Chapter VI: Marine Insurance (1)

History.

Marine insurance long antedates the kindred businesses of fire and life insurance. Villani, a 14th-century Florentine historian, speaks of marine insurance as having originated in Lombardy in 1182. This proves, at least, that in his day it was no novelty. It is mentioned in a Pisan ordinance of 1318, and in Venetian public documents of the early years of the 15th century. The earliest form of policy known is that given in the Florentine statute of 1523. It is uncertain whether insurance was introduced into England directly from Italy or by way of Flanders. The earliest policies issued in England which have yet been discovered are in Italian, but the subscriptions are in English ("Santa Maria di Venetia," Cadiz to London, 1547, "Santa Maria de Porto Salvo," Hampton to Messina, 1548).

The earliest known policies in English are one of 1555 on the "Sancta
Crux" "from any porte of the Isles of Indea of Calicut unto Lixborne,"
and one of 1557 on the "Ele" from Velis Maliga to Antwerp. The
authority for this statement is Mr R. G. Marsden, who edited for the
Selden Society the records of the Admiralty Court; nothing earlier had
been found at the Record Office down to May 1907. In the "Sancta Crux"
policy there is no detailed statement of perils insured against, or of
risks undertaken by the underwriter; the whole obligation of the
underwriter to the assured is embodied in the following words: "We
will that this assurans shall be so strong and good as the most ample
writinge of assurans, which is used to be maid in the strete of
London, or in the burse of Andwerp, or in any other forme that shulde
have more force." This reference to Antwerp usage is 67 years before
the date of C. Malynes' statement that all Antwerp policies contained
a clause providing that they should in all things be the same as
policies made in Lombard Street of London. The wording of the English
policies written in Italian is very much simpler than the Florentine
form of 1523, from which it almost seems that the wording used in
England followed an earlier Italian form. But even the Italian
policies in the two "Santa Marias" mention the uses and customs of
"_questa strada Lombarda di Londra_" as the standard of the assurance
they afford. The next most ancient policy we possess is dated 1613; it
covers goods on the "Tiger" from London to "Zante, Petrasse and
Saphalonia." The "Tiger" policy is interesting in another connexion.
It recalls Shakespeare's _Macbeth_ I. iii. 7 (written about 1605):--

"Her husband's to Aleppo gone, master of the 'Tiger.'"

Clark & Wright's note (in the "Clarendon Press" series edition) cites
Sir Kenelm Digby's journal of 1628 mentioning "the 'Tyger' of London
going for Scanderone" (Alexandretta). Hakluyt (_Voyages_) gives
letters and journals of a voyage of the "Tyger of London" to Tripolis
in 1583. Shakespeare again mentions a ship called the "Tiger" in
_Twelfth Night_, V. iii. 63:--

"And this is he that did the 'Tiger' board."

The policy by the "Tiger" is much more ample than any of those already
mentioned; it details the perils insured against in words closely
resembling the Florentine formula of 1523, and differing only slightly
from the form adopted by Lloyd's at a general meeting held in 1779,
and afterwards incorporated in the Sea Insurance Stamp Act of 1795,
which is the stem form of all modern British and American marine
insurance policies.

While the form of the insurance policy was thus developing, there was
a singular absence of legislation (and, as far as we can yet trace, of
litigation) on the subject. Till 1601 differences seem to have been
generally settled by arbitration. This accounts for the poverty of the
British Admiralty records in matters of marine insurance. In 1601 a
special tribunal was established by statute for summary trial of
disputes arising on insurance policies; but, owing mainly to the
opposition of the common-law judges, the new court languished, and by
1720 it had fallen into utter disuse. J. A. Park states that not more
than sixty insurance cases were reported between 1603 and 1756.
Consequently, when Lord Mansfield came to the court of king's bench in
the latter year, he found a clear field. He practically created the
insurance law of England. He made use of all the continental
ordinances and codes extant in his day, taking his legal principles
largely from them; the customs of trade he learnt from mercantile
special jurors. Subsequent legislation referred solely to the
prohibiting of certain insurances (wager policies, &c.), the naming in
the policy of parties interested therein, and the stamp duty levied on
marine insurances. In 1894 Lord Herschell introduced his Marine
Insurance Bill, which endeavoured "to reproduce as exactly as possible
the existing law relating to marine insurance." After Lord Herschell's
death, Lord Chancellor Halsbury took up the bill, introducing it in
the House of Lords in 1899 and again in 1900; he appointed a committee
on which underwriters, shipowners and average adjusters were
represented, and, presiding himself, went through the bill with them
clause by clause. The bill was then passed by the Lords, but was
always blocked in the House of Commons till 1906, when it was taken up
by Lord Chancellor Loreburn in conjunction with Lord Halsbury. After
some amendment and modification it was finally passed by both Houses
and became law on the 1st of January 1907 (6 Ed. VII., c. 41).[3] In
America a less happy fate has attended the insurance code, forming
part of the proposed civil code of New York, completed and published
in 1865, of which a very slightly altered version was adopted in
California and has been in effect there since the 1st of January 1873.
On the continent of Europe legislation at first took the form of local
ordinances of commercial cities, such as Barcelona (1434-1484),
Florence (1523), Burgos (1538), Bilbao (1560), Middelburg (1600),
Rotterdam (1604-1655). In the third quarter of the 16th century Rouen
produced a handy guide to marine insurance, _Le Guidon de la mer_; and
in 1656 Etienne Cleirac published there his _Us et coutumes de la
mer_. This was followed in 1681 by the _Ordonnance de la marine_,
which, through Lord Mansfield, had a great effect on English case law.
In 1807 France produced the _Code de commerce_, on the model of which
nearly every European nation has issued a similar code. Probably the
"best considered" (Willes, J.) of these, and the most adequate as
regards marine insurance, is that of the German empire; but Hamburg
and Bremen still preserve many of their local conditions by special
contract in their policies. In fact it is doubtful whether the German
Code could have been produced without the previous elaboration of the
Conditions of Hamburg and of Bremen. The Hamburg Conditions of 1847,
revised 1867, constitute an admirable compendium of marine insurance
as practised in that city.

