in Law and Commerce, a contract, whereby one party engages to pay the losses which the other may sustain, for a stipulated premium or consideration. The most common sorts are, insurance against the dangers of the seas, insurance against fire, insurance of debts, and insurance of lives.
According to Beckmann, the oldest laws and regulations respecting insurance, are the following.
On the 28th of January 1523, five persons who had received an appointment for that purpose, drew up some articles at Florence, which continue to be employed on the exchange at Leghorn. These interesting regulations, and the prescribed form of policies, which are deemed the oldest, were inserted by Magens, in his treatise on insurance, published at Hamburg in Italian and German, in the year 1753.
A short regulation of the 25th May 1537, by the emperor Charles V., respecting bills of exchange and insurance, is still preserved, in which even the fulfilling of an agreement is strictly commanded.
In the year 1556, Philip II. of Spain gave the Spanish merchants certain regulations respecting insurance, which Magens has inserted in the fore-mentioned work. They contain some forms of policies on ships going to the Indies.
The chamber of insurance was established at Amsterdam in 1598, an account of the first regulations of which office was published by Pontanus, in his history of that city.
Regulations respecting insurance were formed by the city of Middleburg in Zealand, in the year 1600; and it appears that the first regulations respecting insurances in England, were made in the following year. We find from them, that insurers, prior to this period, had secured the confidence of the public so completely, by the honesty and rectitude of their conduct, that few occasions for disputes had arisen.*
I. INSURANCE against Loss at Sea, is a most beneficial institution, for promoting the security of trade, and preventing the ruin of individuals; and is now conducted by a regular system of rules, established by the interposition of the legislature, the decision of the courts of justice, and the practice of merchants.
It is carried on to the best advantage by public companies, or by a considerable number of private persons, each of whom only engages for a small sum, on the same vessel. There are two public companies established by authority of parliament, viz. the London and Royal Exchange Insurance Companies. For procuring subscription by private persons, brokers are generally employed, who extend the policy or contract of insurance, and assist at settling losses. They are entitled to an allowance for their trouble, generally 5 per cent. on premiums, and 2 per cent. on losses.
The parties who engage to pay the damage are called the insurers or underwriters; the parties for whose security they engage are called the insured; and the premium is understood to be paid when the insurance is made.
On this subject, we shall consider, What is necessary to render an insurance valid:—When the risk commences, and when it terminates:—What constitutes a total or partial loss:—What proof of loss is necessary:—and, How the loss is adjusted.
First, In order to render an insurance valid, the insured must have property really at stake; the voyage must take place under the circumstances agreed on; the dangers insured against must not be contrary to law, and a candid account must be given of circumstances which enhance the danger.
1. The condition of possessing property was required by 1 Geo. II. c. 37, to prevent ships from being fraudulently destroyed when insured above their value; and to discourage a practice which had become common, of converting policies to the purpose of mere wagers. In transactions of this kind, as the insured had no property, and could claim no indemnification for partial damage; so the insurers, having lost their wager by the ship's being lost, could claim no abatement, though part was saved: accordingly, the policies contained clauses of interest or no interest, free from average, and without benefit of salvage. All such policies are declared invalid.
This restriction does not extend to privateers, nor to ships trading to the Spanish or Portuguese plantations.
Insurances are commonly made as interest shall appear; and it is incumbent on the insured to prove the value of his property. The value of the goods may be proved by the invoices; and the coquet must be produced, if required, to infract that the goods were actually shipped. It is admitted to value the ship at prime cost and charges, deducting the freights that have been drawn since purchased, if the proprietors choose to stand to that rule; but they are not restricted to it. Sometimes the value of the ship or goods is expressed in the policy; and this value must be admitted, although it be higher than the true one: but it is incumbent on the insured to prove that he had property at stake; and, if the property be trifling in comparison of the sum insured, the insurance will be set aside, as an evasion of the statute.
Expected profits, and bounty on the whale fishery, if specified in the policy, may be insured.
