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premium and costs of insurance. The amount recoverable on an open policy on freight is the gross freight paid by the shipper.
The effect of the present rules can be most easily understood by an example. Let us take first a case put before the Commission on Unseaworthy Ships by Sir Thomas Farrer. A steamer of 1,200 tons, bound for Calcutta and back, through the Suez Canal, with a chartered freight on the outward and homeward voyage of 12,000l., is insured in an open policy at the full value. Suppose the ship to be lost on the outward voyage in the Bay of Biscay, the shipowner is thereupon entitled to recover the gross freight of 12,000l., although by the loss of his ship at the commencement of her voyage, he has avoided paying for Suez Canal dues both ways 1,200l., for coals at Calcutta 1,600l., as well as the expenses for provisions at Calcutta, wages to the crew, and port charges at Calcutta and London. The total saving by the loss of the vessel at the commencement of the voyage will amount to 4,500l.
A similar case was quoted by Sir John Lubbock in a speech delivered in the House of Commons in 1875. A vessel sailed from Quebec for Liverpool. The freight, as per charter party, amounted to 3,500l., but was insured for 6,000l. The ship was lost in the river St. Lawrence. If the voyage had been completed successfully the net receipt of the owner would not have exceeded 2,500l. By the loss of the ship he realised 6,000l.
It has been suggested, as a remedy for this strange inconsistency of the law, that the underwriter should be entitled to deduct from the amount payable to the shipowner on an open policy on the freight all expenses actually saved by the loss of the ship.
We may now turn to the voyage policy, or that in which the limits of the voyage are designated in the policy by specifying a given place at which it is to begin, and another at which it is to end. The anomalous state of the law in its relation to voyage policies will be most readily shown by quoting from the observations. of Mr. Harper. In the case of a voyage policy the law steps in again with its eternal vigilance on the owner's behalf. At the inception of the risk the ship must be seaworthy. There is an implied warranty, as it is called, of seaworthiness. But it has been held that the voyage out and the voyage home are one voyage; and it frequently happens, and it has happened to my knowledge, that a ship has gone out from one port to another, say from London to Shanghai, has been damaged on the way, has delivered her cargo, and taken in a cargo for the voyage home, had not been repaired at Shanghai, and had left in so bad a condition that there was every probability of her foundering. She had foundered, and yet, as there was no warranty of seaworthiness for the voyage from Shanghai, the assured had recovered the whole of his money from the underwriter.'
The last policy to which allusion is necessary is the time policy,
or that in which the limits of risks are designated only by certain fixed periods of time. The courts of law hold that there is no contract in time policies that the ships should be seaworthy, even at the commencement of the risk. This rule has been sustained on the ground that a shipowner may not have had any intelligence from his ship for a lengthened period, and cannot give a warranty for her seaworthy condition.
Mr. Shaw-Lefevre, in his evidence before the Commission, suggested that there should be an implied and continuing warranty of seaworthiness in all time policies, as is now the case in voyage policies.
The distinction between time and voyage-policies, in respect to the warranty of seaworthiness, leads to this strange anomaly. The owner of a ship insured under a time policy is allowed to recover his insurance, even though the vessel were unseaworthy. Shippers of goods must insure under a voyage policy, and they cannot recover if the vessel is not seaworthy. Thus the shipowner, who has the power to regulate the condition of his ship as to repairs and equipments, and neglects to do his duty, recovers his insurance, while the proprietor of the goods, who is an innocent sufferer, loses all claim on the underwriters.
True it is that shippers of goods, though they cannot recover their insurance from the underwriters, have a claim for compensation against the shipowner. But, by the bill of lading usually employed, shipowners have succeeded in contracting themselves entirely out of this obligation. It has therefore been proposed that no words introduced into the bill of lading shall exonerate the shipowner from the obligation to make and keep his vessel in safe condition, and that the underwriter shall not be liable for loss, whether under the time or the voyage policy, unless it can be proved that the shipowner and shipmaster had used all reasonable efforts to make and keep the ship seaworthy.
In this connection an anomaly may be pointed out in the law relating to constructive total loss. There is, says Mr. Arnould, a constructive total loss of a ship when by the perils of the sea she is converted into such a wreck that it would cost more money to restore her than she would afterwards sell for. The assured may, under these circumstances, give notice to the underwriters that he abandons the wreck and claims for the total loss. But, for the purpose of deciding the claim of the shipowner, the value taken into consideration by the courts is not the value as agreed in the policy, but the actual estimated value of the ship; and this may often be a much less amount than the valuation in the policy.
'This was done in the case of the Sir William Eyre, referred to above. That ship was unseaworthy, if not destroyed, at the time the ship was insured; and yet the underwriters had to pay.
Mr. Shaw-Lefevre suggested that in determining the question whether a shipowner is justified in abandoning his vessel to the underwriters, the value at which he has himself valued his ship in the policy ought to be taken as decisive. Where a vessel is over-insured the present state of the law offers a great inducement to the shipowner to abandon the underwriters and not to do his best to save the ship.
It is unnecessary to enter into further details as to the law of insurance. It may indeed be questioned, as Mr. Justice Willes remarks, whether any alteration in the English law would be operative, unless the underwriters were sincerely disposed to aid in giving it effect. The insurance companies and underwriters who do business of the highest class, rely chiefly on the character of their clients, and care little for the protection afforded by the law. Among people in a less fortunate position, the competition for business is such that no risk is refused, if only a sufficiently tempting premium be offered. Underwriters have hitherto had little encouragement to seek redress. for injustice in courts of law. The partiality to shipowners generally shown by juries fully justifies the observation of Mr. Shaw-Lefevre : ‘If they would only enforce the law a little more strictly in cases where there was an implied warranty of seaworthiness as between the shipowner and the merchant, there would be a much greater security that vessels would be sent to sea in a seaworthy state.' Impressed with the weight of evidence as to the unsatisfactory system under which such cases are tried before a judge and jury, our Commission recommended a judge and two assessors as a far better tribunal.
