Marine Insurance Law

Ozlem Gurses

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317929239
• Edition: 1
• Topic: Derecho
• Subtopic: Derecho marítimo

This book expertly introduces and clearly explains all topics covered in marine insurance law courses at undergraduate and postgraduate levels, offering students and those new to the area a comprehensive and accessible overview of this important topic in commercial law.

Beginning by introducing the general principles of the subject, the structure and formation of insurance contracts, Marine Insurance Law then looks to individual considerations in detail, including: brokers, losses, risks and perils, sue and labour, reinsurance, and mutual insurance/P&I clubs.

This title has been developed with the needs of courses specifically in mind, and its content has been tailored to include the most important and commonly taught topics in the field. Each chapter contains end of chapter further reading to support student research, ensuring this new textbook provides a reliable and accessible gateway into this important topic in maritime law

Chapter 1

Introduction to Marine Insurance

Chapter Contents

Lloyd’s of London

Protection and Indemnity Clubs

The law of marine insurance

The Marine Insurance Act 1906

SG policy

Contract of marine insurance

Valued policy

Unvalued policy

Voyage and time policies

Floating policies and open covers

Assignment

Assignment under the Marine Insurance Act 1906

The Law of Property Act 1925

Assignment in equity

Further reading

The word insurance (formerly called assurance) is of Italian origin, and the word policy derives from ‘polizza’, as promise or undertaking.¹ Lombards were the Italian immigrants who came to England in the thirteenth century to escape from war in the cities of Northern and Central Italy.² Lombards were the rich who left their homes, carrying all their valuables with them.³ With the money and the leadership they brought, Lombards engaged in trade, money lending, and building ships. They became involved in marine insurance in the fifteenth century, lending money to shipowners in the form of bottomry and respondentia. Bottomry is the transaction under which a shipowner borrowed money to carry out a seafaring venture by pledging his vessel as security for the loan.⁴ The shipowner was obliged to repay the loan only if the vessel arrived safely. If the vessel was lost, the shipowner was relieved of this obligation.⁵ The agreement was a ‘bottomry bond’ and the word ‘respondentia’ was used for a similar arrangement under which cargo was given as security.⁶

Insurance on vessels and their cargoes was a response to the expansion of sea trade. In the English jurisdiction the earliest forms of policies were marine, life and fire⁷ among which marine insurance was first to emerge.⁸ Marine business was conducted by individual merchants.⁹ There was no restriction at common law on persons who might offer insurance nor was there any requirement that such persons had the ability to pay claims, which resulted in some big losses not being covered.¹⁰ During the war between several European countries in the early eighteenth century in which England was involved, the South Sea Company took part in funding the conflict and assumed a substantial proportion of the National Debt in return for its shares.¹¹ As part of the arrangements, the Company was also given exclusive trading rights in the Americas.¹² The success of the South Sea Company led to other attempts to raise capital on speculative, and often fraudulent overseas ventures.¹³ Such attempts were called ‘bubbles’¹⁴ and the Government passed the Bubble Act of 1720¹⁵ to prohibit companies from being formed and from raising capital other than under the authorisation of an Act of Parliament or Royal Charter. The Bubble Act was also directed at marine insurance, and section 12 prohibited the carrying on of insurance business by corporations, societies and partnerships other than those chartered. Charters were granted only to the Royal Exchange Assurance Corporation and the London Assurance Corporation. For a century those companies had the exclusive right to, and monopoly of, insuring ships and their merchandise as companies, enabling them likewise to undertake the business of fire insurance.¹⁶ Due to the high demand for insurance and the limited capacity of these two companies there was a need for additional resources to provide insurance. There was nothing in the Bubble Act which prevented individuals from offering marine insurance. Thus, such additional contribution was provided by individual underwriters at Lloyd’s and mutual associations – protection and indemnity clubs.

Lloyd’s of London

Lloyd’s was initially a coffee house run by Edward Lloyd who opened the house in 1688 in London.¹⁷ The coffee house was a place to respond to adverts for lost or stolen items or runaway slaves as well as for auctions to selling ships and goods brought by sea.¹⁸ It was also a place where people connected with shipping met and the shipping intelligence received by the Lloyd’s coffee house was well known for its reliability.¹⁹ By 1730 Lloyd’s was established as the location for marine underwriting by individuals. In 1734 the first edition of Lloyd’s List was published;²⁰ today, Lloyd’s List still provides weekly shipping news to London and beyond. In the early period of their existence the two chartered companies had between them about one-tenth of the total marine insurance business done in London, the other nine-tenths being in the hands of private underwriters, mainly those assembling at Lloyd’s coffee-house.²¹ In 1774 rooms were rented in the Royal Exchange and Lloyd’s ended the coffee house era. By 1800 Lloyd’s began to dominate shipping insurance on a global scale.²² It was stated that the monopoly conferred upon the London Assurance Corporation and the Royal Exchange Assurance Corporation acted as protection for the private underwriting interest against the possible competition of a host of marine insurance companies.²³ In 1824 the Bubble Act was repealed insofar as it prevented marine underwriting by corporations, societies or partnerships.²⁴ Today the risks can be insured by underwriters at Lloyd’s or at the London company market. Lloyd’s has grown over 325 years to become the world’s leading market for specialist insurance. Among the risks that can be insured at Lloyd’s are marine, casualty, property and aviation.