Conflict of laws.

Marine insurance being peculiarly an international business, being a
factor in 95% of the operations of oversea trade, it is natural that
those engaged in this business or making use of marine insurance in
their business should experience the difficulty and hardship arising
from the differences between the marine insurance law of different
states, and should attempt to find a remedy. Such an attempt was made
at the Buffalo conference of the International Law Association in 1899
to prepare a body of rules dealing with those parts of marine
insurance on which the laws of maritime countries differ. This
undertaking was of the same nature as the earlier efforts of the same
association which resulted in the formulation of the York-Antwerp
rules of general average. There are four important subjects on which
great divergence prevails: (a) Constructive total loss; (b) Deductions
from costs of repairs, new from old; (c) Effect of unseaworthiness and
negligence; (d) Double insurance.

(a) Constructive total loss results, according to the law of France,
Italy, Spain, Belgium, Holland, in case of loss or deterioration of
the things insured amounting to not less than three-quarters; in
German law a ship is considered to be "unworthy of repair" when the
cost of the repair, without deductions new for old, would amount to
over three-fourths of the ship's former value (no similar provision
seems to exist in Germany for goods); in the law of America a damage
over 50% of the value of the vessel when repaired is a constructive
total loss of the vessel, in case of the policy containing no express
provision to the contrary. None of these varying systems appears to be
so equitable to all concerned as the British rule, which was for this
reason suggested to the Buffalo conference for international adoption.
As regards the time when the test for constructive total loss should
be applied, it was suggested to reject the British rule, prescribing
that it shall be the time of commencing action against underwriters,
and to adopt the continental and American rule referring to the facts
as they existed at the time of abandonment. Then, as respects the
effect of a valid abandonment on the rights in the property insured,
the conference proposed to adopt the British and American rule of
making the abandonment refer back to the time of the loss, as against
the continental European system of making the transfer operative only
from the date of the notice of abandonment. Finally, as to the freight
of a properly-abandoned ship, it was proposed to follow for
international purposes the American rule of dividing the freight of
the voyage between shipowner and underwriter in the proportion of the
distances run before the disaster and to be run thereafter, rejecting
the British rule of complete transfer to the underwriter and the
various continental rules of proportional division between shipowner
and underwriter.

(b) It was proposed to adopt the deductions set forth in the
York-Antwerp rules as being suitable for international adoption in
marine insurance contracts.

(c) As regards unseaworthiness and its effect on insurances on ships
and goods, it was proposed in the case of ships to reduce materially
the obligations of the insured as required by English and American
law; to diminish the requirement from the absolute attainment of
seaworthiness to the mere exercise of all reasonable care to make the
vessel seaworthy. Even this attenuation did not appear sufficient, as
it was proposed to degrade the performance of the already minimized
warranty from being a condition of the insurance, and its
non-performance from invalidating the policy. As to goods, they were
proposed to be exempted from any warranty of seaworthiness of ship.
Concerning negligence, it was proposed to hold the underwriter liable
(subject to the new seaworthiness warranty) for any loss caused
proximately by a peril insured against, although wholly or partly the
result of the neglect of the insured, or his servants or agents, or by
the wilful act of his servants or agents, or the inherent nature or
unsoundness of the article insured.

(d) In case of double or multiple insurance, the conference proposed
to adopt the British rule of making all the policies effectual,
independently of the order in which they were effected, and of making
all the underwriters entitled to contributions _inter se_. As regards
the premium, it was proposed that no premium should be returnable,
where the risk has attached.

With the exception of those embodying the two suggestions named in
par. (a), all the resolutions proposed were accepted by the
conference. But it appears extremely unlikely that British and
American underwriters will voluntarily consent to the practical
annihilation of the seaworthiness warranty, and no less improbable
that American and continental assured will voluntarily accept the
stricter rule of constructive total loss embodied in English law, when
their national law enforces on the underwriter terms more favourable
to the assured. The fewness of the international insurance markets of
the world diminishes the need for uniform international regulations in
this matter. The matter may be one for adjustment by variation in the
rate of premium, but this is not certain.

