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A practical treatise on the law of marine insurance online

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so far as such failure may aflfect the value of a policy on
which, he has a lien, which, of course, is not material,
provided the assured is solvent.

§ 122. — Greater complications may arise, in case it is FaUure of
the broker who fails. First, as to the position of the ^'^^®''-
assured : — ^We are to suppose that the broker owes him
money ; which can only be, in case the broker has received
from the underwriters payments for losses, to an amount
exceeding that which the assured owes the broker for



{w) Ollive V. Smith, 6 Taunt. has actually paid over a claim to

55. Am. Ins. 210. the assured before collecting it from

(aj) Power v. ButcTier, 10 B. & the underwriters ; in which case

Cr. 329, at 347 ; Xenos v. Wick- there can be no refund. {Edgar v.

Aam, 14 C. B. (N.S.) 452. Bumstead, 1 Camp. 411.)

(y) Unless, indeed, the broker



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64 Effecting of Insurance: the premium.

premiums. Can the assured, in such a case, -claim that
the underwriters shall pay those losses a second time, on
the plea that the debt was due to Ifivm^ and has not yet
been paid to him ? . This must depend on whether the
broker, in receiving those payments from the underwriter,
acted within the scope of an authority given him by the
assured. If the broker received those payments in money,
he at the time holding the policy, — no matter whether he
held it under a right of lien, or because it had been
handed over to him by the assured for the purpose
of collecting the loss, — it is beyond doubt that the
broker has acted within the scope of his authority ; in
which case the underwriter cannot be called on a second
time (0). If the underwriter has paid the broker without
having the policy produced, he has done so at his peril,
and may have to be punished for his negligence by being
made to pay a second time. If the underwriter has paid
the loss, not in money, but in a settlement of account, in
the manner already described (§ 117), the question
whether he can be called upon a second time must
depend on whether the assured has impliedly given to
the broker an authority to collect losses from the under-
writer in that manner ; and this again depends, as has
been shown (§ 118), on whether the assured can be proved
to have been cognizant of the customary method of deal-
ing at Lloyd's in this matter (a). Thus, the law presents
* the seeming anomalies of offering a premium for ignorance ;
seeming, not real ; for a man who knows what the custom
is, if he does not like it, or choose to run the risk, can
always secure himself by stipulating with his broker that
losses are to be paid over to himself direct.

The position of the underwriter, if the broker fails
owing money to him, is simply that he loses all beyond his
dividend ; for, as has been saiH, he has no claim upon the

{«) ScoU V. Irving, 1 B. & Ad. C. 760 ; Andrew v. RoUnson, 8
605. Camp. 199.

(a) BaHlett v. Pentland, 10 B. &



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Effecting of Insurance : the stamp.



65



assured for unpaid premiums, nor can he set off, against
the payment of a loss, the amount due to him for premiums ;
for the payment for loss is due to the assured, whilst the
premiums are due only from the broker (6).



The Stamp.

§ 123. — ^A policy not duly stamped is not good or
available in any court of law. The provisions of the
Stamp Act, therefore, have to be strictly observed (c).

In stamping policies, where several distinct interests
are insured together, care must be taken to affix a
sufficient stamp, by computing, for each interest separately,
the fractional part of a hundred jtbunds as if it were 100^.
For example, if three interests of 510Z. each are insured
together in one policy, the proper stamp is not for 1600i.,
but for 1800Z. (d).

§ 124. — ^A policy may, however, for the purpose of Penalty
being given in evidence, be stamped after execution on ^
payment of the penalty of lOOZ. (e).

§ 125. — ^Alter^^tions, of course with the consent of both
parties (/), may be made in a policy, after subscription.



stamp.



(&) Am. Ins. 192, and see p. 219.

(c) 30 & 31 Vict. c. 23, § 9. The
Stat. 30 & 31 Vict. c. 23 enacts as
follows : —

§ 7. "No contract or agreement
for sea insurance (other than such
agreement as is referred to in § 62
of the Merchant Shipping Act
Amendment Act, 1862) shall be
valid unless the same is expressed
in a policy ; and every policy shall
specify the particular risk or adven-
ture, the names of the subscribers
or imderwriters, and the sum or
sums insured; and in case any of
the above-mentioned particulars
shall be omitted in any policy, such
policy shall be null and void to all
intents and purposes,"



** A policy" is defined by § 4 to
mean, ** any instrument whereby a
contract or agreement for any sea
insurance is made or entered into."

