Encyclopaedia Britannica, 11th Edition, "Inscriptions" to "Ireland, William Henry" / Volume 14, Slice 6

by Various

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 Policy. 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.

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 Voyage insured. 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.

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 Warranties. 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.

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 Multiple Insurance. 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.