ship policy insured value underwriter assured loss risk average time
MARINE INSURANCE, is a contract by which one party, the " insurer" or " underwriter," engages for a stipulated premium to protect another party, the " assured," against loss arising from certain perils, or sea risks, to which his ship, goods, or other interest may be exposed during a specified voyage or period of time.
The policy of insurance, or instrument which contains the contract, is a printed form, with spaces left blank for the insertion in writing of the particulars of the agreement. The form in general use appears to have been introduced with the earliest practice of British marine insurance. Although worded in a confused and ambighous manner, its meaning has been clearly defined by a series of legal decisions on the debatable points ; and in all cases the written conditions overrule any of the printed clauses that might seem inconsistent with them.
The stamping of policies is at present regulated chiefly by the Customs and Inland Revenue Act, 1867, 30 Vict. c.. 23. This Act provides that no contract or agreement for sea insurance shall be valid unless expressed in a policy ; that all policies must be stamped before signature ; that no policy shall be pleaded or admitted as evidence in any court, unless duly stamped ; and that no policy can be made for any time exceeding twelve months. The stamp duties are - On, -Voyage Policies. - For every £100 insured and for any fractional part of £100, 3d.
On Time Policies. - For every £100 insured, and fur any fractional part of £100, where the time does not exceed six months, 3d. ; where the time exceeds six months, and does not exceed twelve months, 6d.
If the separate interests of two or more persons be in. sured in one policy the stamp must cover each fractional part of £100, in the amounts of such separate interests, as if it were a full sum of £100. Where insurance is made for a voyage, and also for time, or to cover any time beyond twenty-four hours after the ship's arrival at her destination, the policy is chargeable with duty as a voyage and also with duty as a time policy. The penalty exigible from any person engaged in effecting or subscribing policies which have not been duly stamped is £100.
By the Act 33 31 Viet. c. 97, § 117, it is provided that policies made abroad, but in any manner enforceable within the United Kingdom, are liable to the duty, and may be stamped at any time within two months after they have first been received in the United Kingdom. Further, by the Act 39 Viet. e. 6, § 2, it is now provided that, for the purpose of being given in evidence, any policy may be stamped after execution, on payment of the penalty of £100.
In practice it is usually desirable to conclude an agreement for insurance at once, lest some subsequent intelligence should induce either party to recede; and it is customary for the underwriter to sign a "slip," or short memorandum of the insurance, until the stamped policy can be completed. But such memorandums, however obligatory in good. faith, are not legally binding. The assured, however, is under no obligation to communicate to the underwriter a material fact coming to his knowledge between the date of the slip and that of the policy. And, when a valid policy exists, the slip is admissible in evidence to throw light on the circumstances under which the risk was offered and accepted.
In order to give validity to the contract, it is necessary that the assured have a right of property, or "interest," in the thing assured. A policy without interest is held to be a wager ; and it is declared by the 19th Geo. II. c. 37 that policies bearing the words "interest or no interest," or "without further proof of interest than the policy," or " without benefit of salvage to the insurer," or any policies made by way of gambling or wagering, shall be null and void. The expected profits of a sea adventure may be included in the value of the property for insurance ; but an unwarrantable or fraudulent over-valuation might render the policy void even in respect of the value actually proved.
By the Act 31 32 Vict. c. 86 it is provided that, " whenever a policy of insurance on any ship, or on any goods in a ship, or on any freight, has been assigned so as to pass the beneficial interest in such policy to any person entitled to the property thereby insured, the assignee of such policy shall be entitled to sue thereon in his own name, and the defendant in any action shall be entitled to make any defence which he would have been entitled to make if the said action lied been brought in the name of the person by whom, or on whose account, the policy had been effected."
A valued policy is one which contains a specific valuation of the interest insured. This valuation forms an essential element in the adjustment of all claims under the policy, and cannot be set aside except on the ground of fraud. The burden of proof, in any averment of fraudulent overvaluation, lies on the underwriter.
An open policy is one in which the value of the interest insured is not specified. In claims under such policies the assured must prove the value of the thing insured. The value of a ship for insurance is what she is actually worth at the commencement of the voyage, including all her stores, provisions, and outfit, money advanced for seamen's wages, and costs of insurance, The difficulty of proving a precise value in the ease of ships is sufficiently obvious ; and, to avoid disputes, policies on them ought always to be valued, as is the usual practice. The value to be proved under an open policy on goods is their first cost, including the expenses of shipment, with any portion of the freight that may have been prepaid, and the costs of insurance. The value to be proved in open policies on freight is the amount of the manifest or freight list, excluding such freight as may have been paid in advance.