When the value is less than the sum insured, the owners may claim a return of premium for the excess.
If there be several policies on the same subject, of different dates, the earliest one is valid, and the others must be vacated. If they be of the same date, they must be vacated in equal proportions.
When a policy is vacated, in whole or in part, the underwriters have a right to retain 4 per cent. for their trouble.
In the case of a cargo intended for A, but afterwards sent to B, both expected it, and insured, and B claimed for the value on its being lost. The underwriters answered, that it was a double insurance, and they ought only to pay their proportion. Judgment was Fraudulently to cast away or destroy a ship insured above its value, is felony.
2. If the ship does not proceed on the voyage, or if, being warranted to depart with convoy, it departs without convoy, the insurance must be vacated.
If the extent of a trading voyage be uncertain, the longest one in contemplation is described in the policy, and it is agreed that part of the premium shall be returned, if the voyage be shortened. In like manner, in time of war, when insurance is made without condition of convoy, it is agreed that part of the premium be returned in case it fail with convoy.
When a ship is warranted to depart with convoy, it is insured from the usual place of convoy (e.g., the Downs), and it is insured till it arrive there.
The common proof of failing with convoy is the production of failing orders; but, if a ship be prevented by the weather from receiving the failing orders, other proof may be admitted.
A ship was insured from the Thames to Halifax, warranted to sail from Portsmouth with convoy. The convoy had failed before the ship arrived there, and the underwriters declined to insure it, without convoy, for the rest of the voyage. They were found liable to return part of the premium, retaining only in proportion to the accustomed rate from London to Portsmouth. This decision seems to establish the following principle, that, when the voyage performed is only part of that described in the policy, and when the risk can be proportioned, the underwriters are bound to return part of the premium, though there be no agreement for that purpose.
But, if a ship, insured only against the hazards of the sea, be taken by the enemy, the insured have no right to claim a return of premium, though the capture happen soon, under pretence that little sea-hazard was incurred.
If a ship deviates from the voyage described in the policy, without necessity, it sets aside the insurance. An intention to deviate is not sufficient to set it aside; there must be an actual deviation; and, even in that case, the insurers are liable for damages sustained before deviation.
It is no deviation to go out of the way to the accustomed place of convoy, nor to the nearest place where necessary repairs may be had. Deviation, for the purpose of smuggling, if without the knowledge of the owners, does not set aside the insurance, nor when the master is forced by the crew to return.
In insurance to the East Indies, and home, the insurers are understood to take the risk of detention in the country, and of country voyages.
3. Insurance of prohibited goods, against the risk of seizure by the government, is unlawful and invalid. The insurers, insured, brokers, and all accessories, are liable to the fine of 50l.
4. If the insured have any information of more than common danger, they must reveal every such circumstance to the insurers, otherwise the policy is set aside.
This rule is established for the preservation of good faith; and there are several strong decisions in support of it. If a ship be spoke to leaky at sea, or if there be insurance, a report of its being lost, these circumstances must be communicated to the insurers. Even the concealment of a false report of loss vitiates the insurance; and, if the ship be afterwards lost, though in a different manner, the insurer will recover nothing. In a voyage from Carolina to London, another ship had failed ten days after that which was insured, and arrived seven days before the insurance was made; and the concealment of this circumstance, though the fact was not proved to the satisfaction of the jury, was considered as sufficient to set it aside. Also, during the continuance of the American war, a ship being insured from Portugal, by the month, without concealing on the voyage, sailed for North America, and was taken by a provincial privateer. The insurers refused to pay, because the hazardous destination was concealed; and it was only upon proof of the insured being equally ignorant of it that they were found liable.
But the insured are not obliged to take notice of general perils, which the insurers are understood to have in contemplation; dangerous navigation, West Indian hurricanes, enterprises of the enemy, and the like.
Insurance is not set aside by a mistake in the name of the ship or master, or the like.
Insurance may be made on an uncertain ship; on any ship that the goods may be loaded on; on any ship that A shall fall in from Virginia. In this last case, the policy is not transferred to a ship which A goes on board during the voyage.