The Glasgow conference of 1901 adopted the rules, after excepting time
policies from the scope of the rule respecting seaworthiness. The
rules are known as the Glasgow Marine Insurance Rules. The writer
knows of no instance in which they have been adopted in practice.

Returning to marine insurance in the United Kingdom, it is to be
observed that the passing of the Marine Insurance Act of 1906 sharply
marks an important change in the nature of the law of the subject.
Till then it was based almost entirely on common law, only a few
disconnected points having been dealt with by statute. The reported
cases were thus of great importance, and being about 2000 in number
(_teste_ Sir M. D. Chalmers) were not easy to master. No doubt many of
them referred to commercial conditions no longer prevalent; still they
could not be entirely ignored. But the original introducer of the bill
described it as an endeavour "to reproduce as exactly as possible the
existing law relating to marine insurance," and as by being made law
the language of the act has become authoritative, insured and insurers
have now no call to go behind the wording of the act in any matter
with which it deals. It thus appears that the case law of the subject
existing before the 1st of January 1907 may be left aside, unless,
perhaps, for use as affording examples of the way in which the
provisions of the act work.

Definition.

A contract of marine insurance is a contract of indemnity whereby the insurer undertakes to indemnify the insured, in the manner and to the extent agreed, against marine losses, i.e. the losses incident to marine adventure. The contract may by its express terms or by usage be extended to cover risks on inland waters or land risks incidental to any sea voyage. There is a "maritime adventure," where any ship, goods or other movables are exposed to maritime perils, such property being termed "insurable property"; also where the earning of any freight, hire or other pecuniary profit or benefit, or the security for any loan or expenditure, is endangered by the exposure of insurable property to maritime perils; and where any liability to a third party may be incurred by the person interested in or responsible for insurable property by reason of its exposure to maritime perils. By "maritime perils" are meant the perils consequent on or incidental to the navigation of the sea, i.e. perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures and restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy.

The contract being one of indemnity against maritime perils, it is
evident that no one can derive benefit from it who has not some
interest exposed to these perils. Consequently while, subject to the
provisions of the act, every lawful marine adventure may be insured,
all contracts of marine insurance are void when (1) the assured has no
insurable interest, and has entered into the contract without
expectation of acquiring such interest; (2) when the policy is a
"wager" policy, being made "interest or no interest," "without further
proof of interest than the policy itself," "without benefit of salvage
to the insurer," or subject to any similar terms. But if there is no
possibility of salvage a policy "without benefit of salvage to the
insurer" is legally valid. Wager policies are illegal only in the
sense of being void to all legal purposes. They cannot be sued upon,
hence they are known as "honour" policies. They are of frequent use,
generally for the protection of interests which, though real, are not
easily defined, or are of pecuniary value hard to determine. But they
are ignored by the courts. The essential of insurable interest is the
pecuniary advantage seen at the time of insurance as arising to the
assured from the safety or due arrival of the adventure, or the
pecuniary disadvantage similarly arising from its loss or
deterioration. But such interest may lapse before arrival or
destruction of the venture, and with the interest lapses the right of
the assured to recover from the underwriter. Without interest at the
time of the loss there is no right to recover from the underwriter.
Should the assured simply transfer his interest to another, e.g. by
sale, he can assign his policy to the party who acquires his
interest--unless, of course, the policy contains terms expressly
prohibiting assignment. The customary form of assignment is
endorsement of the policy either in blank or to a specified party.
Within the limits already named, interests are insurable whether
complete or partial, defeasible or contingent; similarly loans on
bottomry or respondentia, advance freight not repayable in case of
loss, charges of insurance, also shipmaster's, officers' and seamen's
wages.

Value.

The owner of insurable property may insure its full value even though some third party have agreed or become liable to indemnify him in case of loss: a mortgagor has the same right of insuring to full value; while a mortgagee may insure only up to the sum due or to become due to him under the mortgage, unless the mortgagee is insuring for the benefit of the mortgagor as well as for himself, in which case, even though he insure in his own name only, he may insure up to the full value. A consignee may insure in his own name the total amount of his interest and that of others for whose benefit he insures. Where no special contract is made between insured and underwriter, the insurable value of certain matters of insurance is ascertained as follows:--_Ship_--Her value at the commencement of the risk, including outfit, provisions, stores, advances of wages, and any other outlays expended to make the ship fit for the voyage or period of navigation covered, _plus_ cost of insurance upon the whole. In the case of a steamship, the word "ship" includes machinery, boilers, coals and engine stores. In the case of a vessel engaged in a special trade, the word "ship" includes the ordinary fittings necessary for that trade. _Freight_ (whether paid in advance or not)--The gross amount of freight at the risk of the assured, _plus_ cost of insurance. _Goods_--The prime cost, _plus_ expenses of and incidental to shipping and cost of insurance. _Other interests_--The amount at the insured's risk when the policy attaches, _plus_ cost of insurance.

Policy.