The abuses which have gradually crept into the practice of Marine Insurance cannot be removed by any partial measures. The Commission on Unseaworthy Ships recommended a complete revision of the whole system of insurance law. They recognised the delicacy and difficulty of the task, and that a certain inconvenience to commercial interests might be caused even by the reform of abuses. Impressed with these convictions they were of opinion that it should be undertaken by persons specially qualified by their legal attainments or practical experience.
An international agreement on Marine Insurance is most desirable, and it was the opinion of Mr. Cohen, the legal member of our Commission, that there would be no insuperable difficulty in accomplishing that important object. We generally lead the way, and other nations follow us. If we wait till all are agreed, we shall never legislate. The fact is that foreign nations have been and are stricter than we are, and have recently followed us in laxity. They will gladly follow us in being more stringent. Foreign underwriters have suffered heavily by British ships in recent years. Let us do right; they will not keep bad laws in order to attract bad business.
The law of Marine Insurance is an elaborate edifice, composed of
materials drawn from the custom of merchants, the statutes of the realm, and the decisions of able and impartial judges. Such a law should not be altered hastily, nor without the most careful consideration of the probable effect of the changes proposed in relation to the seaworthiness of our shipping. Because abuses have grown up in the law, Marine Insurance must not on that account be condemned. Its value has indeed been recognised from very early times. It was introduced into England by the Lombards, together with the art of bookkeeping, the institution of banking, and other equally valuable aids to commerce. Rich men may, indeed, be independent of the protection it affords. The poorest class of shipowners, who navigate their own ships, do not insure, because they cannot afford to bear any expense not absolutely necessary to enable them to take their vessels from port to port. These men live from hand to mouth, from voyage to voyage; and, as they do not entrust their property to the care of others, they are free from the anxiety of those who have to bear unknown risks. But that great middle class who must constitute the majority of every trading community are in a different position. They have too much at stake to be able to bear the risks of maritime adventure without the protection of insurance: and, on the other hand, their interest in shipping is not distributed so widely as to justify them in becoming their own insurers.
The work to be done is of the utmost importance. Those who are opposed to load-lines and surveys say truly that the commercial instinct of the shipowner and the experience of the shipmaster are the most reliable guarantee for the seaworthiness of shipping; and that Government surveyors cannot have the same practical knowledge as persons actually engaged in the trade. But that commercial instinct on which we are invited to rely must be less keen and less acute when by the over-valuation of the ship and freight the shipowner stands to win and not to lose by the loss of his ship. The aim of future legislation must be to confine Marine Insurance to a simple contract of indemnity. Thus limited, it may justly be regarded, to use the language of Jeremy Bentham, as one of the most beneficial inventions of civilised society. No one will neglect his actual possessions, a good certain and present, with the hope of recovering, in case of loss, only an equivalent for the thing lost, and even at the most an equivalent. To this let it be added, that the recovery cannot be obtained without care and expense, and that there must be a transient privation."
Having had a personal experience in navigation not inferior to that of many members of the nautical profession, and having heard the testimony laid before the Commission on Unseaworthy Ships, I feel it a simple act of duty to do what in me lies to establish a firm and general conviction of the necessity for an amendment of our law of Marine Insurance. Insurance, it cannot be too often repeated, should be strictly a contract of indemnity. Our law allows a ship to be
insured on terms which will make the loss a certain gain to the shipowner.
Lord Cockburn, in some observations in the case of 'Byrne v. Schiller,' quoted by Sir John Lubbock, said, 'Our marine insurance law was founded on principles which were erroneous, and directly opposite to those on which the law of America and of every country in Europe but England was founded.'
As Sir John Lubbock pointed out, in the speech in the House of Commons already referred to, over-insurance is not permitted against fire, nor would the public endure that a railway company should realise a handsome profit by an accident. The seaman is not permitted to insure his wages, lest it should weaken his motives for bringing the voyage to a successful termination. The vigilance of the shipowner should not be relaxed by permitting him to recover under a policy of marine insurance sums far in excess of the amount which could be claimed under a strict contract of indemnity.
It has been the aim of the present paper to treat of Marine Insurance mainly in its bearing on the loss of life at sea. At the present juncture, it seemed desirable to afford a concise, and, it is hoped, a lucid explanation of a difficult subject. Prudent and ex-. perienced owners are too ready to screen their more reckless competitors. The department which is entrusted with the care of our seamen stands in need of the generous confidence and support of the public in the discharge of its anxious task.
We should not allow ourselves to be deterred from dealing with abuses by ill-founded apprehensions. The marvellous development of our mercantile marine has been brought about by general efficiency of administration on the part of our shipowners, by the skill of our shipbuilders in the use of great natural advantages, and by the personal Such a reasonable requalities for which our seamen are renowned.
form of the law as it has been sought to indicate in these pages will but secure a more ample reward for well-conducted enterprise. The recurrence of preventible disaster entails high rates of premium. If half the money now lavished on insurance were applied in repairs and maintenance, in strengthening crews, in improving equipments, and in reducing the cargoes of the ships which are overladen, the seamen of cur mercantile marine would be spared untold suffering and anxiety. The charges imposed on the community at large for freight would be lightened, and the discredit would be removed which reckless shipowners have brought on a branch of enterprise in which it is the pride and boast of this country that she holds a foremost place.