Secondly, If a ship be insured at and from a port, the insurance commences immediately if the ship be there, or at its arrival there. If it be damaged when preparing for a voyage, the insurers are liable; but not if the voyage be laid aside for several years, with consent of the owners. Insurance from a port commences when the ship breaks ground; and, if it set sail, and be driven back and lost in the port, the insurers are liable.
Insurance on goods generally continues till they be landed; but if they be sold after the ship's arrival, and freight contracted to another port, the insurance is concluded. Goods sent on board another ship or lighter are not at the risk of the insurer; but goods sent ashore in the long boat are.
Insurance on freight commences when the goods are put on board.
Goods from the East Indies, insured to Gibraltar, and to be reshipped from thence to Britain, were put on board a store-ship at Gibraltar, to wait an opportunity of reshipping, and were lost: The custom of putting goods aboard a store-ship being proved, the insurers were found liable.
Lots of sails ashore, when the ship is repairing, is comprehended within the insurance. What is necessarily undertook, is insured, as well as what is expressed; the essential means, and intermediate steps, as well as the end. Ships performing quarantine are at the risk of the insurer.
Thirdly, The insurers are liable for a total loss when the subject perishes through any of the perils insured against. Barratry, though it properly signifies running away with the ship, extends to any kind of fraud in Insurance against detention of princes does not extend to ships that are seized for transgressing the laws of foreign countries.
The insurers are also liable for a total loss, when damage is sustained, and the remaining property abandoned or vested in the insurers.
If a ship be stranded, or taken, and kept by the enemy, or detained by any foreign power, or seized for the service of the government, the proprietors have a right to abandon.
But, if a ship be taken by the enemy, and be retaken, or makes its escape, before action against the insurers; have the insured a right to abandon, or must they only claim for the damages sustained as an average loss? There are opposite decisions, according as the circumstances of the case were strong. When the ship was long detained, the goods perishable, the voyage entirely lost, or so disturbed, that the pursuit of it was not worth the freight, or when the damage exceeds half the value of the thing, they have been found entitled to abandon; Gofs against Withers, 2 Burrow, 683.). But, if the voyage be completed with little trouble or delay, they are not entitled; (Hamilton against Mendez, 2 Burrow, 1198.).
The insured cannot claim, as for a total loss, on an offer to abandon, when the loss is, in its nature, only partial; for, if this were permitted, they might devolve the loss occasioned by bad markets on the insurers.
And, in all cases, the insured have their option to abandon, or not. They may retain their property if they please, and claim for an average loss; and they must make their option before they claim.
If the goods be so much damaged, that their value is less than the freight, the insurers are accountable as for a total loss.
The insurers are liable for general average, when the property is charged with contribution; and for particular average, when the property is damaged, or part of it destroyed.
If the damage be sustained through the fault of the ship, the owners of the goods may have recourse, either against the masters or insurers; and, if the insurers be charged, they stand in the place of the owners, and have recourse against the master.
In order to prevent the insurers from being troubled with frivolous demands for average, it is generally stipulated, that none shall be charged under 5 per cent. or some other determined rate; and corn, flax, fruit, fish, and like perishable goods, are warranted free from average, unless general, or the ship be stranded.
In order to encourage every effort to save the ship, the insurers are liable for charges laid out with that design, although the subject perish. Thus, they may be charged with more than the sum insured.
In case of goods being damaged, the proportion of the sum insured, for which the underwriters are liable, is regulated by the proportion of the prices which the found and damaged goods fetch at the port of destination. The prime cost of the goods is not considered, nor the necessity of immediate sale, in consequence of damage. Although the damaged goods fell above prime cost, the insurers are liable.
Fourthly, If a ship be lost, and the crew saved, the loss is proved by the evidence of the crew.
If damage be sustained, the extent is proved by an insurance examination of the subject damaged, at the ship's arrival; and the cause by the evidence of the crew.
If the ship be stranded, evidence must be taken at the place where stranded.