To be admissible in evidence a contract of marine insurance must be embodied in a document called a policy, which must specify the name of the assured (or of his agent in the effecting of the policy), the objects insured, and the risk insured against, the voyage or time (or both) covered, the sum insured, the name of the assurers. The signature of the assurer is necessary; it is found at the end of the policy, and the assurer is often on this account called the _underwriter_. The objects insured must be designated with reasonable certainty, regard being had to customary usage. The undertaking to insure is usually expressed by saying that the insured or his agent "doth make assurance and cause himself to be insured." The risks are either the whole body of maritime perils detailed above, or any one or set of these, or any other named peril against which the assured desires protection. There is no restriction by law of the length of voyage that may be insured, but time policies are, subject to the Finance Act 1901, invalid if made for more than one year; a voyage and a period of time may be covered on one policy. Policies are classed as "time" or "voyage" policies. It is not necessary to state in the policy the value of the objects insured, but generally the value is given; policies are therefore classed as "valued" or "unvalued," the latter being often called "open" policies. The values of objects insured under open or unvalued policies are the insurable values given above. As it frequently happens that merchants desire to have all their shipments of whatever nature covered, by whatever vessel they may come, they require insurance in general terms; such a policy is termed a "floating" policy. It states the limits of voyage and value covered by the underwriter, and the class of ships to be employed. The particulars of each shipment are declared as the shipments occur, and in the order of despatch or shipment, the declarations being usually endorsed on the policy. All shipments within the terms of the policy must be declared at their honest value, or in accordance with the special provisions of the policy, if any. An omission or erroneous declaration may be corrected even after loss or arrival, provided it was made in good faith.

The consideration paid by the insured to the underwriter in return for
the protection granted by the latter is called the _premium_. Until
payment be made or tendered the policy is not ordinarily issuable,
i.e. unless otherwise agreed. When the insured effects insurance with
an underwriter through a broker, then, unless otherwise agreed, the
broker is liable for the premium to the underwriter, who is, however,
directly responsible to the assured for losses or liabilities falling
on the policy and for returnable premium. But the broker has a lien on
the policy for the premium and for his brokerage, and in case he has
had dealings as a principal with the insured, he has a lien on the
policy for any balance due to himself in insurance transactions,
unless he should have known that in these transactions the insured was
merely an agent. Some policy forms state definitely that the premium
has been paid; when such a form is used and no fraud is proved, this
receipt is binding between assured and underwriter, but not between
broker and underwriter. If an insurance is effected at a premium "to
be arranged," and no arrangement is made, then a reasonable premium
is payable. The same holds where additional premiums have to be
charged at a rate to be arranged and no arrangement is made.

It is evident that in nearly all the particulars of any adventure
insured by an underwriter he is entirely dependent upon the insured
for correct information. It is therefore the law that an insurance
contract can be avoided and broken by either of the parties to it if
the utmost good faith (_uberrima fides_) be not observed by the other.
The obligation of perfect good faith is thus made reciprocal. Bad
faith may show itself either in _concealment_ or in
_misrepresentation_. It is therefore made essential to the stability
of any insurance contract that the insured must disclose before
conclusion of the contract every material circumstance known by him,
failing which the underwriter may avoid the contract. The insured is
deemed to know every circumstance which in the ordinary course of
business ought to be known by him. Every circumstance is deemed
material which would influence the underwriter in his decision as to
acceptance of the risk or the fixing of the rate of premium.
Consequently the insured is not bound, unless specially asked by the
underwriter, to disclose the favourable features of the risk offered,
or matters known or presumably known by the underwriter (matters which
are of common knowledge, and such as an underwriter ought in his usual
business to be aware of), or matters respecting which the underwriter
waives or declines information, or which any express or implied
warranty renders superfluous. An agent effecting an insurance must, in
addition to his principal's material knowledge, disclose everything
material known to _himself_, or that _he_ should know in the ordinary
conduct of _his_ business. Every representation of material fact made
to an underwriter before conclusion of a contract by the insured or
his agent must be true, or the underwriter may avoid the contract.
Every representation is material which would influence the underwriter
in his decision as to acceptance of the risk or to fixing the rate of
premium. A representation of fact is regarded as true if it be
substantially correct; literal correctness is not essential. A
representation of expectation or belief is true if it is made in good
faith. A representation may be withdrawn or corrected before the
contract is concluded. The contract is deemed to be concluded when the
underwriter accepts the risk, whether the policy be then issued or
not.

Voyage insured.

It frequently happens that before a vessel has completed the venture on which she is engaged arrangements have already been made for her future employment. Where a vessel is insured on time, this is of no moment as respects her insurance. It has likewise been decided that where any insurable object is covered by a voyage policy "from" or "at and from" a named place, the policy is not rendered invalid by her not being at that place when the insurance is concluded; but, on the other hand, there is an implied condition that she will begin the venture within a reasonable time, and that if she fails in this the underwriter may avoid the contract. If the delay springs from circumstances known to the underwriter at the time of conclusion of the contract, or if the underwriter then acquiesces in it, the implied condition is nullified. If the insured abandons the venture insured, the contract expires; e.g. if, before the risk commences, the vessel's destination is changed to one not covered by the policy. Where the policy specifies a place of departure, and the ship does not sail from that place, the risk does not attach. If, however, the vessel actually starts from her intended port of departure, and commences the venture, and thereafter it is decided to change her destination, this decision constitutes a _change of voyage_. In default of provision to the contrary, the underwriter may elect to avoid his insurance from the time of that decision, although the ship be still in the course she would have followed in her originally intended venture.