Since a policy may nowbe stami)ed
at any time on paying a penalty of
lOOZ., the question may bo raised
whether a slip or covering-note can
be so stamped as to become a policy
within this section. This may here
be left as a question of curiosity.

(c^)See 30 & 31 Vict. c. 23,
Schedule (B).

(e) 39 Vict. c. 6, § 2.

(/) As to the effect of alterations
made without mutual consent, see
Arn. Ins. 265—267 : the short re-
sult is, that such alterations, if
material, vitiate the policy.



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66 Effecting of Insurance : where several policies,

without requiriDg a new stamp ; subject to this proviso,
that the alteration must not be such as to create an
entirely new contract, upon a diflferent subject-matter
from that originally stamped. Thus, a warranty may be
expunged, and that even after the breach of it has
occurred (g) ; the voyage may be changed by adding
alternative parts of destination Qi) \ a mistake, perhaps of
any kind, may be rectified (i) without a new stamp. But
where a policy " on ship and outfit " was altered into one
" on ship and goods," this, being as to the goods a new
contract, was held to require a new stamp Q).

Insurance by several Policies. •

§ 126. — Each policy, though signed by several under-
writers, each engaging for himself alone, is in law for
many purposes regarded as one entire contract. But
there may often be several policies on one subject-matter :
and this gives rise to questions which must here be
considered.

Supposing that the amount of interest is known from
the outset, — as for example when the owner of the ship
resolves to insure 10,000?. on his ship which he values at
10,000?., he may either insure that amount in a single
policy, or in half a dozen, suppose for amounts varying
from 3000?. to 1000?. each. The result to him in every
combination of circumstances, ought to be, and is, precisely
the same, whichever method he adopts.

If he wishes to leave a portion of the risk uninsured, he
may insure, suppose 9000?. on the ship valued at 10,000?.,
and then he becomes himself an underwriter for one-tenth,
recovering nine-tenths only of any loss.

§ 127. — Suppose, next, that the amount of interest is

(g) Kensington v. Inglis, 8 East, cited.

273, at 291. {j) Hill v. Patterty 8 East, 373.

(A) i2a?w^fromv.^c?Z,6M.&S.267. As to alterations generally, see 30

\i) Am. Ins. 271, and cases there & 31 Vict. c. 23, § 10.



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Effecting of Insurance : where several policies. 67

not thus determined at the time of insuring. This may
be, either because the quantity or value of the goods on
board are not known at the time of insuring, as when the
insurance is eflfected by the consignee ; or because of some
change of circumstances, as when an intention to ship
goods is not carried out ; or simply because the assured
chooses to insure by open or unvalued policies. In all
such cases, before any claim can be made on the policies,
the first thing to be done is to determine the amount of
interest.

§ 128. — ^Where there are several policies, and the
amount of interest is less than the total sum insured, the
rule of practice and indeed of law in England is, — subject
to one exception (§ 131), — ^that all the policies, irrespec-
tive of date, share in that interest alike. The assured has
indeed the privilege of claiming in the first instance from
whichever policy or policies he pleases ; but, when he has
exerted this privilege, the several underwriters, by a con-
tribution amongst themselves, are placed on ati equality.
Suppose, for example, there are two policies on goods,
each for 2000Z., and the interest of the assured proves to
be 3000?., he may, at his option, claim 2000?. under the
first policy and 1.000?. under the second, or conversely :
but the two sets of underwriter^ afterwards arrange the
matter so that eventually each policy pays 1500?.

§ 129. — Another complication arises, when the valua-
tion of the interest is higher in one policy than in the
other : for example, if one policy is for 3000?. on the ship
valued at 4000?., and another for 2500?. on the ship valued
at 5000?. In such a case the assured has only to make
his claim first on the lower valued policy, and, as has
already been pointed out (§ 50), he may recover to
the extent of that higher value ; but beyond that he
cannot go.

§ 130. — Successive voyage policies on a ship overlap
one another for a certain period ; the one policy continuing
for twenty-four hours after mooring, and the other attach-

F 2



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6S Effecting of Insurance : where several policies.

ing immediately upon arrival at the place, even before
mooring there. During the first twenty-four hours, there-
fore, there is always a double insurance (fc) : and if a loss
takes place within that period, each policy, though the
assured may in the first instance claim the whole loss
under either, eventually pays the half.