When the value proved under an open policy falls short of the sum originally insured, the difference, which is technically termed an over insurance, is treated as a deduction to be made from the amount of the policy. On this footing a proportionate part of the premium is returnable to the assured, who, on his part, can make no claim on the underwriter for loss or damage beyond the value of his interest as actually proved. If, on the other hand, the value proved exceed the amount of the policy, the assured is regarded as " his own underwriter" to the extent of such excess ; and the amount of loss or damage, if such has arisen, is apportioned on this footing between the parties relatively to their several proportions of the total value.
A "short interest" arises when only a part of the interest insured has been exposed to risk, as when some portion of the goods specified in the policy have not been loaded on board of the ship. This case is treated in the same manner as that of over-insurance, from which indeed it does not essentially differ.
Double insurance takes place when the same interest has been insured twice or oftener. This frequently occurs, either through mere inadvertence, or from the want of definite information on the part of the respective persons concerned in the transaction. In such cases, the usual practice is that all the underwriters make a return of premium, in proportion to the amounts of their respective subscriptions, for the excess of the sum insured above the actual value of the interest, - the liabilities of the several underwriters under the different policies being of course proportionally diminished. To this rule, however, there are two important exceptions. One of these occurs when two or more persons insure the same thing, in order to protect the distinct interests which they may individually have in it ; the other, when the circumstances are such that a claim for loss might have been brought against one set of underwriters before the other set had become liable at all.
Reinsurance was formerly illegal in England except in the event of the death, insolvency, or bankruptcy of the original insurer. This law subsisted for about one hundred and sixty years, but it was repealed by the 27 & 28 Viet. c. 65, and the subject of reinsurance was further regulated by the 30 & 31 Viet. c. 23. Reinsurance is now recognized by these statutes as a perfectly legal contract.
The risk on the ship, in voyage policies, commences "at and from " the place specified in the policy, and continues till she arrive at the destination specified, and have been there moored twenty-four hours in good safety. On goods the risk begins with their loading and ends with their discharge at the specified ports. On freight the risk usually commences with the shipment, and terminates with the landing of the (-roods • but if there be a contract of affreight- ment, under which the goods have been provided for shipment, the risk is held to commence as soon as the ship is in readiness to take them on board. After the risk has once commenced, the whole premium is earned, even although the voyage should not be prosecuted, and the actual risk of the insurers be thereby confined to the niece lying of the ship at the port where the insurance was to commence. But if the risk should not commence at all, or, in technical phrase, if the "policy should not attach," the premium must be returned to the assured.
If the ship should deviate from the regular and usual course of the specific voyage insured without necessity or reasonable cause, the underwriter is thenceforth discharged from all liability under the policy. The insurance becomes void as soon as such deviation begins; and consequently it is quite immaterial whether a subsequent loss of the ship should happen during the actual deviation or after the ship had returned to her course, the insurer being no longer concerned. It is also immaterial whether the assured was or was not cognizant of the deviation. A mere intention to deviate will not vitiate the policy; but if the ship have sailed on a different voyage from that specified, the insurer is discharged, although the loss should happen before reaching the point of divergence in the two voyages. An unjustifiable delay in the prosecution of the voyage operates as a deviation. The causes which justify deviation are such as to refit the ship after she has been disabled, to avoid an enemy or an impending storm, or to save the lives of seamen in distress.
In all voyage policies it is an implied condition of the contract that the ship shall be seaworthy at the commencement of the risk. By this is meant that the ship shall be in a fit state, as to repairs, equipments, crew, and all other respects, for encountering the ordinary perils of the voyage insured, at the time of sailing on it. Seaworthiness is a condition precedent to the contract ; and, therefore, where the ship is originally unseaworthy, the underwriter is discharged even although the loss should result from causes independent of the particular deficiencies constituting the unsea•orthiness. It is not material whether the assured is or is not cognizant of the defects rendering the ship unseaworthy ; and this rule applies indiscriminately to the owners of the ship and the proprietors of the goods on board. There is no engagement that the vessel shall continue to be seaworthy after the voyage has been commenced; but it is the owner's duty to take all reasonable means to keep her so. The burden of proof in any averment of nnseaworthiness lies on the underwriter, unless where the ship, without adequate cause, becomes leaky soon after sailing. It is now settled law that in time policies there is no implied warranty of seaworthiness at any period of the risk. This was decided in the cases of Gibson v. Small (June 1853), and Fawcus v. Sarsfield (March 1856), and more recently by the House of Lords in Dudgeon v. Pembroke (March 1877).