Should a ship depart from the proper course of the voyage she starts
upon, and for which she is insured, such departure, when made without
lawful excuse or justification, is termed _deviation_. From the moment
it occurs, even though she subsequently return to her proper course
without loss or injury, the underwriter may avoid his contract; but
the mere intention to deviate is immaterial. Deviation occurs (1) when
in a policy a course is definitely specified and the vessel departs
from it; (2) when, in absence of such definite specification in the
policy, the vessel departs from the course usually and customarily
followed in the voyage insured. If a policy provides for several named
ports of discharge, the vessel may, without committing deviation, omit
to proceed to one or more; but whether she goes to all or to some she
must (in absence of usage or sufficient cause to the contrary) take
them in the order in which they appear in the policy, if not there is
a deviation. If the policy provides for "ports of discharge" in a
given district, then (in absence of usage or sufficient cause to the
contrary) unless the vessel proceeds to them in their geographical
order she makes a deviation. Similarly, in the case of a voyage
policy, the want of reasonable despatch throughout, unless lawful
excuse or justification exists, entitles the underwriter to avoid the
contract from the time that the delay becomes unreasonable. As excuses
for deviation or delay on the voyage contemplated by the policy, the
following are regarded as valid: authorization by licence or other
provision in the policy, _force majeure_, compliance with express or
implied conditions of the policy (e.g. warranties, see below),
reasonable steps taken for the safety of the ship or other objects
insured, saving life, helping a ship in such distress that life may be
in danger, or obtaining medical or surgical aid for some person on
board. If barratry is insured against, delay arising from barratrous
conduct of master or crew does not avoid the policy. A deviation
ceases to be excusable unless the ship resumes her proper course and
proceeds on her voyage with reasonable promptitude after the cause of
the excusable deviation or delay ceases to be effective.

Warranties.

In every contract of insurance there are certain conditions precedent to the liability of the underwriter and incumbent on the insured, which must be fully and literally complied with, whether material to the risk or not. These conditions are known in insurance as _warranties_. The name is unfortunate, as in every other branch of the law of contract it bears another meaning; still it is convenient, and its insurance signification is now firmly established. Failure on the part of the insured to fulfil a warranty _literally_ entitles the underwriter to avoid his contract as from the moment of breach,[4] but it does not limit his obligation up to that moment. Breach of warranty is not nullified by subsequent remedy of the breach, consequently loss occurring after breach of warranty is not at the charge of the underwriter, even although before the loss the insured has again complied with the warranty. But breach of warranty may be waived by the insurer. Breach of warranty is excused in two cases only: (a) when by change of circumstances the warranty ceases to be applicable to the contract, (b) when by subsequent legislation the warranty becomes unlawful.

Warranties are of two classes: (1) express (2) implied. Express
warranties must be written or printed on the policy, or contained in
some document explicitly referred to in the policy, and so regarded as
incorporated in the contract. No special form of words is essential to
the validity of a warranty if the intention to warrant can be
inferred. Express warranties may refer to anything which the parties
to the contract choose, e.g. the nationality of the vessel, her
sailing on a named day, proceeding under convoy, being excluded from
certain voyages or trades or the carriage of certain cargoes, being
"well" or "in good safety" on a named day (in which case the warranty
is fulfilled if she be safe at any time of that day). As regards
_nationality_, if no express warranty be given there is no undertaking
on the part of the insured that the vessel is of any particular
nationality or that she will not change it while the risk lasts. The
warranty of _neutrality_ in case of insurance of ship or goods means
that at the beginning of the risk the property concerned is actually
neutral, and that as far as the insured can control the matter it
shall so continue during the whole course of the risk. It is also an
implied condition of the ship being warranted neutral that to the
utmost of the insured's power she must carry the papers necessary to
establish her neutrality, must not falsify or suppress these papers,
or use simulated papers; if this condition is broken the insurer can
avoid the contract. The words of an express warranty are always to be
taken in their commercial sense; within that sense they are to be
strictly and literally taken. An "express" warranty does not exclude
an "implied" warranty (see below) unless it be inconsistent therewith.

In addition to these expressed conditions, there are also certain
essential factors or conditions inherent in each and every contract of
marine insurance without exception; these are _implied_ warranties,
which are presumed from the very fact of the making of the insurance.
They are (a) completion of the prescribed venture without _deviation_,
(b) _legality_ of the venture (viz. that the adventure insured is a
lawful one, and that, so far as the insured can control it, it shall
be carried out in a lawful manner), (c) _seaworthiness_ of the ship.
In a voyage policy it is an implied warranty that at the commencement
of the voyage the ship shall be seaworthy for the particular venture
insured. If the risk commences when the ship is in port, then she must
in addition be reasonably fit to stand the ordinary dangers of the
port. If the voyage insured is one in which different degrees of peril
are to be encountered, or for which the ship needs different kinds of
outfit at different stages, then she must be seaworthy for each stage
at its commencement, and the warranty will be fulfilled if she is at
the beginning of each stage seaworthy for that stage. The warranty of
seaworthiness is held to be fulfilled when the ship is reasonably fit
in every respect to meet the ordinary marine dangers of the venture
insured; that is to say, the mere loss of a vessel by perils of the
sea is not a proof of unseaworthiness in the sense of this warranty.
The only ship policies not subject to the warranty of seaworthiness
are policies on time (the reason given being that there is nothing to
prevent a time policy lapsing and a new one commencing when the vessel
is at sea beyond her owner's control as to seaworthiness); but where
the insured knowingly sends a ship to sea in an unfit state and a loss
is attributable to that unseaworthiness, the underwriter is not liable
for such loss. It is not implied in a policy on goods or movables that
these goods, &c., are seaworthy, but it is implied that at the
beginning of the voyage the carrying vessel is not only seaworthy as a
ship but reasonably fit to carry the goods to the destination named in
the policy.

