did not press Ms staff to complete its review of Maryland’s repair specification. Because the SKL policies were limited in terms to reimbursement of costs of damage repair, rather than payment of a cash indemnity, it was essential to Maryland’s negotiating strategy to preserve the impression that it was thinking only in terms of raising and repairing the damaged drydock. Ironically, whereas the underwriters’ abiding concern was that Maryland would raise and repair the dock, Maryland’s major fear was that the underwriters would insist on raising the dock for purposes of damage inspection and repair.

38. Webber regarded Maryland as a very responsible corporation, but he felt that the company’s repair specification assumed the worst possible conditions and would lead to an exaggeration of the extent of damages. However, when SA checked the Maryland repair specification, neither Webber nor his principal assistant could find any error in it or any basis for criticizing Maryland’s approach. Webber reluctantly concluded that he could not “negate” the repair specification, and that it was 'based on sound engineering assumptions and principles. By the end of February or early March, 1961, Webber concluded that if he were in the same position as Maryland’s engineers, he would have done as they did. Webber agreed that short of raising the drydock and physically sighting the damage, Maryland’s approach was the only one possible. Drydock #1 was never raised for inspection, and the actual nature and extent of the damages to that structure have never been determined.

39. Early in 1961, the principal claims man for Lloyd’s got an idea that perhaps some of the damage to drydock #1 was not “caused by vessels,” as that phrase was used in clause 4 of the SEL policies, and, if so, he thought perhaps the underwriters could avoid or reduce any recovery under the SEL policies. On February 1, 1961, he sent a cable to Webber, asking whether 'any damage to the drydock or piers could be said was not “caused by MOEMACPENN whilst being berthed or docked” or whether “all damage occurred after and flowed from the breaking loose of the vessel.” Webber replied by cable that same day, stating that:

* * * VAST MAJORITY DAMAGE NOTED IN SURVEYS COULD BE CONSIDERED CONSEQUENT ON BREAKING LOOSE OF VESSEL FOLLOWING DRYDOCK LISTING STOP AS TIME AND DEGREE OF LIST WHEN VESSEL BROKE LOOSE UNKNOWN IT IS POSSIBLE MINOR DAMAGE MAY HAVE BEEN SUSTAINED DUE TO LIST OF DRYDOCK PRIOR TO BREAKING LOOSE OF VESSEL * * *

No further inquiries along this line were made to either the assured or SA, but the “caused by vessels” language became a “talking point” between the underwriters’ representatives and Maryland’s representatives, with the underwriters suggesting that a legal opinion on the matter be obtained. Maryland did not particularly want to request a legal opinion itself, but finally stated on March 20,1961, that it might be well if the underwriters did obtain legal advice. In a large claim such as the one involved here, the underwriters and claims men customarily scrutinize policies more closely than in small claims, and they normally raise various points on the interpretation of clauses in the policies.

40. Maryland, while continuing to hint at the possibility of raising the drydock, was careful not to push the matter too far, because the last thing that it wanted was to have drydock #1 raised for either damage ascertainment or repair. However, Maryland pressed to have SA direct Webber to price the company’s repair specification.

41. On February 17, 1961, Maryland’s New York broker wrote to Ms London counterpart, stating that Webber was unwilling to price damages he could not see. That letter pointed out that it seemed foolish to accept the Merritt-Chapman & Scott bid of $467,000 to raise the dock since it was anticipated that damage would be so extensive as not to warrant repairs, and that, if some agreement in regard to the damage to drydock #1 could be reached, the dock could probably thereafter be removed at a much lesser cost with no regard to the condition of the dock when raised. The London broker responded by letter, dated February 24,1961, that he was surprised Maryland had decided not to repair the dock, noting that the underwriters had been educated to think that they would be expected to make substantial payments under both the SKL and Hull policies in accordance with the December 8, 1960 claim letter. The London broker asked the New York broker whether he thought that the claim for drydock #1 would be restricted to the insured value of $1,500,000 if repairs were not effected. The New York broker wrote back, on March 7, 1961, that a decision not to repair had not been made, and that the London broker had misunderstood his letter. He also asked the London broker to press SA to instruct Webber to price the Maryland repair specification.

42. On March 17, 1961, Webber was directed by SA in London to price the Maryland repair specification. While Webber was pricing that repair specification, the underwriters continued to consider obtaining a legal opinion in regard to the “caused by vessels” language. On March 27, 1961, after a telephone conversation with the London broker who reiterated the underwriters’ desire to obtain a legal opinion, the New York broker conferred with Maryland officials and then dispatched a cable offering to settle the damages to drydock #1 for both accidents, the damages to Maryland’s piers and other structures, the repairs to the SS MORMACPENN, and the demurrage, for a total amount of $4,000,000.

43. Prior to March 27,1961, the cost of damages to Maryland’s piers and other structures (non-drydock #1 damages) had been approved by SA at a figure of $522,126, and the cost of repairs to the SS MORMACPENN had been approved by SA at a figure of $236,780, which latter amount was already in the process of being collected.

