Marine insurance : a series of lectures

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Marine Insurance.

A Series of Lectures

Delivered by

F. H. CAREY, Esq.,

it

Adjuster of Marine Claims
to the

LONDON ASSURANCE
CORPORATION.

Reprinted from LLOYD'S LIST.

Cs

PREFACE.

THE following Lectures, which
were delivered under the
auspices of the Institute of
London Underwriters and are
printed by the courtesy of the Com-
mittee of Lloyd's, are of an elemen-
tary character, and are intended to
give the reader an opportunity of
acquiring the rudiments of the
claims side of Marine Insurance and
to enable him to better understand
the text books when he decides to
make the subject a matter of close
study.

The Lectures may, however, in
addition be of some assistance to
those who have a preliminary know-
ledge of the subject, and may be of
use to those engaged in Merchants'
Offices whose business it is to deal
with claims on Marine Insurance
Policies.

I would add that English practice
differs in many respects from the
practice in other countries, and I
have dealt with the matter entirely
from the English point of view.

F. H. C.

814871

CONTENTS.

Lecture No. 1.

PAGE

CARGO CLAIMS— Method of Calculation-
Application of Franchise Clause 5

Lecture No. 2.

GENERAL AVERAGE — York-Antwerp Rules
— Average Adjustment 31

Lecture No. 3.

SALVAGE CHARGES — Salvage — Sue and
Labour Charges— F.C. and S.
Clause — Strikes Clause — British and
Allies Capture Clause 41

Lecture No. 4.

CLAIMS ON HULL POLICIES — Clause
Relating Thereto 55

Lecture No. 5.

ABANDONMENT— Total Loss— Constructive
Total Loss— Arranged Total Loss-
Excess General Average — Un-
repaired Damage 73

Lecture No. 6.

COLLISION CLAUSE— £8 per ton Clause-
Single Liability— Cross Liability—
Cauta Proxima 89

FIRST LECTURE.

Delivered November 16, 1920.

CARGO CLAIMS.

Method of Calculation.

APPLICATION OF FRANCHISE
CLAUSE.

One is much tempted when dealing with
Marine Insurance to inquire closely into
its introduction into this country, a sub-
ject of much interest, but the object of
these lectures is to endeavour to impart
to the uninitiated such information as will
enable them to appreciate and understand
what I might call the rudiments of the
subject, 'and to add to the knowledge of
those who have some acquaintance with it.
I feel, however, that it will not be in-
advisable if, before commencing my lectures,
I make some reference to this matter, but
it will be quite short and of a mere cursory
character. In the Middle Ages there
flourished two great associations or bands of
traders — one the Hanseatic League, who
traded between the Baltic and the North
with the South, and the other the Lombards,
who traded between the Mediterranean and
the South with the North. The principal
centre for these two sets of traders was
Bruges — that old world city of Belgium to
which so much reference has been made
during the war. It is only to be supposed
that the natural outcome of a flourishing
trade by sea would be a demand for the
institution of some system by which a mer-
oliant could protect himself 'against the
risk of losses arising from sea perils. There

was, therefore, established at Bruges in 1310
a chamber of Insurance where the merchant
could insure his, goods and thus obtain
that security against loss without which
trade by sea could not progress and would
never have reached its present gigantic pro-
portions.

OVERSEAS TRADE EXPANSION.

The Traders of the Hanseatic League and
the Lombards naturally did not overlook
this country in the course of their opera-
tions. No doubt they brought with them
the practice of Marine Insurance. The
invaders were eventually ejected from this
country as our forefathers considered that
they were able to carry on without the
assistance of other 'gentlemen, and the.
trade between this country and overseas
began to expand rapidly ; the practice of
Marine Insurance was continued, and was,
in fact, legalised 'by Act of Parliament
passed in 1601 during the reign of Queen
Elizabeth. The preamble of the Act reads
as follows : —

By means whereof it cometh to pass
that upon the loss or perishing of any
ship there followeth not the undoing of
any man but the loss lighteth rather
easily upon many than heavy upon few,
and rather upon them that adventured
not than upon those who do adventure :
whereby all merchants especially those
of the younger sort are allowed to ven-
ture more willingly and more freely.

There is, therefore, evidence that the prac-
tice of Marine Insurance was well estab-
lished in this country as far back as 1601.
If we examine a Marine Insurance Policy
we find its terms are expressed in somewhat
quaint language, but which is nevertheless
quite suitable for present-day needs, and one
may imply therefrom that the basis of
Marine Insurance to-day is not much
changed from that adopted many years ago.
Take, for instance, the policy issued by my
own Corporation — the London Assurance. It

commences with the words, " In the name of
God, Amen." This pious expression seems
to imply that in the early days the negotia-
tions for a Marine Insurance were considered
to be of a solemn character and were con-
ducted in a serious manner. In the present
days there is very little solemnity in an
Underwriter's room, but there is a good deal
of seriousness when the green slips from
Lloyd's tell of a heavy loss or casualty. There
is one solemn part of the custom which, how-
ever, remains, and may it always remain —
that is Honour. Honour is the foundation
stone on -which has been constructed our
huge Insurance Market, and it is well to
bear this in mind when we have to deal
with claims on Marine Insurance policies.

. Then, later on, one finds the words, " Be-
ginning the Adventure upon the said goods,
&c., &c. . . ." The use of the word " Ad-
venture " perhaps requires a short explana-
tion. You will remember this word in the
quotation I gave from the Act of Parlia-
ment parsed in 1601. In those days, when
steamships were unheard of, one can readily
imagine that a journey by sea was indeed an
adventure; there were few lighthouses, no
telegraphy, ill-provisioned ports, no Lloyd's
Agents, no wireless and little means of suc-
cour in the event of a casualty. Thus, the
word " Adventure " was a true description
of the undertaking when a vessel left port
for a far-away place with her cargo. The
owners of the ship and the owners of her
cargo were called co-adventurers, inasmuch
as the former had ventured his ship .and the
latter their cargoes to the mercies of sea
perils. In the very early days of shipping
the owners of the cargo themselves used to
accompany their cargoes, so they, too, were
in reality adventurers, although this ancient
custom died out many years ago, yet recently
in a case before me it transpired that a mer-
chant shipping goods from one Black Sea
port to another sent his representative -with
the goods. The vessel put into a
port on the way, and the merchant's
representative -went ashore to have a look
round, and finding an opportunity of selling

the goods to better advantage at that port
than at the port to which they were des-
tined, had the goods discharged at the inter-
mediate port. So one sees that in new cir-
cumstances we sometimes come across old
customs.

Then there is reference to pirates, rovers,
letters of mart and counter-mart — expres-
sions which take us back to the days of
Drake and remind us of the literature of
our school days. Later on in the policy
appears the following phrase : —

And it is agreed by us, the insurers,
that this writing or policy of assurance
shall be of as much force and effect as
the surest writing or policy of assurance
heretofore made in Lombard Street, or in
the Royal Exchange or elsewhere in-
London.