Documents of loss must be laid before the underwriters, with all convenient speed; and, if these be sufficiently clear, the loss should be immediately settled. The underwriters generally grant their notes at a month or five weeks date for their proportions.
If a ship be not heard of for a certain time, it is presumed lost; and the underwriters are liable to pay the sums insured, the property being abandoned to them in the event of the ship's return. Six months are allowed for a voyage to any part of Europe, a year to America, and two years to the East Indies.
By the ordinance of Hamburgh, if a ship be three months beyond the usual time of performing a voyage, the underwriters may be desired to pay 92 per cent. on an abandon. If they decline it, they are allowed 14 months more, and then they must pay the full value.
A ship insured against the hazards of the sea, but not against the enemy, if never heard of, is presumed lost at sea.
Fifthly, In order that the manner of settling losses may be understood, we must explain what is meant by covering property. We mentioned already, that insurances for greater sums than the insured had really at stake, were contrary to law; but some latitude is allowed in that respect; for if the owner were to insure no more than the exact value of his property, he would lose the premium of insurance, and the abatement, if any was agreed on.
For example, if he has goods on board to the value of 100l. and insures the same at 5 per cent. to abate 2 per cent. in case of loss; then, if a total loss happen, he recovers 98l. from the insurers, of which 5l. being applied to replace the premium, the nett sum saved is only 93l.; but, if the value on board be only 93l. and the sum insured 100l. he would be fully indemnified for the loss; and his property, in that case, is said to be covered.
To find how much should be insured to cover any sum, subtract the amount of the premium and abatement (if any) from 100l. As the remainder is to 100l., so is the value to the sum which covers it.
In case of a total loss, if the sum insured be not greater than that which covers the property, the insurers must pay it all. If greater, they pay what covers the property, and return the premium on the overplus.
Partial losses are regulated by this principle, that whereas the owner is not fully indemnified, in case of a total loss, unless he covers his property, therefore he should only be indemnified for a partial loss in the same proportion; and, if it be not fully insured, he is considered as insurer himself, for the part not covered, and must bear a suitable proportion of the loss. Therefore, the value of the property is proved, and the sum required to cover it computed. If that sum be all insured, the underwriters pay the whole damage; if only part be insured, they pay their share, which is computed by the following rule: As the sum which covers the property is to the sum insured, so is the whole damage to the Insurance, the part for which the insurers are liable.—For example, if the value of the property be £300, the sum insured £300, the premium 8 per cent, and abatement 2 per cent, then the sum which should be insured to cover the property is £400; and, if damage be sustained to the extent of £200, the owners will recover £150.
If a voyage is insured out and home, the premium outward must be considered as part of the value on the homeward property, and the sum necessary to cover it computed accordingly. For example, to insure £100 out and home, at 5 per cent, each voyage, abatement 2 per cent, we compute thus:
\[ \frac{93}{100} : \frac{L.100}{L.107} : \frac{10}{6}, \text{to be insured outward, premium on } L.107 : \frac{10}{6} \text{ outwards, at 5 per cent. } L.5 : \frac{7}{6} : \frac{93}{100} : \frac{L.105}{L.113} : \frac{7}{6} : \frac{L.113}{6s.} \text{ to be insured home; the premium on which is } L.5 : \frac{13}{6} : \text{ and, if the ship be lost on the homeward voyage,} \]
From the sum insured home \( L.113 \) 6 s
Subtract the discount, 2 per cent. \( 2 \) 5 3
Sum for which the insurers are liable \( L.111 - 9 \)
Insurance out \( L.5 \) 7 6
Insurance home \( 5 \) 13 3
Covered property \( L.100 \)
II. INSURANCE against Fire. There are several offices in Britain for this purpose, of which the Sun fire-office is the most considerable. Insurances are divided into common, hazardous, and doubly hazardous, according to the nature of the subject insured. When the sum insured is high, there is a higher premium per cent demanded; and money, papers, jewels, pictures, and gun-powder, are not comprehended. If a subject be wrong described, in order that it may be insured at a lower premium, the policy is void. The benefit of a policy is transferred, by indorsement, to the representatives of the person in whose favour it was made; and it may be transferred to other houses when the insured changes his habitation. If insurance be made on the same subject in different offices, it must be specified, by indorsement, on the policy; and, in case of loss, the offices pay proportionally. The insurers pay all expenses in attempting to extinguish fire, or to save goods, though not successful. If the value of a subject be insured in part, and damage be sustained, the insurers pay the whole, if it does not exceed the sum insured.