Protection and Indemnity Clubs

As stated above, the prohibition of insurance by corporations except the two permitted institutions created the need for individuals to insure marine risks. The individual shipowners established mutual clubs – protection and indemnity associations (P&I Clubs) in which they were both assureds and insurers.²⁵ A shipowner whose vessel entered into a club is an assured as he is required to pay the premium, which is a ‘call’ within the context of mutual insurance, to contribute to cover the losses claimed by the members. The same shipowner is also the insurer when he suffers loss and makes a claim, his claim is met by the contributions of the other members by paying their calls. Thus, he receives the premium as an insurer when his claim is to be met by the Club. The word protection refers to the cover for liabilities to personnel and for damage to property, while indemnity covers liabilities to cargo owners under a contract of carriage.²⁶ Additionally, a number of clubs have formed ‘freight, demurrage and defence’ (FD&D) divisions which, for an additional optional premium, provide a claims-handling service and insurance of legal costs and fees for those claims not covered by P&I. By an FD&D cover, Clubs do not indemnify their members in respect of claims, but they bear the costs which are incurred.

Shipowners enter their vessels into Clubs for the purpose of insuring themselves against a wide range of risks not covered by an ordinary policy of marine insurance. For instance P&I insurance covers shipowners’ liability for loss of or damage to property carried on board a ship entered.²⁷ The Clubs may also cover ²⁸ liabilities to passengers, crew or others, for personal injury and death claims; stowaways; crew unemployment indemnity following a casualty; fines; including those for pollution and civil liability for pollution; collisions – one-fourth of damages payable to the colliding vessel;²⁹ liability for damage to fixed and floating objects and wreck removal. The cover provided by each individual Club is stated in the Club’s Rulebook. The Clubs also have bodies of rules governing the relationships between the club and its members and between one member and all the other members. When shipowners enter one of their ships in a P&I Club there comes into being a policy of marine insurance relating to that ship on the terms of the Club’s rules.

Section 85(1) of the MIA 1906 defines mutual insurance ‘Where two or more persons mutually agree to insure each other against marine losses there is said to be a mutual insurance.’ Under section 85(2) ‘The provisions of this Act relating to the premium do not apply to mutual insurance, but a guarantee, or such other arrangement as may be agreed upon, may be substituted for the premium.’ Mutual insurance associations are permitted to modify the provisions of the MIA 1906, insofar as they may be modified by the agreement of the parties (s.85(3)). Under subsection (4) the provisions of the Act will apply unless they have been expressly or impliedly excluded by the terms of the cover granted by the association, thus the ordinary rules relating to disclosure, warranties, subrogation and the like remain applicable in most cases.³⁰

The law of marine insurance

It was stated that there is no record of any trial affecting questions of marine insurance before the end of the sixteenth century.³¹ In 1601 Parliament passed an Act establishing an insurance court, however, this court fell into disuse for lack of business as merchants and underwriters preferred the regular courts.³² During this period the judges were said to be unacquainted with the nature of insurance contracts.³³ A major development in marine insurance occurred in the eighteenth century with the work of Lord Mansfield. During this time insurance was almost entirely marine.³⁴ In the early development phase of the law of marine insurance the cases were concerned with interpretation of the contemporary policy wording. For instance in Tiernay v Etherington^34a the Court discussed whether the loss of cargo during transhipment was covered by the wording of ‘on goods, in Dutch ship, from Malaga to Gibraltar, and at and from thence to England and Holland, both or either; on goods as hereunder agreed, beginning the adventure from the loading, and to continue till the ship and goods be arrived at England, or Holland, and there safely landed’.³⁵ This was followed by the development of the rules relating to seaworthiness and development of the wording ‘free from particular average’,³⁶ which aimed to protect underwriters for partial loss claims for commodities particularly susceptible of damage, such as corn, fish, fruit and sugar.³⁷ However, during this period the policies also began to include clauses ‘interest or no interest’. The policies containing these clauses were called ‘wager policies’ because the assured did not need to prove his interest in the subject matter. It was available to insure ships or cargoes in which the assured had no interest as a means of gaining profit – if the loss occurred the assured would be able to c...