As Lombard Street was the district
allotted .by the authorities to the Lombards
for their operations, one may conclude that
the Lombards, in addition to being money-
lenders or bankers, also engaged in Marine
Insurance. The reference to the Royal Ex-
change indicates that Underwriters used to
congregate in the Royal Exchange for the
purpose of transacting their business.

THE QUESTION OF CLAIMS.

In dealing with the claims side of Marine
Insurance I will first refer to what is com-
monly known as the memorandum. If you
will look at your policy you will see thai
the main wording of the same concludes
with the following clauses : —

Free from all Average on Corn, Flour,
Fish, Salt, Saltpetre, Fruit, and Seeds,
except General or the Ship >be stranded.
Free from Average on Sugar, Rum,
Hide, Skins, Hemp, Flax, Rice and
Tobacco, under Five pounds per cent., and
on ell other Goods the freight and ship,
under Three pounds per cent, except
General, or the ship be stranded, sunk or
burnt.

9

The words " free from " mean that the
policy is free of average, &c. — in other
words, the Underwriter does not pay for
average on corn, flour, &c., unless general
or the ship be stranded, or for average on
sugar, rum, &c., unless such average
amounts to 5 per cent., and on other goods
unless it amounts to 3 per cent., or is
general or the ship be stranded, &c. It is
very necessary to bear this closely in mind,
for I have known a holder of a policy in
connection with the F.C. & S. clause to
assert that the words " Warranted free
from " meant that he, the assured, was to
be freed from any loss, &c., and that such
loss would be borne by the Underwriter.
One moment's consideration shows the
fallacy of such an assertion. If we take
the ordinary P.P. A. clause and accept this
contention what would be the result? Un-
less the ship be stranded, sunk or burnt,
&c., the assured can recover particular
average, but if the vessel is stranded, sunk
or burnt then the assured cannot recover
for particular average, which would be
absurd. Take particular notice of the fact
that losses arising from General Average
are excluded from the operation of these
clauses.

This word " Average " is a somewhat
puzzling word and it may appear to many
difficult to understand why we should con-
tinue to use the word in a Marine Insur-
ance policy. As commonly used we hear of it
in connection with our batting and bowl-
ing averages, or we employ it more or less
to our advantage when we consider the
possibility of a claim under our Pluvius
policy. I do not propose to consider the
origin of the word. If I did (and I am
not sure that I could satisfactorily do BO)
it would take some time and would not be
altogether relevant to the object we have
in view. The word " average " really
means " division," i.e., division of loss,
division of burden or division of results.
For example, the runs I have made at
cricket during the season are totalled up
and divided by the number of times I

10

have batted and the result is my batting
" average." In the same way you average
or you should average your weekly expendi-
ture so as not to exceed the income of the
year. Now there are two kinds of aver-
age— one Particular or, as it is in some
countries designated, " Simple Average,"
and the other General Average — so called
in all countries.

GENERAL DIVISION OF LOSS.

To explain the application of the word
" division " to General Average is quite
simple. The owner of a vessel arranges
with certain owners of cargo to carry
their goods to certain ports. The vessel
meets with an accident — say goes aground,
and the Master engages a tug to pull the
vessel off, and the tug succeeds in so doing.
The Master or the owner of the ship has
to pay to the owner of the tug a sum of
money for the services rendered by him
to the ship. Now the Master in engaging
the tug did not do so for the purpose
of serving the ship alone, but for the pur-
pose of saving the cargo also and thus
enable him to prosecute the adventure. It
is therefore only right and proper that
the money so paid should be borne by all
the adventurers, i.e., each should contri-
bute a share and the money so paid should
be " averaged " or " divided " or
" equalised " between all the interested
parties. Thus we see that it is easy to
understand how General Average is none
other than general division of a loss between
all concerned in the venture. If a ship
caught fire and water was used to extinguish
the fire and caused damage to the cargo,
the loss arising from such damage 'would be
called «, general average loss, and the co-
adventurers would have to contribute to
such loss in the same way as they would in
the case of money paid to the tug. These
remarks will, I hope, give you some idea
as to the meaning of the word " General "

11

Average, a subject which I shall deal with
in a later lecture.

If what I have said explains the defini-
tion of average as meaning division when
applied to General Average, you will natur-
ally ask how I can give the same definition
to average when applying the word to par-
ticular average. I submit the following
explanation. In former times, before the
establishment of the first Marine Insurance
Companies in 1720, the year in which the
Royal Exchange Assurance Corporation and
the London Assurance Corporation first saw
the light, Marine Insurance used to be
transacted by individuals or Underwriters,
as they used to be called, who were the
forerunners of the present institution known
as "Lloyd's." When an insurance was
offered, these individuals, if so disposed,
took certain shares on the risk, as is done
at Lloyd's now. If a claim arose on a par-
ticular shipment, the particular individuals
who insured the shipment would have the
loss averaged or divided or equalised
between them in proportion to the share
of the risk which each had underwritten,
and it is in this way that I reconcile my
definition of average as applying to Par-
ticular Average.

In fact, we might describe Particular
Average more easily by saying that it repre-
sents damage sustained by cargo which has
to be borne solely by the owner of the
particular cargo damaged, as distinct from
General Average which is to be borne by all
owners of the cargo and the shipowner
and / or Charterer. The owner of the damaged
goods can recover the loss direct from his
Underwriter, if it is admissible as a claim
under the policy. To say that " average "
merely means damage is misleading,
because we should then say that general
average means general damage, whereas
general average means much more; it in-
cludes expenditure, such, as the instance I
have quoted of money paid for assistance.

12
THE 1906 ACT DEFINITION.

The Marine Insurance Act, 1906, Sect. 64,
describes a particular average loss as
follows :—

A Particular Average Loss is a partial
loss of the subject matter insured, caused
by a peril insured against and which is
not a general average loss.

It is necessry to distinguish between a
Particular Average loss and a General
Average loss. The Marine Insurance Act
describes a General Average loss as follows :

A general average loss is a loss caused
by or directly consequential on a general
average act. It includes a general average
expenditure as well as a general average
sacrifice.

There is a general average act where
any extraordinary sacrifice or expenditure
is voluntarily and reasonably made or
incurred in time of peril for the purpose
of preserving the property imperilled in
the common adventure.

In the insurance of goods there are two
general classes of insurance. One " F.P.A.,"
i.e., warranted free of Particular Average,
and the other " With Average," described
as W.P.A. or W.A., i.e., with Particular
Average. The policy covering goods insured
F.P.A. must contain the F.P.A. clause; the
wording of the F.P.A. clause is not always
in the same form, but for my purpose I
will deal with the Institute F.P.A. clause—
the one generally in use, which reads as
follows :

Warranted free from Particular Average
unless the vessel or craft be stranded,
sunk or burnt, but notwithstanding this
warranty the Assurers are to pay the
insured value of any package or packages
which may be totally lost in loading,
transhipment or discharge, also for any
loss of or damage to the interest insured

13

which may reasonably bo attributed to
fire, collision or contact of the vessel
and /or craft and /or conveyance with any
external substance (ice included) other
than water, or to discharge of cargo at
port of distress, also to pay landing, ware-
housing, forwarding and special charges if
incurred for which Underwriters would
be liable under a Policy covering Particu-
lar Average.

