Marine Insurance Law

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.

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