§ 131. — To this rule of joint sharing in the risk there
is one exception, viz., if the policy first executed has at
one time stood alone upon the risk, and might have been
liable for the whole, that policy shall throughout take
priority over those executed subsequently (§ 55).

(>t) This is frequently obviated policy to attach on the expiration
by inserting in policies the special of previous insurances on the same
clause : ** The interest in this subject-matter.*'



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CHAPTEE III.

CAUSES WHICH RENDER A POLICY VOID.

IntrodiLction.

§ 132. — If the preceding chapter be regarded as show-
ing how an insurance ought to be made, the chapter now
before us is to form its natural sequel or complement, as
showing how an insurance ought not to be made ; in
other words, what faults, mistakes, or omissions will
deprive the assured of the benefit of insurance, rendering
the policy void.

§ 133. — Speaking generaUy, if the assured or his agent
has not furnished the underwriter, at the time of insuring,
with the materials for coiTOCtly appraising the risk he is
to run, no matter whether this omission has been morally
culpable op. the part of the former, the policy will be of
no effect whatever, becoming void as a contract, either
from the very beginning, or from the point at which the
risk becomes different from that which the insurer had a
right to expect. This principle regulates the law of con-
cealment, misrepresentation, deviation, breach of warranty,
and unseaworthiness. These heads, indeed, simply mark
out the principal instances of omission to supply the under-
writer with materials for con^ectly estimating the risk he
is to run.

Some safeguard of this kind, involving a heavy penalty,
is evidently necessary in order that a law of insurance may
carry into effect that which was pointed out in our Intro-
duction as the second main purpose of such a law, namely,
that -insurance may be conducted economically, or without
waste. In the interests of trade, the rates of premium



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70 Causes which vitiate a policy.

ought to be as low as they can be, so as to be remunerative.
A margin, or extra rate, added on in order to cover pre-
ventible uncertainty, arising from negligence ox want of
precision in describing the conditions of the risk, would
represent a tax on commerce, — a tax, not levied by govern-
ment for some useful pui*pose, but exacted from the
general body of mercantile men for the exclusive benefit
of those among them who were careless or dishonest.
This evil can only be prevented by rules of a certain
wholesome severity.

It might be thought, perhaps, that some safeguard less
stringent than that of a total forfeiture of the benefit of
insurance might be suflScient for the purpose, at least in-
cases where the assured was innocent of any intention to
defraud. One obstacle to lenity, however, lies in the
nature of the contract. A penalty, whatever it be, can
only be enforced in the comparatively rare instances of a
loss or claim on the policy. In cases of safe arrival the
offence is not detected. It may happen, therefore, that
for want of a due describing of the risk, a merchant may
go on for a series of voyages, perhaps for years, paying a
lower rate of premium than he ought to have paid ; and it
is only when a loss occurs, and when it is of course too
late to rectify the mischief as to any previous policies, that
the error is detected. The penalty thus occasionally in-
flicted, to be effectual, must be exemplary.

The subject of the present chapter is throughout to be
regarded, therefore, as a sort of penal legislation, justi-
fiable and indeed necessary in order to maintain the
requisite precision in carrjring on insurance, and perhaps
only when thus regarded reconcileable, at all points, with
natural justice.

§ 134. — The simple, universal, and only penalty known
to the law of insurance is, that the policy becomes void.
Where this penalty is incurred, it matters not whether the
loss or damage claimed has been occasioned by, or is in
any way connected with, the error or misconduct in



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Causes which vitiate a policy, 71

question. If the assured has failed in the duties pre-
liminary to the insurance, by undue concealment or mis-
representation of material facts ; or in the duties incident
to the exact setting forth of the risk in the policy, as by de-
viation or breach of warranty ; or in the duties unexpressed,
but tacitly understood, of having a seaworthy ship and
conducting the navigation in a lawful manner ; in any of
these cases the contract intended either never has existed
or has ceased to exist, and as the law will not make a con-
tract for him, the party who intended to insure is simply
left in the position of having no insurance.