We see here that unless certain specified
events happen either to the ship or cargo,
the policy is free of Particular Average.

EFFECT OF THE CLAUSE.

The effect of the clause is that unless the
ship be stranded, &c., Underwriters will
be free from liability to pay Particular
Average. If, however, the ship is stranded,
&c., the Underwriters will be liable to pay
Particular Average irrespective of per-
centage. The Particular Average need not
necessarily be caused by the stranding, &c.
The accident, stranding, sinking, &c., breaks
the warranty and turns tne policy from
an F.P.A. policy to a W.P.A. policy. It
may seem somewhat strange at first sight
that it is not necessary that the damage
should be caused by one of the accidents,
but the origin of this clause is probably
due to Underwriters refusing to insure cer-
tain classes of goods against damage unless
the vessel met with an accident. The
original intention may perhaps have been
to pay only the damage caused by the acci-
dents enumerated, but if it were so the
clause was not properly expressed. The
American F.P.A. clause is so worded that
the Underwriter pays only such damage as
arises from the accidents mentioned in the
clause. The clause further expresses other
conditions under which the F.P.A. Under-
writer will bear certain damages, such as
damages which may reasonably be attri-
buted to collision or contact, &c.

TJavin? exrolaine^!. I hope quite clearly,
what is meant by Particular Average, I will
now proceed to describe 'the method of cal-

14

culation. The formula for calculation is
as follows : — Ascertain the depreciation by
a comparison of the gross sound and
damaged values and apply the percentage
of depreciation thus ascertained to the
value for which the damaged goods are in-
sured. To put the principle into practice
I will take the following easy example : —

2 bales of goods are insured for £100

each £200

1 bale is damaged :

Sound value £90

Is sold for 45

Loss £45

= 50%
Insured value £100 at 50 per cent., £50.

The law of marine insurance is based upon
the principle that the Policy is a contract
of indemnity, that is, in the event of a loss
or damage, the owner becomes completely
indemnified. This is true provided the
loss is due to a, peril covered by the Policy
and that the owner has insured his interest
for its full value, otherwise it is a contract
of indemnity "with certain limitations. Let
me explain. A merchant insures a ship-
ment of 10 cases of goods for £500. When
the ship arrives at its destination it is found
that three cases are damaged and the rest
are sound. The sound goods, i.e., seven
cases, are sold and realise £420, or £60
per case. If the ten cases had all been
sound he would have received £600, viz.,
£60 per case. The three damaged cases are
sold for £30 each, or 50 per cent. loss. What
is his loss?

7 sound cases sold for £60 per case ... £4'JO

3 damaged cases sold for £30 each ... 90

Total proceeds £510

This amount deducted from the £600 shows
hi« loss at £90. If the Policy were an abso-
lute contract of indemnity he 'would recover
£90. What does he recover (using the
before-mentionod formula for ascertaining
the loss)?—

15

If the goods had teen sound they

would have realised £600

As 3 were damaged they only realised 510

Loss £90

= 15%

Or in other words, had the 3 damaged
cases been sound they would have

realised £180

But being damaged they only realised 90

Loss (50 per cent.) £90

Unfortunately for the merchant he has
not insured his goods for £600 .but only for
£500, and he can only recover from his
Underwriter 15 per cent, on £500, say, £75,
or if you take the three cases alone 50 per
cent, on £150 or £75. He is therefore a
loser of l£15. In this particular instance
the Policy does not act as a contract by
which the assured becomes fully indemnified.
The value in the Policy, except in the case
of fraud, is a fixture, and the settlement of
losses must be based thereon.

POSITION OF MERCHANT.

It is not open to the Underwriter nor to
the assured to disturb this valuation except,
of course, by agreement. While, however,
the policy is not, in the instance I have men-
tioned, a complete indemnity to the mer-
chant, yet in other cases he may be more
than indemnified. I will take the same
example as I have already given, but will
reverse the figures of the sound and in-
sured -values. The sound value in this case
is £500, or £50 per case, and the insured
value is £600, or £60 per case. If the ship-
ment had arrived sound the merchant would

nave realised £500

7 cases sound at £50 each realise £350
3 cases damaged realised 50 per
cent., on £50 each, i.e., £25,

three cases 75

425

Loss (15 per cent.) £75

The insured value 'being £600, the mer-
chant receives £600 at 15 per cent., viz: —
£90 or £15 more than he has lost.

16

In the first-mentioned case it is always
open to a merchant when he finds, after
he has insured his goods, that the market
price has risen, to take out an additional
insurance on increased value, and to re-
cover a similar percentage of depreciation
on such increased value as he recovers on
his first policy.

In the few very simple examples I have
given you I hope that I have shown clearly
the method of calculating a Particular
Average. You must not, however, imagine
that every Particular Average claim can
be calculated with such ease as in these
examples; but if I have made the principle
clear, then it only requires practice and ex-
perience to enable you to calculate an
ordinary Particular Average claim. Some
claims are so involved that much time and
expert knowledge is required in the adjust-
ment, and we leave those to the expert
average adjuster. I will, however, give one
example of a more complicated claim. We
will assume that a merchant has dispatched
abroad 10 cases of cotton goods, insured for
£300, and on arrival one case appears to
be damaged. The merchant calls on Lloyd's
Agent and informs him that his shipment
has arrived damaged. The Agent appoints
a Surveyor to inspect the goods and issue
a survey report. The report shows that out
of 10 cases Nos. 1 to 10, one case, No. 7, is
damaged by sea-water, and the Surveyor
recommends the case be sold.

The invoice shows that the 10 cases are
not of equal value. The shipment consists
of a number of yards of cloth, say 1235, of
which —

600 yards are invoiced at 4s. ... £120 0 0
635 yards are invoiced at 5s. ... 158 15 0

£278 15 0
Leas discount 5 per cent 13 18 9

£264 16 3

To which must be added cart-
age, freight and insurance,
•ay 25 8 9

£290 0 0

17

The first proceeding will be to arrive at
the actual invoice value of the damaged
case, which contained 125 yards, part of the
635 invoiced at 5s. per yard, so that—

125 yards at 5s £31 5 0

Less 5 per cent, discount 1 11 6

Which leaves £29 13 6

We then divide the proportion of
£25 3s. 9d. applicable to case No. 7. We
will, in this case, assume that the £25 3s. 9d.
is really arrived at pro rata to the value of
the various goods, in the same way as the
5 per cent, discount is pro rata to the value
of the various goods. If this were not so
it would be necessary to go into a close cal-
culation to find out the actual share of the
charges applying to case No. 7. As, for
instance, the case being a different size,
freight would be different, because freight
will be paid on the size or weight of
the case, and not on the value of its con-
tents; but I will not impose on you a diffi-
cult sum in arithmetic, but merely for the
purpose of illustration will assume that the
charges are pro rata according to the value
of the cases. Now, the charges can be
ignored, since the result of the apportion-
ment will be precisely the same whether
they are taken into account or not. We
then proceed as follows : —
If £278 15s. (the value of the
oases irrespective of dis-
count and charges) are in-
sured for £300 0 0

Then the invoice value of case
.No. 7, £31 5s. (irrespective
of discount and charges)
will be insured in propor-
tion for 33 12 7

PERCENTAGE OF DEPRECIATION.