When the main points of the preceding particulars of the contract of insurance are summarized it may be said that the transaction is (1) a contract of indemnity reduced to written or printed words, (2) made in good faith, (3) referring to a defined proportion or amount, (4) of a genuine interest in a named object, (5) being against contingencies definitely expressed, to which that object is actually exposed, and (6) in return for a fixed and determined consideration.

Multiple Insurance.

It may happen by accident or by design that an insurance object has been covered twice or more times, and that in consequence the sum of the insurance effected exceeds the value in the policy or the insurable value, if an unvalued policy has been employed. This occurrence involves a new set of relations between the insured and his various underwriters; the underwriters themselves are brought into relation to one another. As regards the insured, he may, in the absence of agreement to the contrary, claim payment from whomsoever of the underwriters he may select, but he is not entitled to receive in all more than his proper indemnity. Each underwriter, whether his policy be valued or unvalued, is entitled to receive credit for his proper proportion of the sum obtained by the insured under any other policy. If the insured does obtain any sum in excess of indemnity, he is regarded as holding it in trust for his whole body of underwriters. It thus appears that in case of multiple insurance each underwriter is bound, as between himself and the other underwriters, to contribute to the loss rateably in proportion to the amount of his liability under the policy; and if any one pays more than his proper share, he is entitled to sue the rest for contribution. Should the insured get any of his premium back? It would not be equitable to enforce a return from any underwriter who has at any time stood alone so as to be liable to the full extent of his policy; but if overlapping policies were accidentally effected all at the same time, the case is rather different. This leads to the general question of _return of premium_. Such return may be claimed under the terms of the policy, in which case the claim for return is simply the carrying out of the agreement between the parties; it may refer to the whole or to a part of the interest insured. But there are other circumstances in which returns can legally be claimed. For instance, it may turn out that interest insured by a particular vessel and for a particular voyage is never shipped in that vessel for that voyage; the underwriter has in this case run no risk, and therefore the consideration for which he received the premium totally fails, and the premium is properly returnable to the intending insured, unless there has been fraud or illegality on the part of the insured. Similarly, in the case of part of the interest insured on a policy, if that part is distinguishable in the policy or by custom of trade. But the interest might have made the voyage in the vessel, and the intending insured might yet remain without insurable interest. In this case, in absence of fraud or illegality, and if the policy is not merely a gaming or wagering contract, the insured is entitled to return of his premium. Similarly, in the absence of fraud or illegality, if the underwriter legally voids his policy from the beginning of the risk; as he runs no risk, he receives no premium. The only cases, except those of fraud and illegality, in which the underwriter can retain his premium without running risk, are those of risks underwritten "lost or not lost," and arrived safely without the underwriter's knowledge, in which the underwriter takes his chance as to the condition and situation of the ship when he assumes the risk. But this is practically a case of agreement that there shall be no return.

When the insured has overinsured on an unvalued policy, a proportionate part of the premium is returnable. But where double insurance has been knowingly effected by the insured or any earlier policy has at any time borne the entire risk or a claim has been paid on a policy in respect of its full value, no premium is returnable.

The policy issued by the underwriter to the insured makes mention of certain perils against which the insurance is granted, and unless the policy otherwise provides, the underwriter is liable for any loss proximately caused by any of these perils, but is not liable for any loss not proximately caused by a peril insured against. He is not responsible for any loss due to the wilful misconduct of the insured but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against even though it would not have happened but for the misconduct or negligence of master or crew. Nor is he responsible for any loss caused by delay, although the delay be caused by a peril insured against; nor for ordinary wear and tear, ordinary leakage or breakage, inherent vice or character of objects insured, loss from rats or vermin, or injury to machinery not proximately caused by sea-perils.

Total loss.

Abandonment.