The contract of insurance being pre-eminently one based on the assumption of perfect good faith between the parties, it is the duty of the party wishing to effect the policy to make a true disclosure of every circumstance likely to affect the underwriter's estimate of the risk. The concealment or misrepresentation of material facts, or the representation of anything not consistent with the facts, will render the policy void. This rule holds good even where the concealment or misrepresentation may have resulted from a mistake, without the intention to deceive. If the underwriter has actually been deceived, whether wilfully or by mistake, the risk is different from that understood and intended to be run ; and on this ground he is discharged. The materiality of a concealment or misrepresentation depends, not on its eventual influence on the result of the risk, but on its immediate influence on the judgment of the underwriter at the time of effecting the insurance. The loss may arise from causes totally unconnected with the facts concealed or misrepresented, but the policy may nevertheless be void, because a true disclosure of the facts at the time of effecting it might have led the underwriter to decline the insurance altogether, or to accept it only at a higher premium. If an agent be employed to effect the insurance, he is bound to communicate to the underwriter, not only all the material facts disclosed to himself by his principal, but also any other material facts which may have come to his knowledge from other sources. If either the principal or the agent fail to communicate such facts, the policy will be void. Should any material fact come to the knowledge of the parties wishing to effect the insurance after they have sent away an order to have it effected, they are bound to intimate such fact without delay, so that the underwriter may be informed of it (if there should still be time) before he has accepted the risk. The suppression of information tending to show that the ship was overdue, or that there were rumours current as to her having met with some accident (even though it afterwards appeared that these rumours were unfounded), is concealment fatal to the validity of the contract. It has also been held that a policy was void because the agents employed to effect it failed to inform the underwriters that their principal had instructed them to wait the arrival of the ship for a certain number of days before acting on the order to insure. Misrepresentations of the terms on which other underwriters have agreed to accept the insurance will be fatal to the validity of the contract, as well as misrepresentation of the risk itself. It may be observed generally that every circumstance represented to the underwriter ought to be at least substantially true. A mere expression of opinion or expectation does not of course amount to a positive representation of facts ; but the opinion or expectation expressed must itself be genuine, since, if it appeared that it had been only a pretence, or inconsistent with anything within the actual knowledge of the assured at the time, the policy might be vitiated. When an express " warranty " is given, its terms must be literally complied with, otherwise the policy will be void. The chief distinction between a warranty and a representation is that the former is always inserted in the policy, while the latter is never so inserted ; and the effect of this is that, while a representation affects the contract only in so far as it may be found to have been material to the risk, a warranty precludes all questions as to materiality, its express terms superseding any such inquiry.
The perils insured against are described in the printed form as the "adventures and perils of the seas, Men-of-war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and counter-mart, surprisals, takings fit sea, arrests, restraints, and detainments of all kings, princes, and people, of what nation, condition, or quality soever, barratry of the master and mariners, and all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods, merchandises, and ship, ,Sr.c., or any part thereof." It may be observed that, as a general rule, the underwriters are liable only for such losses as are proximately caused by the perils insured against. For the remote consequences of these perils, such, for instance, as the loss of markets through delay, they are not responsible. But, on the other hand, if a loss has been proximately caused by a peril insured against, the underwriters are not relieved from liability, although such loss may have been remotely occasioned by the acts or negligence of the assured or his agents. The reason for this rule, as given by Lord Bacon, is that "it were infinite for the law to consider the causes of causes, and their impulsions one on another ; therefore it contenteth itself with the immediate cause."
Losses resulting from breaches of the revenue laws or of the law of nations, or from illegal voyages generally, are not covered by the policy. The risk of "thieves" applies only to plunder committed by open violence, and does not cover losses by secret theft. The illegal acts of the master and crew, if committed without the privity of the owners, will amount to barratry, so as to render the underwriters responsible for them ; but if the master be also owner of the ship, none of his acts will be held as barratrous. A shipmaster, however, who is only part owner may commit barratry as against his co-owners and their underwriters. If the assured be the subject of a foreign state, British underwriters will not be liable for the acts of that state, unless it appear from the form of the policy or from the _circumstances of the case that the intention was to insure against such risk. Losses by the ordinary wear and tear of the ship, or by the natural deterioration or decay of perishable goods, are not chargeable to the underwriters.