You ascertain, as I have already shown
you, the percentage of depreciation by a
comparison of sound ani damaged values,
and you apply this percentage to the in-
suied value of case No. 7, which, added to
the survey fee and any extra charges in-
curred owing to the ease being damaged.

18

gives the claim on. the Underwriter. I would
mention here that when the claim has to
reach a certain franchise before it can be
rc-coverable under the policy (say, for in-
stance, the policy is to ipay average 3 per
cent, on each case), it must be the depre-
ciation that must amount to 3 per cent. If
the depreciation only amounted to 2 per
cent, and the survey fees and charges
brought the claim to above 3 per cent., the
claim would not be admissible .because these
charges cannot be taken into account in
estimating whether the claim reaches the
necessary franchise.

The method of calculation of Particular
Average is based on a sound principle.
The value of the goods having been fixed
by the parties when arranging the insur-
ance it cannot be affected by the rise or fall
in the market value. Underwriters are
not liable for loss of market. If, owing
to delay, the ship arrives late at her dis-
charging port and during the delay the
market has fallen, and the merchant has to
poll his goods on a falling market, the
resulting loss is a loss of market. The
Underwriter insures the goods, he ilocs not
undertake to indemnify the merchant
against delay, even if such delay is due to
a peril insured against. This is quite fair
If the ship made a y.ery speedy voyage and
when the goods arrived the market was ris-
ing, the resulting profit belongs to the
merchant— he does not hand it over to the
Underwriters. Let me show what I mean
by a case which was recently put before me.
I exaggerate the figures in order to make
the point more clear. Six bales of gunnies
arrived damaged, but if sound at the anti-
cipated date of arrival in May last would
have realised £480. They were insured for
£500. Unfortunately for the merchant,
owing to adverse circumstances among
which was congestion at the docks, he did
not obtain his goods until August, by which
time the market had fallen and the sound
value was then only £300. The damaged
bales were sold for £90. The merchant
presented his claim as follows : —

19

6 Bales sound xalue £480

Realised damaged 90

Claim on Underwriter £390

You will observe that he expects to re-
ceive the same money as if the goods had
arrived in May, i.e., £90, from the sale
and £390 from his Underwriter. That is
wrong. If the goods had been sold in
August he would only have received £300,
and thus, owing to the fall in the market
price, he would have lost as much as £180
if the goods had been sound. It is quite
clear he could not have claimed anything
from his Underwriter in that event. The
goods being damaged is fortunate for him
because he had insured them at the higher
figure arid the percentage of depreciation
for which the Underwriter is liable 13
applied to the insured value and not to
the low sound value of September. The
claim on the policy is therefore as follows : —

Sound value £300

Sold for 90

Loss (70 per cent.) £210

Applied to the insured value of £500.. .£350.

So he receives from the sale £90, from his
Underwriter £350, together £440, instead of
£480, which he would have received had the
goods arrived sound in May, and a gain of
£140 if the goods had arrived sound in
August. The gain must not in any way
be looked upon as an indemnity for loss of
market, but is merely due to the fact that
the insured value was much in excess of the
sound value in August. This example will
emphasise what I have already pointed out,
viz., that the insured value is the basis
upon which the amount of an Underwriter's
liability is determined, whether advan-
tageous or disadvantageous.

CALCULATION OF LOSS.

Now, it must be borne in mind that this
method of calculating a loss on cargo is
only applicable w'hen goods arrive at their
destination. If by reason of a peril covered

20

by the policy the goods never reach their
destination, tut are sold at an intermediate
port, the loss is calculated on another basis.
Let us suppose that a vessel is wrecked dur-
ing the voyage and the goods are salved and
taken to the nearest port, and it is con-
sidered inadvisable, on the ground of great
expense, to forward the goods to destina-
tion ; they are sold at the intermediate port.
The claim on the Underwriters would be for
the insured value, and they would be
entitled to the proceeds after deducting
the expenses of salvage and all other
charges that may attach to the cargo.

On the other hand, however, if goods
reach their destination, it is immaterial how
badly damaged they are; the claim is cal-
culated on the basis of a Particular Average.
There is one exception — that is when goods
do not arrive in specie — i.e., when they
arrive at destination so badly damaged that
they have lost their character — say, for
example, when hides are so damaged that
they can no longer be called hides and can-
not by reconditioning be reconverted into
hides. I have in mind a case Where wheat
in a sunken barge was salved in a deplorable
condition, and in which it could not be
called wheat, but only pigs' food. It was,
however, sent to a kiln and dried, and was
thus -again converted into wheat. The
assured claimed as for a total loss, but the
Court held that the claim was one of Par-
ticular Average.

It sometimes happens that in consequence
of an accident involving G.A. the vessel
delivers part of her cargo in damaged con-
dition and without marks, so that the ship-
owners cannot tell to whom the damaged
goods belong. .What is the shipowner to
do? Supposing a cargo of jute is concerned
and there are, say, twenty different con-
signees, ten whose cargo is identifiable — i.e.,
the marks are distinguishable— get their
cargo in full, the rem«.ining ten each have
part of their cargo short, Ray, five have five
bales short and the other five have 10 bales
short — that is a shortage of 75 bales jute.

21

The unidentifiable jute therefore represents
75 bales or what is left of them. The
shipowner tenders to each of the first five
consignees 5/75ths and to each of the
second five consignees 10/75ths of the un-
identifiable jute, much to the annoyance
of the consignees who do not want the
damaged jute. As a rule, to avoid this
annoyance the shipowner generally ar-
ranges for the whole of the unidentifiable
jute to be sold and each consignee gets
his share of the proceeds in due course.

In this latter case, although the con-
signee does not receive his goods the claim
on Underwriters is a Particular Average
and not for the insured value of the goods
less proceeds. It is, however, not unusual
in such cases, especially if the amount in-
volved is not large, for the Underwriter to
pay the insured va.lue of the goods short
delivered and receive the share of pro-
ceeds when the statement is issued, for it
more often than not happens that the pro-
ceeds cannot be apportioned until the
General Average statement is completed.
General Average statements take a long
time to prepare and the cargo owner is of ten
desirous of closing the matter in his books
at once, and does not want to wait until
the statement is issued. Nevertheless such
a payment is a concession on the part of
the Underwriters and not a legal right on
the part of the assured.