44. On April 5, 1961, Webber and his staff completed pricing the Maryland repair specification and concluded that the cost of repair to drydock #1 would be $3,299,276, excluding removal costs or possible economies of repair from such measures as replacing the wooden wingwalls with steel wing-walls. That same day, the underwriters decided to offer Maryland $8,000,000 for the items contained in the company’s March 27, 1961 offer. On April 6, 1961, the London broker advised his New York counterpart by cable that the underwriters would settle for $3,000,000.

45. In early May of 1961, Maryland officials went to London to discuss the insurance claim with their broker; they did not meet with the claims men or the underwriters, except for a brief courtesy visit with the leading underwriter. As a result of the London trip, the London broker learned that the damage to dry dock #1 from the January 1960 accident had already been repaired, and the costs for salvage and repairs expended by Maryland, before the October accident occurred. When the underwriters were so advised, they agreed to pay the costs of salvage and repairs for the January 1960 accident, $140,648, in addition to the $3,000,000. That was the only change made in the underwriters’ earlier offer. On May 3, 1961, Maryland agreed to accept the $3,000,000 for the October accident, and agreed that until the expiration of the policies on June 30,1961, any subsequent loss must take into consideration this settlement and in the event of a subsequent total loss of any insured structure any unrepaired damages from this accident must be taken into consideration and due credit allowed therefor.

46. The January 1960 accident was a routine, straightforward insurance claim, and the damages could be, and were, visually sighted. SA’s survey report on that accident was sent out on October 26, 1960, and the assured received payment of the $140,648 sometime after May 17, 1961.

47. In the latter part of 1961, Maryland removed drydock #1 from its premises and destroyed it for a cost of $90,000 to $100,000.

48. In the SEL renewal policies negotiated for the subsequent year (July 1,1961 to July 1,1962), clause 4 was revised to read as follows: The SEL renewal policies for the subsequent year no longer contained the clause to the effect that the insurance was not liable for loss, damage or expense to property which could be recovered under other insurance “except as to any excess over and above such amounts recovered in respect of any claim for which this insurance would otherwise have been liable.”

This insurance is also extended to cover damage and/or expense to wharves, docks, marine railways, and other property of the Assured caused by vessels and/or craft and/or structures in their charge or otherwise, whilst under repair or under construction or being completed or converted or fitted out or being berthed, shifted, moored or docked, or caused by the Assured’s floating equipment, but in no case however shall this clause afford cover in respect of loss and/or damage and/or expense to any subject matter which is specifically insured in this or by any other insurance. * * *

49. In the Hull renewal policies for the subsequent year, the P&I clause was revised to provide expressly for coverage of the cost of removal of a wreck from the assured’s premises.

50. Maryland accrued on its books and reported in its federal income tax return for; the year 1961 a gain of $2,246,384 from, the October 1960 accident. Maryland received $300,000 under the loss-of-earnings provisions of its Hull policies ($5,000 per day for 60 days). It accrued that amount on its books and reported it in its federal income tax return for the year 1960 as gain resulting from an involuntary conversion under Section 1231 of the Internal Eevenue Code of 1954.

51. The Internal Eevenue Service determined' that the $300,000 received under the loss-of-earnings provision was taxable as ordinary income, and that the gain from the October 1960 accident should have been accrued in 1960, rather than in 1961. Deficiencies were assessed, and Maryland paid the deficiencies and assessed interest, filed a claim for refund, and upon disallowance of that refund claim filed suit in this court.

Ultimate Finding op Fact

52. Before the close of 1960, both Maryland and the underwriters reasonably believed that the damages to dry dock #1 caused by the October accident exceeded $1,500,000. Consequently, within that year Maryland could have obtained the sum of $1,500,000 had it been willing to accept that amount in full settlement of its entire claim for damages to the dry-dock. It was unwilling to do this, however, and the underwriters, in turn, were unwilling to acknowledge constructive total loss liability under the Hull policies while leaving open the plaintiff’s right to claim an additional recovery under the SEL policies.

CONCLUSION or Law

Upon tbe foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is entitled to recover, and judgment is entered to that effect. The amount of recovery is reserved for further proceedings under Pule 47 (c).

In accordance with the opinion of the court, a stipulation of the parties, and a memorandum report of the commissioner as to the amount due, it was ordered on May 13, 1969, that judgment for the plaintiff be entered for $635,411, together with interest thereon as provided by law. 
      
      
        Cf. Hort v. Commissioner, 313 U.S. 28, 31-32 (1941).
     
      
       As this litigation has progressed defendant has receded from its initial position that the entire $3,000,000 was accruable in 1960. On brief it contends for 1960 accrual of $1,500,000, conceding that plaintiff’s treatment was proper as to the remaining $1,500,000.
     
      
       A taxpayer is no more required to be an incorrigible optimist as to accrual of an income item than he is when the item is one of deduction. United States v. S. S. White Dental Co., 274 U.S. 398, 403 (1927).
     
      
       Finding 8, infra.
      
     
      
      
         Findings 17,19, 33, 34, 52, infra.
      
     
      
       Findings 35 and 52, infra.
      
     
      
       Findings 25. 26 and 27, infra.
      
     