The printed form of the policy declares that "in case of I any loss or misfortune it shall be lawful to the assured, their factors, servants, and assigns, to sue, labour, and travel for, in, or about the defence, safeguard, and recovery of the said goods and merchandises, or ship, or any part thereof, without prejudice to this insurance : to the charges whereof, we, the assurers, will contribute, each one according to the rate and quantity of his sum herein insured." The object of this clause is to permit the assured to take measures for the recovery of the property without losing any right of abandonment he might have in the circumstances. Although the language of the clause is only permissive, it is a settled rule that the assured is bound so to labour for the recovery of the property. The best practical rule for the assured to follow in cases of partial loss or damage is to act in the circumstances as a prudent man would do if uninsured.
An important clause in the printed policy is what is called the "memorandum," which is as follows : - " Corn, fish, salt, fruit, flower, and seed are warranted free from' average, unless general, or the ship be stranded. Sugar, tobacco, hemp, flax, hides, and skins are warranted free from average under 5 per cent. And all other goods, also the ship and freight, are warranted free of average under 3 per cent., unless general, or the ship be stranded." The effect of this clause, as interpreted by legal decisions, is to free the underwriter from claims for particular average (or partial damage), or front such claims if under the rates specified, unless the ship be stranded. But if the ship be stranded, he is liable for such claims, whether caused by the stranding or not. For losses of the nature of general average the underwriter is liable whether the ship be stranded or not, and whether the amount be over or under the rates mentioned in the memorandum.
It is frequently a matter of some difficulty to determine whether a ship has been stranded within the meaning of the memorandum. A mere touching or striking, whether on a rock, hank, reef, or other object, will not constitute a stranding, unless the ship settles clown and remains fixed for some definite time. The amount of damage sustained is not material to the question either way. Where a vessel takes the ground in the ordinary and usual course of the navigation in a tidal river or harbour, on the ebbing of the tide, or from natural deficiency of water, this is no stranding. It is essential to a stranding that the ship should take the ground by reason of some unusual or accidental occurrence. A voluntary stranding to save the ship from sinking is within the meaning of the memorandum, although the ship should be run into a tidal harbour for the purpose.
When an absolute total loss occurs, the assured is entitled 'J to recover the amount of the policy, without giving notice I of abandonment. When the subject insured, without being wholly destroyed, is so seriously injured, through the perils insured against, that its recovery might involve greater expenses than its eventual value would cover, it forms a "constructive total loss," and the assured is entitled to give notice of abandonment to the insurers, and to claim the amount of the policy. (See ABANDONmENT.) It is only, however, when the circumstances seem to involve a virtual loss, as distinguished from a deterioration of the property, that notice of abandonment can be competently given ; and, unless the abandonment be accepted, the ultimate state of the facts will alone determine the question whether it can be insisted on. The principle upon which losses are settled, when abandonment is validly made, is that the underwriter becomes the proprietor of the subjects abandoned on payment of the sum insured. The effect of an abandonment of the ship is to transfer the ownership to the underwriters, so that whatever freight she may thereafter earn belongs to them; and, although such freight is thereby lost to the original owners, the insurers of the freight are not liable to them for loss in respect of it, because it is lost only by their own act of abandonment, and not by the perils insured against. When goods are so damaged by the perils insured against that they are necessarily sold at any place other than the original destination, they are constructively lost, and the underwriter is liable for their insured value, under deduction of the net proceeds of the sale. But this rule is not applied to goods warranted "free from average unless stranded," if there has been no stranding of the ship, - it' being only in that event that the underwriter is responsible for damage to such goods. A constructive loss of freight occurs when the ship is prevented by any peril insured against from completing her voyage, or when the goods on which the freight is to be earned have received such damage that they cannot be conveyed to their destination ; but if the ship can proceed with other goods, the freight earned for these must be deducted from the claim for loss.