You may say why all this fuss about
settling as for a Particular Average in-
stead of paying the insured value and re-
ceiving proceeds. There are two reasons :

1. If the goods are over insured the Under-
writer pays the whole of the amount over-
insured instead of a percentage thereon.

2. He would only be entitled to the net
proceeds, i.e., proceeds after deduction of
freight and landing charges, whereas in
a Particular Average these charges are
borne by the consignee. If, however, the
freight is paid at port of shipment there
is less objection to paying tJhe insured
value of goods short delivered.

THE GROSS VALUE BASIS.

You may perhaps wonder why the par-
ticular average should be based on gross
values, i.e., cost plus freight and charges
and not on net value, i.e., cost without
freight and charges. The reason is that
of the two methods the gross value basis
is the more equitable. To enable the
merchant to sell his goods he has to pay
freight and landing charges. If you deduct
freight and landing charges, why not de-
duct charges prior to shipment — they all
form part and parcel of the market value at
destination. I have shown that the mer-
chant's loss is the difference between the
sound value and the damaged value which
results in a certain percentage of deprecia-
tion, and the Underwriter ought only to pay
this percentage of depreciation on the
amount for which the client has insured his
goods. This is only fair. I will give you
an example of calculating a Particular Aver-
age on the two different methods.

GROSS VALUES.
Insured value £100

Gross sound value 100

Gross damaged value 70

Loss 30 per cent £30

The assured having insured his goods for
their actual arrived market value recovers
his whole loss, neither more nor less. Taking
similar figures and basing the claim on

NET VALUES.
The insured value £100

Gross sound value 100

Freight, duty and other charges ... 30

£70

Damaged value £70

Freight and charges 30

£40

Loss (say 42 per cent.) £30

23

The actual loss on sale in both cases is the
same, but there is a gain on the net value
basis of £12, although the amount insured
and the sound value are the same.

In countries where heavy import duties are
payable, the Underwriters sometimes agree
to pay claims based on values less duty. In
such cases they no doubt receive a commen-
surate premium for the increased liability
they incur through claims being based on
such values. I once had a case before me
where a settlement on values less duty re-
sulted in a total loss. The case concerned
some tin plates which were found badly
damaged at New York. I do not remember
the actual figures, but the claim worked out
something like this : —

Insured value £100

Sound value, including duty 175

Duty 75

Net value, after deduction of duty £100

Damaged value £70

Duty 75

No proceeds —

Loss £100

This is an exceptional case, and is due to
the fact that the same duty is payable on
the damaged goods as the owner would have
had to pay if they had been sound. If the
duty is payable ad valorem, i.e., on values,
then such extreme results would not arise.

Now, of course, it does not follow that
because goods are damaged they must neces-
sarily be sold. It is often more to the ad-
vantage of both the consignee and the
Underwriter that the former should accept
tho goods with an allowance. This saves
auction expenses and the assured himself
takes any profit that would accrue to a
buyer if the goods were sold. This allow-
ance is generally fixed at a percentage, say,
10, 15 or 20 per cent., or other percentage,
and the Underwriter will then pay the con-
signee a similar percentage on the insured
value of the damaged goods. For example,

24

Insured value of damaged goods, £100.
Allowance 10 per cent. Underwriters pay
£10. I hope that I have now explained
clearly to you what is meant by Particular
Average, and how it should be calculated.
I have already referred to the memorandum
in the Policy. In the earlier days the
franchise mentioned in the memorandum
was strictly applied. Now, however, the
memorandum is more or less obsolete, the
Underwriter specifically indicating the con-
ditions of franchise by special clauses, which
differ according to the goods insured. If a
Policy contains the words " to pay average "
without mention of any franchise, then the
franchise in the memorandum applies.

In connection with the phrase in the
memorandum warranted free from aver-
age under 3 per cent., or 5 per cent, as the
case may be, I would mention that this
means that the Underwriter does not pay
a claim if it is below 3 per cent, or 5 per
cent., but if the claim is 3 per cent, or
5 per cent, and over he pays the whole
claim. The word " under " does not free
him from paying the proportion of the
claim under 3 per cent, or 5 per cent., but
frees him if the whole claim does not
amount to 3 per cent, or 5 per cent. If
he wishes to be free of the first 3 per cent,
or 5 per cent., he inserts a clause to this
effect, as follows : "To pay average in ex-
cess of 3 per cent, or 5 per cent, (as the
case may be)."

I think it is necessary that I should
explain here that some people are under
the impression that an F.P.A. policy is
of more advantage to the assured when
the warranty is broken than a " with
average " policy would be. This is due
to the fact that they assume that in a
" with average " policy the franchise of
three or five per cent., as the case may be,
is enforceable under all circumstances,
whereas under the F.P.A. clause, if the
warranty is broken, all average is payable
by Underwriters irrespective of percentage.
I would, however, point out that if refer-

25

ence is made to the memorandum it will

be seen that it is worded : —

Corn, fish, &c., are warranted free from
average, unless general or the ship be
stranded. Sugar, tobacco, &c., are war-
ranted free from average under £5 per
cent., and all other goods, also ship and
freight are warranted free from average
under £3 per cent., unless general or
the ship be stranded.

For the purpose of my explanation we
can eliminate the words " unless general."
The clause therefore reads : —

Corn, fish, &c., are warranted free from
particular average unless the ship be
stranded. Sugar, tobacco, &c., are war-
ranted free from average under £5 per
cent, (or £3 per cent, as the case may
be) unless the ship be stranded.
If the ship be stranded then the war-
ranty of franchise of £5 per cent, or £3
per cent, disappears, and there is no fran-
chise at all in the policy. It might then
be said that in a " with average " policy
the franchise only disappears when the
vessel is stranded, whereas in an F.P.A.
policy there is no franchise if the vessel
is stranded, sunk or burned or in collision,
&c. This is so, but as a matter of fact
the franchise in a " with average " policy
would by practice disappear if the vessel
had been sunk or been burned or if the
damage was caused by collision. In any
event if either of these accidents hap-
pened and damage to the cargo occurred,
it is more than probable that the damage
would, exceed the required franchise. At
all events it may be deemed in practice
that an F.P.A. policy with the warranty
broken is not a better policy than an
ordinary " all risk " policy.

A SUGAR AVERAGE CLAUSE.