III. INSURANCE of Debts. See BOTTOMRY.
IV. In virtue of INSURANCE for Lives, when the person dies, a sum of money becomes payable to the person on whose behalf the policy of insurance was granted. One of the principal insurance-offices of this kind is that of the Amicable Society for a perpetual insurance, kept in Serjeant's-inn, Fleet street, London.
This society at Serjeant's-inn requires an annual payment of 5l. from every member during life, payable quarterly. The whole annual income hence arising is equally divided among the nominees, or heirs, of such members as die every year; and this renders the dividends among the nominees in different years, more or less, according to the number of members who have happened to die in those years. But this society engages that the dividends shall not be less than 15l. to each claimant, though they may be more.
None are admitted whose ages are greater than 45, or less than 12; nor is there any difference of contribution allowed on account of difference of age.—This society has subsisted ever since 1706, and its credit and usefulness are well established. Its plan, however, is liable to several objections. First, it is evident, that regulating the dividends among the nominees, by the number of members who die every year, is not equitable; because it makes the benefit which a member is to receive to depend, not on the value of his contribution, but on a contingency; that is, the number of members that shall happen to die the same year with him. Secondly, its requiring the same payments from all persons under 45, is also not equitable; for the payment of a person admitted at 12 ought not to be more than half the payment of a person admitted at 45. Thirdly, its plan is so narrow, as to confine its usefulness too much. It can be of no service to any person whose age exceeds 45. It is likewise by no means properly adapted to the circumstances of persons who want to make assurances on their lives for only one year, or a short term of years. For example: the true value of the assurance of 15l. for five years, on the life of a person whose age is 39, may be found, by the first rule, to be nearly three guineas per annum, supposing interest at 3 per cent, and the probabilities of the duration of human life, as they are given in Dr Halley's Table of Observations. But such an assurance could not be made in this society without an annual payment of 5l. Neither is the plan of this society at all adapted to the circumstances of persons who want to make assurances on particular survivorships. For example: a person possessed of an estate or salary, which must be left with his life, has a person dependent upon him, for whom he desires to secure a sum of money payable at his death. But he desires this only as a security against the danger of his dying first, and leaving a wife, or a parent, without support. In these circumstances he enters himself into this society; and, by an annual payment of 5l., entitles his nominee at his death to 15l. In a few years, perhaps, his nominee happens to die; and having then lost the advantages he had in view, he determines to forfeit his former payments, and to withdraw from the society. The right method, in this case, would have been to have taken from such a person the true value of the sum assured, "on the supposition of non-payment, provided he should survive." In this way he would have chosen to contract with the society; and had he done this, he would have paid for the assurance (supposing interest at 3 per cent, his age 30, the age of his nominee 30, and the values of lives as given by M. de Moivre) 3l. 8s. in annual payments, to begin immediately, and to be continued during the joint duration of his own life, and the life of his nominee.