Partial loss or damage, arising from the perils insured against, is usually, though somewhat loosely, designated by the term " particular average." Under this head are included the damages suffered from the accidental or voluntary stranding of the ship, or by her getting into collision with another vessel, by lightning, fire, hostile attacks, or the violence of the sea under any extraordinary circumstances. Damages to the ship's upper works, sails, spars, and rigging are included under particular average if occasioned by the direct force of the sea ; hut if caused merely by the force of the wind they are treated as wear and tear, and are not chargeable to the insurers. The loss of anchors and cables parted from by the vessel riding hard, or by the anchor hooking to any object at the bottom, is regarded as wear and tear ; and the same rule applies to the repairs of the ship consequent on her becoming leaky through working and straining in a heavy sea. The general principle upon which damages of the nature of particular average are distinguished from those falling under the class of wear and tear is that the former must be caused by the immediate operation of some extraordinary accident, while the latter are only the ordinary incidents of navigation, and as such are not within the scope of the underwriter's contract. But the practical application of this principle is a matter of much nicety, and must usually be left to the judgment of a professional average stater.
In adjusting claims for particular average on ships, certain deductions are made for the difference between "new and old," unless the ship be on her first voyage, either outward or homeward, or the repairs be only temporary. On this footing one-third is deducted from the costs of the materials and labour required for the ship's repairs, excluding, however, the charges for dock dues, surveyor's fees, or similar accessories, which arc allowed in full. No deduction is made for anchors (unless in so far as they may be fitted with wood), and the deduction for chain cables is only one-sixth. When a ship has to be reeoppered at the expense of the underwriters, the practice is to allow in full the difference of price between old and new metal, to the extent of the weight of the old copper stript off; and if any sheets have been lost by being rubbed off, the cost of replacing these is further allowed, under deduction of one-third. the ship has not been stranded, the underwriters are not liable for claims for particular average amounting to less than 3 per cent. on her insured value, independently of the accessory expenses, such as survey fees, .ke., which are not taken into account in making up the 3 per cent. Two or more averages occurring in the course of a voyage may, however, be taken together to make up 3 per cent. on the value of the ship, so as to render the insurers liable.
Particular average on goods occurs when they arrive at their port of destination damaged by sea-water, or by its effects in heating or otherwise deteriorating them, although in actual contact only with other portions of the cargo. The amount of compensation recoverable from the insurers for such damage is regulated by comparing the " gross " market price, which the goods would have produced if landed in sound condition, with the actual gross price obtained for them in their damaged state, and by charging to the insurers the same rate of deterioration on the value insured, with the addition of the extra charges specially occasioned by the damage, such as surveys, By this mode of adjustment the assured recovers either more or less than the actual depreciation of the goods, according as the insured value may exceed or fall below the sound market value at the port of destination ; but as the latter value generally includes freights, duties, and other charges, besides profits, it is in most crises in excess of the insured value, and to the extent of such excess the indemnity of the assured is incomplete. The equity, however, of this mode of adjustment is obvious, when it is considered that the insurer receives his premium only on the value insured, and ought therefore to be liable only in respect of that value, while at the same time the gross market values of the goods in their sound and damaged condition furnish the only tree criterion of the actual depreciation, because these are the only values with reference to which, ultimately at least, purchasers could be influenced. It is, however, customary to adjust particular average on a comparison of bonded instead of duty-paid prices in claims for damage to tea, tobacco, coffee, wine, and spirits imported into the United Kingdom.
As already indicated, claims for particular average on goods must amount to 3 per cent. or upwards, or in the case of the goods specified in the second clause of the memorandum to 5 per cent. or upwards, otherwise the underwriters will not be liable unless the ship has been stranded ; and it is only when there has been a stranding of the ship that the insurers are liable for any such claims on the goods specified in the first clause of the memorandum, or on other goods specially warranted " free of particular average."
The subject of general average has been treated under ( the heading AVERAGE (q.v.). But it may here be remarked that, in the very recent case of Attwood v. Sellar (March 1S80), it has been decided, contrary to the usage of seventy or eighty years, that the expenses of warehousing and reshipping the cargo at a port of refuge, and of the ship in quitting that port, are the subject of general average contribution.
On the general subject of marine insurance the best book of reference is Arnould's Treat lee (5111 edition), which embraces the leading cases decided in the law courts down to a very recent period. Amongst the minor works bearing on the subject may be mentioned Ni' M. Hopkins's Manual of Marine Insurance, and Mr Charles 31 rthur's Polio/ of Marine Insurance Popularly Explained, and especially Mr R. Lowndes's Practical Treatise on the Lau; of Marine (J. WA.) Insurance (1881). •