If the penalty is simple and uniform, so likewise, if
traced to the bottom, is the offence. The offence is, in
every case, a failure to perform the duty universally in-
cumbent on the assured, of supplying the insurer with those
materials for correctly apprq,ising the risk he is to run,
which, being particular and not general, are within the ex-
clusive knowledge of the assured. This failure must now
be considered, first as it has reference to the preliminaries,
secondly to the express, and thirdly to the implied, con-
ditions of the contract.

1 . — Concealment

§ 135. — For the preliminaries, the rule is briefly this :
the assured must not mislead the underwriter as to the
risk to. be run, either by saying too little, or by saying
what is not true. We begin with the first of these.

An underwriter has a right to expect, as the condition <jtneral
of his entering into the contract, a full and true disclosure
of all the circumstances that affect the risk. So far as
matters of general information are concerned, the mere
naming of the thing to be insured, the ship, and the
voyage, with other particulars contained in the order to
insure, are in the great majority of cases all that is needed ;
since it is the business of the underwriter to appraise such
risks, and the law reasonably supposes him to have the know-
ledge needful for carrying on his business. The assured.



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72 Causes which vitiate a policy : concealment.

to use the words of Lord Ellenborough, " is not bound to
make a laborious disclosure of what is known to all" (a).
Therefore whatever in the common course of things belongs
to the particular voyage or risk proposed, an underwriter
may be taken to know already. But if the intending
assured knows of some fact, or even of some rumour, which
he has reason to believe the underwriter knows nothing
about, and which if he did know would naturally induce
him either to decline the risk or ask a higher premium,
this fact or rumour he is bound to disclose. Insurance in
this respect diflfers from buying and selling. The vendor
may not in all cases be bound to disclose to an intending
buyer the faults of the article he offers for sale : but then
the buyer can ordinarily look at it, and judge for himself.
In insuring, since many facts on which the risk depends
are within the exclusive knowledge of the assured, the
only way by which a bargain fair to both parties can be
ensured, is by obliging the assured tp put the underwriter
on an equal footing as to such knowledge with himself (6).
Testing § jgg — xhis rulo is not to be carried beyond the bounds

of good sense. It is well known that the ordinary scale of
premiums is fixed somewhat roughly, with a disregard of
minute differences as to the degree of risk. There are
ordinary variations which an underwriter deliberately
ignores. A fact or a rumour may aflfect the risk, yet may
aflfect it so slightly as not to influence an underwriter of
ordinary judgment either to decline the risk or ask a
higher premium. Such insignificant matters, therefore,
may not aflfect the validity of an insurance ; and, while the
assured in case of doubt will do well to take the safe side,
an underwriter cannot dispute his liability under the plea
of concealment, unless he is prepared to show that the
matter concealed was such as would hav6 induced ad under-

(a) VcUlance r. Dewar, 1 Camp. Burr. 1905, for a full exposition of
503. the principles which govern the

(b) See the judgment of Lord subject of this section.
Mansfield in Carter r^ Boehm, 3



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Causes which vitiate a policy : concealment.



73



writer of ordinary judgment to decline the risk on the
terras oflfered.

§ 137. — The following examples may suffice to illustrate Examples,
these two principles : — The date of the ship's sailing on
the voyage insured, as a rule, need not be disclosed to the
underwriter : but if the date seriously aflfects the risk, as
showing that she ought already to have arrived, or for
some other reason (c), the assured is bound to communicate
all that he knows about it. It was formerly supposed
that this was not necessary unless the ship was at the
time of insuring what is called "a missing ship ** ; but a
more precise and reasonable rule has recently been laid
down, viz. — ^that the true test is whether at the time of
insuring the ship has been so long at sea that a reasonable
underwriter would consider the risk a " speculative one,"
that is to say, a risk which he would not take at the
ordinary premium (d). So if it is known that other ships
which sailed after her on the same voyage have arrived
before her, this fact need not be disclosed if those ships
are faster sailers than she, so that the circumstance is im-
material ; otherwise the underwriter must be informed (e).