Losses are divided into "total" and "partial." A "total" loss may be
(1) actual, or (2) constructive; and an insurance against total loss
covers the insured against both, unless a different intention appears
from the terms of the policy. It is an "actual" total loss when the
object insured is destroyed or damaged so as to cease to be of the
denomination of goods to which it belonged when insured, or when the
insured is irretrievably deprived of the property insured. In the case
of an actual total loss no notice of abandonment need be given. In the
case of a missing ship after the lapse of a reasonable time without
news, an "actual" total loss may be presumed. There is a
"constructive" total loss when the interest insured has been abandoned
on account of what appears inevitable actual total loss, or because
the cost of preventing such loss would exceed the value after such
expenditure. E.g. if ship or merchandise is in such a position that
recovery is unlikely or the cost of recovery would exceed the value
recovered, there is constructive total loss; likewise in the case of a
damaged ship, if the cost of repair would exceed the repaired value of
the ship. (In making the estimate of cost of repairs no deduction is
to be made for the share of them payable in general average by other
interests, but account is to be taken of the cost of later salvage
operations and of the ship's proportion of any later general
averages.) Similarly for damaged goods, there is constructive total
loss if the cost of repair and of forwarding to destination exceeds
the arrived value. The insured may either treat constructive total
loss as a partial loss or as an actual total loss, in which latter
case he abandons his insured interest to the underwriter. If he
decides to abandon he must give notice of abandonment, else he will
recover only for a partial loss. This notice may be wholly or partly
written or oral, and in any terms if only they indicate the intention
to transfer unconditionally all interest to the underwriter. The
refusal of abandonment by the underwriter does not prejudice the
assured's rights. Abandonment may either be expressly accepted by the
underwriter or may be implied from his conduct, but his mere silence
does not imply acceptance. When notice is accepted, abandonment is
irrevocable. Notice may be waived by the underwriter. Notice is
unnecessary where, when the news reaches the insured, there would be
no benefit to the underwriter if notice were given to him. On valid
abandonment the underwriter adopts the interest of the insured in the
subject insured, or what remains of it, and all incidental proprietary
rights, e.g. in the case of a ship he is entitled to any freight in
the course of being earned and which is earned by her subsequent to
the accident causing the loss, less the expenses incurred after the
accident; and if the cargo is on owner's account, the underwriter is
entitled to reasonable freight from the place of casualty to
destination.

Partial loss.

General average.

Salvage charges.

Particular average.

Any loss other than a total loss, as defined and described above, is a
"partial" loss. As such are classed general average, salvage charges,
particular average, particular charges. "General average" is really an
outlying branch of the law of affreightment (see AVERAGE and
AFFREIGHTMENT): its connexion with insurance is merely secondary,
arising out of the underwriter's contract to pay losses generally and
this special liability in accordance with definite provisions of the
policy. Any extraordinary sacrifice or expenditure voluntarily and
reasonably made in a moment of peril in order to preserve all the
property in the venture, is a general average act and the loss arising
therefrom is a general average loss. The party on whom it falls is
entitled to a rateable contribution from the others. These rateable
contributions are repayable by the respective underwriters subject to
the special provisions of their policies, unless the sacrifice or
expenditure was made to avert a peril not covered by the policies,
when there is no liability. The party originally incurring a general
average sacrifice may recover from his underwriter the whole loss
without having enforced his right of contribution from the others
concerned in the venture. When ship, freight and cargo, or any two of
them, belong to one person, the underwriter's liability is determined
as if these interests were each owned by separate persons. "Salvage
charges" are the charges recoverable under maritime law by a salvor
independently of contract: if incurred in averting perils insured
against, and if not otherwise provided in the policy, they are
recovered as a loss from these perils. The cost of similar services of
the insured or his agents or hired employees are recovered as a
general average loss when the cost fulfils the character of general
average expenditure, or in all other cases as "particular charges."
Thus all expenses by or on behalf of the insured to save or preserve
the interest insured are either general average, salvage charges or
particular charges. Particular charges are not included in "particular
average," which may now be defined as a partial loss of the subject
insured, caused by a peril insured against, and not being a general
average loss.

Measure of indemnity.

F.P.A. liabilities.