The various franchise clauses applicable
to various goods are numerous, and you
must refer to your own office books for in-
formation concerning them. I will, how-
ever, mention an average clause applying
to sugar : "To pay average on each series

26

of 50 bags following landing numbers,"
for the purpose of explaining the latter
three words, generally indicated by the
initial letters f.l.n. As the bags are landed
from the steamer at port of discharge they
are weighed and numbered. At one time
I suppose they were discharged in the same
order as they came out of the hold, say,
for instance, five sound bags, then one
damaged, then four sound, then another
damaged, and so on. Discharged in this
order, it is probable that the claim on the
number of damaged bags among the first
50 bags for instance landed would not reach
the franchise. This was all right for the
Underwriter, but did not suit the merchant,
so that for many years past the damaged
bags, as they come up from the hold, are
set aside and landed after the sound portion
has been discharged. Suppose there are
1000 bags of sugar and 70 are damaged ;
the 930 are landed first and are followed
by the damaged 70. There are, therefore,
18 series of 50 bags — 900 landed sound —
one series in which there are 30 sound and
20 damaged, and one series of 50 all of
which are damaged. If the claim on the
19th series of 50 bags, i.e., 30 sound and 20
damaged, and on the 20th series of 50 bags,
all damaged, reaches the (franchise, the
Underwriter pays the claim.

I should like to deal with other averages
but time (will not permit, 'but the same
method as I have indicated in the example
I have given applies to all average clauses
where the franchise is based on a "series."

I will now shortly refer to the method of
dealing with damage on one or two special
articles.

COTTON AND TOBACCO CLAIMS.

If bales of cotton arrive damaged they
are, unless seriously damaged, picked and
made merchantable, i.e., the damaged por-
tion is picked off and sold, and the bale is
mended, i.e., put into saleable condition.
The claim is paid irrespective of percentage,

27

i.e., whether it is large or small. The
Underwriter pays the sound value of the
damaged cotton picked off less one-sixth if
country damaged or one-third if sea
damaged; strictly speaking it should be the
insured value, but to save time and trouble
and expense of adjustment, the sound yalue
is adopted. The one-sixth or one-third is
deducted because it is assumed that the
weight of the damaged cotton has been in-
creased to this extent by being damaged by
absorption of water. In addition the
Underwriter pays the cost of picking and
mending, and is credited with the proceeds
of the damaged cotton and canvas. As
all bales of cotton have to receive some at-
tention after the transit even if sound, the
Underwriter is also credited with the
ordinary cost of mending. A somewhat
similar process is adopted with regard to
tobacco. If tobacco is damaged it is
"garbled," i.e., the damaged portion is
cut off — the Underwriter pays the insured
value of the tobacco cut off, and sometimes
a depreciation on the portion remaining, be-
cause if there is any indication that a hogs-
head of tobacco or a bale has been
" garbled " a buyer may not pay full
price; he may want some allowance even
though the tobacco itself is absolutely
sound. Owing to the heavy duty on all
tobacco taken out of bond the damaged
tobacco cannot be sold here, but there is a
market on the Continent where the duty
is not heavy and the Customs, therefore,
allow such tobacco to foe shipped abroad
without payment of duty. The buyers on
the Continent, however, only give a small
price, say 2d. to 4d. a lb., so that the
Underwriter does not get much by way of
credit. The Underwriter also, of course,
has to pay the cost of garbling, which is
a very heayy item in these days.

TEA CLAIM.

The tea clause reads : " Average each 10
chests, 20 half chests, and 40 boxes." The
method of dealing with damaged tea is
somewhat similar to that adopted for cotton

28

and tobacco. If a chest is damaged, it is
opened and the damaged part removed and
the chest is sold as a broken chest with all
faults. The claim is adjusted on -a Par-
ticular Average basis. The sound value is
arrived at by taking the weight of the
damaged chest in sound condition, and de-
ducting therefrom the proceeds and apply-
ing the loss to the insured value in the
usual manner.

COCOA.

To ascertain the sound value of a damaged
bag of cocoa, three pounds per bag is added
to the weight of the damaged bag and
the depreciation ascertained in the usual
way.

These are some of the principal articles
which are dealt with in a special manner
when they arrive with damage, and I call
attention to them simply as a matter of
interest. What is the procedure to be
adopted in order to formulate the claim
against the Underwriter? The assured
advisee his Underwriter that his goods have
sustained damage; the Underwriter ap-
points a Surveyor, and if he and the assured
cannot agree as to the amount of deprecia-
tion the damaged goods must be sold.
When this has been done, the assured hands
to the Adjuster the Policy, survey report
and original invoice and copy of account
sales. The Adjuster draws up a statement
basing the claim on the terms of the Policy,
end adds any charges such as survey fee
and his own charge. These documents,
with the Adjuster's statement, are handed
to the Underwriter either through a broker
or by 4the assured himself. The claims
settler 'examines the documents, and if he
finds them in order he passes the claim for
settlement and payment.

I will now draw attention to one or two
risks which give rise to damage but which
are not covered by a Policy on goods unless
specially included in the Policy.

29

SWEAT DAMAGE.

This damage is caused iby condensation in
the hold of a vessel. A steamer loads her
cargo, say, in a tropical climate, and during
her voyage passes through a more temperate
zone, the waters being cooler act on the
ship's sides in the same way as cold does
on the windows of -a warm room. Con-
densation is set up, and unless the cargo i»
properly stowed the water caused iby the
condensation will damage the cargo.

Damage due to delay. The goods which
are liable to natural deterioration, such as
fruit, will, if the voyage is prolonged, reach
their destination in a damaged condition.
Although the delay may be due to a sea
peril, yet the damage is not recoverable.

Inherent vice covers the case of damage
due to the nature of the article itself, such
as the instance I have just mentioned, i.e.,
fruit 'becoming damaged owing to natural
decay.

PILFERAGE.

With regard, to the question of theft, i.e.,
theft or pilferage as we understand the
word, in the body of the policy you will
find that one of the risks mentioned is
" thieves," and you might quite justly con-
clude therefrom that theft or pilferage was
therefore covered. This is not so. The
word "thieves" in the policy means rob-
bery with violence, i.e., by bands of robbers
or wholesale looting done openly. It does
not cover pilferage, which is clandestine
theft— theft done under cover and by
stealth. That the word " thieves " should
not cover both classes of theft may appear
curious, but, so far as marine insurance is
concerned, the distinction is well established,
and it is confirmed by the Marine Insurance
Act of 1906. The risk of sweat damage is
sometimes, and the risk of pilferage fre-
quently, now covered specifically in the
policy.

30

I have been asked to explain another risk
which is being covered rather extensively
now, i.e., the risk of non-delivery. Non-
delivery, as the words imply, means that
certain bales or cases of goods, on arrival
of the steamer at destination, cannot be
found, and consequently cannot be de-
livered. That is, they are short delivered,
or delivered short. It differs from pil-
ferage, inasmuch as in pilferage the case is
delivered short of its contents, while in
non-delivery the case is not delivered at all.
In pre-war times shipowners, under the Bill
of Lading, admitted liability up to a cer-
tain value fixed in the Bill of Lading for
non-delivery, but as these losses have been
rather extensive of late, some claim that
non-delivery is due to pilferage, and pilfer-
age is one of the risks from which they axe
exempted by the terms of the Bill of
Lading. Underwriters do not admit this.
Non-delivery may be due to goods being
carried to the wrong port, and also to other
circumstances. The two risks are distinct,
notwithstanding the fact that non-delivery
may be due to pilferage. During the war
I heard of a case where several bales were
short delivered. They could not 'be traced,
and the only conclusion regarding the loss
was that the goods must have been shipped
by a subsequent steamer, which had been
torpedoed. As you all probably know,
Underwriters insert in their policies a
clause to the effect that they only pay 75
per cent, of losses due to pilferage and to
non-delivery, and that they are entitled to
receive 75 per cent, of any sum the assured
may recover from the carriers.