(c) As for instance in changing
the risk from a summer to a winter
risk. Concerning this it is to be
noted that when an order is given
to insure for a voyage from a port
named, there is an implied under-
standing that the vessel shall be
there within such a time that the
risk shall not be materially varied,
otherwise the risk does not attach.
If, therefore, at the time of insuring,
the assured knows that the ship
wiU not be at the port of loading
for some time, and that this cir-
cumstance will materially vary the
risk, he must disclose it. It matters
not whether the delay be voluntary
or results from some accident on
the outward passage. And it seeifis
that a variation of this kind would



vitiate the policy, not simply on
the ground of undue concealment,
but as the breach of an implied
warranty. The practical conclusion
is, that whenever a ship or goods
are insured homewards, on any
voyage as to which the time of year
is material to the risk, at a time
when the ship is still on her passage '
out, it would be prudent to com-
municate this fact to the under-
writer. (Z)e Wolf V. Archamqtl Ins,
Co,, L. R. 9 Q. B. 451.)

{d) Stribley v. Imperial Mar. Ins,
Co., 1 Q. B. D. 507 ; to this extent
modifjTng Elton v. LarkinSy 6 C. &
P. 385.

(e) IdUledale v. Dixon, 1 B. & P.
N. R. 151 ; Hickards v. Murdoch,
B At O. 527.



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74 Causes which vitiate a policy : concealment.

If the assured has advices of the ship*s having been seen in
distress, or in circumstances of danger, or of a storm having
occurred in a place where the ship was or was likely to be>
or of any similar occurrence out of the common course
which would enhance the risk, he is bound to lay what he
knows before the underwriter (/). He is to bear in mind
that what is important is not the event, — as whether the
ship is lost in that particular stori^a or not, — but the effect
which the intelligence may reasonably have on the mind
of the underwriter at the time. For this reason it is im-
material whether the report prove true or false (gr). Even
if he can at once prove it to be false, it has been said, and
no doubt rightly, that he is bound to communicate it, so
as to give the underwriter the opportunity of determining
whether, after the disproof, he attaches any weight to it
or not (A).
Facts bear- § 138. — It is unnecessary, in general, to inform the
worthiness, underwriter concerning any particular circumstances of the
ship's condition with respect to repairs or equipment, as
for instance whether she has been lately coppered, what
repairs she has received and how long ago, or other such
matters tending to show that the ship is more or less
eligible as a risk ; although, if any question is put by an
intending underwriter on such points, the assured is bound
to answer truly (i). Nor is it necessary, in insuring for
the homeward voyage, to mention damage that has
occurred on the outward {j). The reason is that the
underwriter is not on the risk at all, unless the ship sails
seaworthy, and seaworthiness is all he has a right to expect ;
the more or less she has of fitness for the voyage, above this
point, is a variation which he ordinarily takes his chance
of. The assured need not communicate information con-



(/) Wesfhury y. Aberdein, 2 M. (h) 2 Duor, Ins. 893.

& W. 267. (i) Haywood v. Sogers, 4 East,

(g) Seanian v. Fonereau, 2 Str. 590.

1183 ; Lynch y. Duns/ard, 14 East, Ij) Shoolhred y. Nutt, Park Ins.

494. 493, 8th edit. *



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Causes which vitiate a poluy : concealment. 76

cerning her peaworthiness, because lie warrants her sea-
worthy Qi),

§ 139. — It was at one time supposed that a conceal- Of facts
ment could be excused, by showing that the matter kept Lloyds*
back was such as the underwriter had the means of know- ■^*'
ing, and might and ought- to have known, it being recorded
in Lloyd's List, a paper which underwriters use in their
daily business. But a recent decision in the Court of
Appeal has laid down a more sensible rule. The assured,
we must now take it, cannot shield himself from not com-
municating what he knows, and what his own attention
has of course been specifically directed to, on the plea that
the underwriter might have read it in a newspaper. " To
hold," said Bramwell, L.J., " that the underwriter is bound
to carry in his head all that is contained in Lloyd's List
relating to a ship in which he has no interest, rather, than
to hold the owner of the ship bound to disclose it, would
be to put a difficult and needless burden on the under-
writer, while the opposite view puts no difficulty at all in
the way of the owner'* (Z). To excuse the concealment,
then, it must be proved to the satisfaction of the jury that '
the matter in question was actually known to the under-
writer.

§ 140. — The mode of communication should be suf- con^^xmi.
ficiently specific to bring the augmentation of risk fairly cation
before the mind of the underwriter. The use of general apecific

(^) In time-policies, where there not have had the same effect even



Online LibraryRichard LowndesA practical treatise on the law of marine insurance → online text (page 9 of 29)