The nature of the liability for loss of the underwriter having been
determined, it remains to fix its extent, or in other words the
"measure of indemnity"; each underwriter bears that proportion of the
loss which his subscription bears in the case of a valued policy to
the insured value, and in the case of an unvalued policy to the
insurable value. In the case of a total loss, the measure of indemnity
is the sum fixed by the policy if valued, or the insurable value of
the object insured if the policy be unvalued. When the insured fails
in an action for total loss, he is not precluded from recovering a
partial loss if the policy insures him against partial loss. In the
case of damage to a ship not amounting to a total loss the insured is,
subject to the terms of his policy, entitled to recover the reasonable
cost of repairs less customary deductions, but not exceeding for any
one casualty the sum insured. If the repairs are only partial he is in
addition entitled to an allowance for unrepaired damage, but the
aggregate must not exceed the cost of complete repairs, less customary
deductions. If the damaged ship has neither been repaired nor sold
during the risk, the insured is entitled to reasonable depreciation
but not exceeding the reasonable cost of repairs, less customary
deductions. As regards freight, the underwriter's liability for
partial loss is, subject to the terms of the policy, the proportion of
the policy value, or (in case of an unvalued policy) of the insurable
value, which the freight lost bears to the whole freight at risk of
the insured under the policy. When there is liability under a policy
for total loss of part of the goods insured its amount is determined
as follows: on an unvalued policy, it is the insurable value of the
portion lost, ascertained as in case of total loss; on a valued
policy, it is the proportion of the sum insured which the insurable
value of the portion lost bears to that of the whole. Subject to any
express provision of the policy, when goods are delivered at
destination damaged throughout or in part, the liability is for the
same proportion of the sum insured (or, in an unvalued policy, of the
insurable value) that the difference between gross sound and gross
damaged values at destination bears to the gross sound value there.
Gross sound value means the wholesale price including freight, landing
charges and duty; gross damaged value means the actual price obtained
at a sale when all charges on sale are paid by the sellers. In case of
goods customarily sold in bond, the bonded price is taken to be the
gross value. When different kinds of property are insured under a
single valuation, that valuation is apportioned over them in
proportion to the respective insurable values they would have on an
unvalued policy, but when the prime cost cannot be ascertained the
division is made over the net arrived sound values of the different
kinds of property. The liability for general average contribution and
salvage charges is, for anything insured for its full contributing
value, the full amount of the contribution; but in case of insurance
not attaining the full contributing value there is a reduction in
proportion to the under insurance; and where a particular average is
payable on the contributing goods, its amount must be deducted from
the insured value when the underwriter's liability is being
ascertained. On policies covering liabilities to third parties, the
measure of indemnity, subject to the condition of the policy, is the
amount paid or payable to the third party. When property is insured
"free of particular average" (f.p.a.), then unless the policy is
apportionable, as above, there is no liability for loss of part with
exception of loss of part occasioned by a general average sacrifice,
but there is liability for total loss of an apportionable part. The
underwriter on f.p.a. terms is liable for salvage charges, particular
charges and charges incurred under the "sue and labour" clause of the
policy to avert a loss insured against. Unless otherwise provided in
the policy when goods are insured f.p.a. under a certain named
percentage, a general average loss cannot be added to a particular
average loss to make up the specified percentage; nor may particular
charges nor the expenses of ascertaining and proving the loss; in fact
only the actual loss suffered by the object insured may be taken into
account. The engagement evidenced by the "sue and labour" clause of a
policy is regarded as supplementary to the contract of insurance, and
the expenses incurred under it are recoverable from the underwriter,
even if he has paid a total loss or has insured the goods f.p.a. with
or without any franchise being specified. General average losses and
contributions are not "sue and labour" expenses, nor are salvage
charges, as defined above. The expenses of averting a loss not covered
by the policy cannot be recovered under the "sue and labour" clause.
The Marine Insurance Act specially declares that "It is the duty of
the insured and his agents, in all cases, to take such measures as may
be reasonable for the purpose of averting or minimizing a loss."

Unless otherwise provided, and subject to the provisions of the law,
the underwriter is liable for successive losses, even though their
aggregate amount exceeds the sum insured. But where, under one policy,
an unrepaired or uncompensated partial loss is followed by a total
loss, the insured can only recover the total loss. These provisions do
not affect the underwriter's liability under the "sue and labour"
clause, for, as explained above, the "sue and labour" clause is a
contract supplementary to the insurance contract contained in the
policy.

Subrogation.

The payment of a total loss of the whole or of an apportionable
portion of the object insured entitles the underwriter to take over
the insured's interest in all that remains of the same, the
underwriter becoming subrogated to all the rights and remedies of the
insured in and regarding the interest insured as from the time of the
accident occasioning the loss. The payment of a partial loss gives the
underwriter a similar subrogation but only in so far as the insured
has been indemnified in accordance with law by such payment for the
loss.

Coinsurance.

In case of double (or multiple) insurance each underwriter is bound to
contribute, as between himself and the other underwriters, rateably to
loss in proportion to the amount for which his policy makes him
liable; for any excess of this amount he may maintain action against
the coinsurers and may obtain the same remedy as a surety who has paid
more than his proportion of a debt.

Where the object is insured for less than the insurable value, as
defined above, the insured is deemed to be his own underwriter for the
balance.

Liabilities.

Recent extensions of marine insurance in England have mostly been in
the direction of giving to shipowners protection against liabilities
to third parties. The first addition was the running down clause
(r.d.c.) by which underwriters take burden of a proportion, usually
three-quarters, of the damage inflicted on other vessels by collision
for which the insured vessel is held to blame. The rapid increase in
the use and size of steamships was accompanied by an equally rapid
increase in the frequency of collisions at sea, tending to make the
shipowner desirous of insuring himself against the balance of his
collision liability, and against whatever other liabilities to third
parties might be imposed upon him. There was a hesitation on the part
of underwriters to meet these wants and the result is that in Great
Britain most liability insurances are effected in mutual insurance
societies. The insurance of such liabilities is perhaps simpler in
Great Britain than in other countries, as the amount for which a
shipowner can be liable is limited by law, although, of course, none
but English tribunals are bound by that law. A new and extensive set
of liabilities has been thrown on shipowners by the Workmen's
Compensation Act of 1906; the liabilities in this case vary with the
wages of the workmen concerned. Another interesting class of
insurances has received much attention, namely, those against the
risks of capture, seizure and detention by a hostile power, generally
described briefly as _war risks_. But the difficulties connected with
such risks probably lie more in determining the legal position of the
owners of the property, and the obligations under which they lie, than
in settling those of their underwriters. Such questions concern
_blockade_, _contraband_, _domicile_, _nationality_, _neutrality_, &c.

Course of business.