These remarks bring my lecture on Par-
ticular Average on goods to e conclusion.

SECOND LECTURE.
Delivered December 10, 1920.

GENERAL AVERAGE.
York-Antwerp Rules.

AVERAGE ADJUSTMENT.

General Average is not an incident that
arises out of insurance — insurance is quite
a modern institution compared with General
Average. General Average is the natural
outcome of the conveyance of goods by sea.
When for some cause the ship and her cargo
were in peril, and in order to save them
from the consequence of such peril, it was
deemed advisable to make a sacrifice of
part of the ship or cargo, the question natur-
ally arose why should the shipowner, or the
owner of the cargo whose goods bad been
sacrificed, bear a loss which was incurred
for the benefit of others besides themselves.
The difficulty was solved 'by making the
parties whose interest was saved contribute
to the loss of the parties whose interest had
been sacrificed.

IMPLIED SACRIFICE.

General Average implies a sacrifice. Now
e sacrifice implies an act done for the benefit
of others. They who benefit by the sacrifice
should, in common fairness, lighten the
burden of those on whom the loss by sacrifice
falls. A General Average loss must be a
loss of something of value, otherwise there
is no sacrifice. For instance, to throw over-
board a bale of burning jute is not sacrifice.
It would not have been thrown overboard
if the fire could have been extinguished;

it would have been totally destroyed by
fire, therefore it is no loss to throw it
overboard.

General Average, like charity, covereth a
multitude of sins, and I have known oases
where General Average sacrifice has in-
cluded articles the loss of which might be
traced to the voluntary act of some of the
ship's crew. I once heard of a case where
a Greek Captain, who probably had bad his
watch stolen, stated in his log that he had
thrown his watch overboard to lighten the
vessel. I 'have been told that in some
countries, before a sacrifice of cargo is
allowed to be made, there must be a sacrifice
of some article of the ship, and on one
occasion a Captain, consideiring it necessary
to jettison cargo, first of all threw overboard
a sardine tin opener so as to comply strictly
with the law that he must sacrifice part of
the ship's material first.

As a writer put the matter : " The object
of this contribution is the repayment of
some expenses incurred or the restitution
of something valuable sacrificed for the
benefit of the whole." This definition of a
very reasonable principle being kept in
view, will be a key to the whole sxibject.
We can bring to its test any charges under-
taken or any loss sustained in connection
with a loaded ship. Let us put this state-
ment to the test. The cargo of a vessel
is on fire; to extinguish the fire, water is
poured into the hold on to the cargo which
is on fire. This water, however, damages
sound cargo — in other words, the water used
to extinguish the fire in the burning cargo
also damages the cargo which is not on fire.
Was the damage to the sound cargo a
sacrifice incurred for the benefit of the
whole? Undoubtedly. The pouring of water
into the hold is a voluntary act. It is quite
evident that the effects of the water could
not be confined to the burning cargo, but
would also damage other cargo, therefore
the damage to the other cargo is a sacrifice
incurred for the benefit of all concerned in
the adventure, and forms the subject of a
General Average contribution.

CARGO JETTISON.

The earliest known form of General
Average sacrifice is jettison, which in the
words of a well-known writer is " the cast-
ing out of the ship, when in great danger,
a portion of her cargo or a part of her
own stores, materials, &c." The cutting
away of a mast to save the vessel and her
cargo is another early form of General
Average. Another form of General Average
sacrifice, to which I have already referred,
is the damage done to cargo by the use of
water or steam to extinguish a fire. An
allowance for water damage in General
Average, however, is only admissible on that
part of the damaged cargo which has not
been in actual contact with fire. I have
already mentioned the case of jettison of a
bale of jute on fire and pointed out the
reasons why such a jettison would not be
acknowledged as a General Average sacri-
fice, and the same principle applies to
damage done by water. The goods actually
on fire are the cause of the use of the water,
and it would be unreasonable to make good
in general average damage by water to such
goods.

Another subject of General Average is the
expenses paid for assistance rendered by
third parties to the vessel when in danger,
such as towing a disabled vessel into port.
Such expenses may either be General Average
or salvage charges. The distinction is not
too clear, but for the moment we will call
them General Average.

PORT OF REFUGE EXPENSES.

A further item is port of refuge expenses.
Supposing a vessel at sea meets with an
accident and needs repairs to enable the
voyage to be continued, or supposing she is
disabled and taken in tow. She proceeds
to the nearest suitable port; such port is
called a " port of refuge," and the expenses
of entering such port being incurred for
the general safety form the subject of
General Average.

34

One other example of General Average.
A vessel meets with heavy weather and is
delayed thereby and her stock of coal runs
short. In order to keep the fires going
and so maintain steaming power ship's
material, and sometimes even part of the
cargo, is used as fuel; the value of the
materials and /or cargo so used would be
made good in General Average, less credit
for value of coal that would have been used
had it been on board. It must be shown,
however, that the vessel, when she left
port, had on iboard sufficient coal to take
her to the next coaling port.

The introduction of steamships gave rise
to other forms o<f General Average sacrifice,
such as the damage done to machinery in
forcing the vessel off the ground, provided
always that when on the ground she was
in peril — i.e., in danger of running serious
risk if she remained aground. If a vessel
went aground, say, at low tide, and would
have come off the ground when the tide
rose, she would not probably be held to be
in danger, and, therefore, if the engines
were worked and sustained damage such
damage would not be a sacrifice.

THE YORK-ANTWERP RULES.

The law as to what is and what is not
General Average differs in different coun-
tries, but in the main the items I have men-
tioned are practically accepted as General
Average in nearly all countries. With a
view to bringing about uniformity in the
law, an Association was formed under the
title of " The Association for the Reform
and Codification of the Laws of Nations."
This Association held a meeting at York in
1864 and another meeting at Antwerp in
1877, when a code of Rules was adopted for
the stating of General Average, which were
known as the York-Antwerp Rules. Later
on in 1890 the Association again met in
Liverpool, when the code -was revised, and
the Rules known as the York-Animerp
Rules 1890 were adopted. The adjustment

35

of General Average as between the ship-
owner and the owner of cargo depends upon
the clause in the Bill of Lading dealing with
the matter, but it will be found that in
most Bills of Lading in use at the present
time it is stated that Genera] Average is to
be dealt with on the basis of York-Antwerp
Rules.

I would like you all to obtain a copy of
the York-Antwerp Rules, as a study of the
same will enable you to understand this
subject of General Average much more fully
than I can explain it in the short time at
my disposal. I will, however, deal with a
few of its clauses.