The Equitable Society for Assurances on Lives and Survivorships, which meets at Blackfriars Bridge, is one of the most important of the kind. It was established in the year 1762, in consequence of proposals made, and lectures recommending the design, which had been read by Mr Dodson, author of the Mathematical Repository. It assures any sums, or reverendary annuities, on any life or lives, for any number of years, as well as for the whole continuance of the lives; and Insurance, in any manner that may be best adapted to the views of the persons assured. For instance, any persons who depend on incomes which must be lost when they die, or who are only tenants for life in estates, may, if they want to borrow money, be enabled to give sufficient security, by assuring such sums as they want to borrow, and assigning the policy. In the same way clergymen, and others who hold places of profit, having families whose subsistence depends on the continuance of their lives; such as enjoy annuities for the lives of others; any person entitled to an estate, legacy, &c., after another person, provided he survives; husbands may provide annuities for their wives, if they leave them widows; parents may, by assuring the lives of their children, when infants, till they attain a given age, secure for them, should they live till that age, sums necessary for apprenticeships, &c.; persons apprehensive of being left without support in old age, may here purchase annuities, if willing to wait for the commencement of the payment of these till they are 35 or 60 years of age.
In fine, there are no kinds of assurances on lives and survivorships, which this society does not make, following the rules given by the best mathematical writers on life annuities, particularly Mr Simson's. In order to gain such a profit as may render it a permanent benefit to the public, and enable it to bear the expenses of management, it takes the advantage of making its calculations at so low an interest as 3 per cent., and from tables of the probabilities and values of lives in London, where, as in all great towns, the rate of human mortality is much greater than it is in common among mankind.
This society, finding in the month of June 1777, that their affairs were in a flourishing condition, came to a resolution to reduce their annual premiums one-tenth; and they adopted new tables in the year 1782, founded on the probabilities of life at Northampton, instead of those which were framed from the London bills of mortality. It was afterwards thought proper to make an addition, for greater security, of 1½ per cent. to the true value of the assurances, as calculated from the table of mortality at Northampton. To make a suitable recompense to the assured for the payments they had formerly made, which had been greater than the new rates required, an addition of £1,105 was made to their claims for every premium they had paid. The result of this measure was, that in 1785 the business of the society was nearly doubled, the sums assured amounting to £20,000l. In consequence of a minute investigation, the society took off the 1½ per cent. charged on premiums in 1782, and added 1½ per cent. more to the assured's claims, for every payment made before the 1st of January 1786. Business still increasing, they made another addition of 1½ per cent. in 1791; and in the subsequent year a further addition of 2½ per cent. by which the claims of such as assured in 1770 came to be more than doubled, and those of a prior date were still higher. By such integrity and consequent increase of business, the sums assured amounted, on the 31st of December 1792, to the astonishing sum of three millions sterling; and exactly three years after, they amounted to about one million more.
The rates of assurance, as reduced to their real values in 1786, according to which all business is now transacted, are the following:
| Age | One year | Seven years | Whole life | |-----|----------|-------------|------------| | | £s. s. d.| £s. s. d.| £s. s. d. | | 15 | 0 17 11 | 1 2 11 1 | 13 7 | | 20 | 1 7 3 | 1 9 5 2 | 7 | | 25 | 1 10 7 | 1 12 1 2 | 8 1 | | 30 | 1 13 3 | 1 14 1 2 | 3 4 | | 35 | 1 16 4 | 1 18 1 2 | 10 | | 40 | 2 0 8 | 2 4 1 3 | 7 11 | | 45 | 2 6 8 | 2 10 1 3 | 11 | | 50 | 2 15 1 | 3 0 8 1 | 10 | | 55 | 3 5 0 | 3 12 1 3 | 6 4 | | 60 | 3 18 1 | 4 7 1 6 | 7 4 | | 65 | 4 15 2 | 5 10 1 7 | 9 |
The other offices in London for the assurances of lives are,
The Royal Exchange Assurance, which was empowered to assure lives by virtue of its second charter, bearing date the 29th of April 1721; the Westminster Society was established in 1792, for assuring lives and annuities; and the Pelican Life Office was instituted in 1797, which makes a new species of assurance, by way of endowment for daughters, when they have attained the age of 21 years.
Re-Insurance is a second contract, made by any insurer, to transfer the risk he has engaged for to another. It is in general forbidden by 19 Geo. II. c. 37, but is permitted to the representatives of an insurer in case of his death, or his assignees in case of his bankruptcy; and it must be mentioned in the policy that it is a re-insurance.