The General Average clause in the In-
stitute Cargo Clauses reads as follows : —

General Average and Salvage Charges
payable according to Foreign Statement
or per York-Antwerp Rules if in accord-
ance with the contract of affreightment.

If, therefore, the Bill of Lading or
Charter-party contains provision for York-
Antwerp Rules, then these Rules are the
basis for contribution to General Average.
If the Bill of Lading or Charter-party
does not mention the rules, then
the General Average is based on the
law existing at the port of destination.
In some cases the Bill of Lading may provide
for General Average in accordance with the
law of the country to which the ship belongs,
in which case complications may arise be-
tween the cargo owners and their Under-
writers, as presumably foreign statements
-would be held to mean a foreign statement
at port of destination.

I trust that I have clearly conveyed to
you the meaning of General Average, and
now I will explain the basis on which the
various parties pay their share of the
General Average sacrifice or expenditure.

I wish you to bear in mind that the values
over which the General Average is appor-
tioned are the values at the port at which

36

the voyage terminates. The shipowner pays
on the value of the ship, if sound on the
sound value, if damaged on the damaged
value. To assess this value the services
of a ship valuer are often required. The
shipowner also pays the share of General
Average attaching to the freight at his
risk at the time of the General Average
Act. Freight, as you are all aware, is
the money paid by the cargo owner to the
shipowner for the carriage of his goods.
The value of freight for contribution pur-
poses is the gross freight, less expenses
incurred after the General Average Act,
such as crew's wages, harbour charges,
&c. The cargo owners pay on the market
value of their goods less freight and land-
ing charges. The reasons for these deduc-
tions from freight and from cargo value is
that the General Average has not prevented
the incurring of these charges, but, on the
other hand, has caused them to be in-
curred. In other words, if the vessel had
been lost and had not been saved by the
General Average Act, the shipowner would
not have had to pay crew's wages and har-
bour expenses, and the cargo owner would
not have had to pay freight and landing
charges. Moreover, if the shipowner has
to pay on his freight, and the cargo owner
had to include freight in the value of his
cargo, freight would be contributing twice
over. If the shipowner receives his freight
in advance, i.e., if the cargo owner pays
freight at port of shipment and not at
port of destination, then freight becomes
part of the value of the goods and the
General Average thereon is paid by the
cargo owner. The amounts admitted in
General Average for sacrific of ship, cargo
or freight have also to bear their propor-
tion of General Average contribution, as if
this is not done, the owner of the sacrificed
property would be in a better position than
the owner whose property had not been
sacrificed, as the latter would be called upon
to pay hie share of the General Average,
while the former would receive the value
of his cargo in full.

37
AN EXAMPLE.

I will now give you an example of a
General Average contribution. The vessel
A with a cargo of jute has been aground.
The engines are worked to get her off, but
unsuccessfully. It is decided to lighten the
vessel. The vessel being provided with wire-
less, advises the nearest Lloyd's Agent and
asks for lighters and a tug to be sent. The
lighters arrive and :part of the cargo is dis-
charged and the lighters are towed into the
nearest port for safety, because it would not
be advisable to allow them to remain along-
side for fear of bad weather. The engines
are again worked, and with the assistance
of the tugs the vessel is got off and pro-
ceeds into port. Surveyors are called in to
inspect the vessel. Some slight repairs are
necessary; these are easily effected, the ves-
sel reloads her cargo and then proceeds on
her voyage. The Bill of Lading provides for
York-Antwerp rules.

When the vessel arrives at the port of
discharge the owners place the accounts in
the hands of the average adjuster, who
makes a rough calculation of the probable
amount of General Average. The following
is an estimate of the expenses incurred : —

Costs of hire of lighters £500

Costs of discharging cargo 500

Costs of reloading cargo 500

Costs of tugs 2,000

Expenses of entering port 50

Expenses of leaving port 50

Wages and provisions during stay in

port 100

Then there may have .been damage to
the cargo in discharge and reload-
ing, and perhaps damage to the
engines in getting off. These we
estimate at 500

£4,200

33

Estimate of value.
The value of the ship is fixed at £50,000

(in sound condition)
Freight, less crews' wages and

harbour expenses 5,000

Cargo 45,000

£100,000

The adjuster estimates that the General
Average will amount to 5 per cent.

The shipowner thereupon, before he de-
livers up the cargo to the cargo owners,
demands from each of them a deposit of
5 per cent, on the value of their shipments.
A deposit account is opened, generally in the
names of the adjusters and the shipowners,
and these deposits are placed to the credit
of this account. Sometimes in lieu of taking
a deposit the shipowner is satisfied to accept
a guarantee from the cargo owners to pay
any General Average contribution that may
be found due on their cargo. The usual
form of guarantee is that known as Lloyd's
Average Bond, by which the owners of the
cargo undertake to pay any contribution
that may be found due in respect of their
shipments and to .pay a deposit on account
if they should be called upon to do so. The
shipowner frequently insists upon this aver-
age bond being also signed by the under-
writer, so that in the event of the failure
of the cargo owner before the General Aver-
age statement is completed, he has a right
nf claiming direct from the underwriter.

If, during the process of discharging or
reloading, the cargo, or any part of it, has
become damaged, then such damage is allow-
able in General Average, and when the claim
ia presented to the underwriter for settle-
ment, he notifies the average adjuster that
he has paid the claim and requests tha>t any
amount made good in respect of such
damage should be placed to his credit in
the General Average adjustment. When
refunding General Average deposits, the
underwriters generally notify the adjuster,

39

so that if, on completion of the statement,
it should transpire that the de-posit collected
is in excess of the amount actually required,
the underwriter will be credited in the state-
ment with any over-payment.

PREPARATION OF STATEMENTS.

Statements sometimes take a very long
time in preparation, and I know of one case
in which there ere about 1500 different ship-
ments of cargo owned by 1500 different
owners in which many of the shipments are
damaged, and which damage will have to
be made good in General Average. I am
told by the adjuster that the statement will
not be issued for about 2g years, and will
occupy the attention, during the . whole of
that time, of eight of his clerks. This is, of
course, an unusually complicated General
Average. It is to be borne in mind that
the adjuster has to scrutinise carefully every
claim put forward for damage to be made
good in General Average, and see that the
credit for any such sums is properly given
to the right persons.

When the adjustment is completed and
shows the General Average contribution
does not reach, in the case above-mentioned,
five per cent., then the persons who have
paid the deposits have refunded to them,
out of the deposit account, the excess pay-
ments made by them, and the balance of the
deposit account is used for the payment of
the various expenses that have been incurred
for General Average purposes.

If there 'has been no deposit paid then
the shipowner, when the statement is com-
pleted, will 'call upon the consignee to
honour his bond and pay the General
Average contribution on his goods. The
assured, having paid General Average contri-
bution, presents his claim to the underwriter
for settlement. The underwriter's liability
will depend upon whether or not the goods
are fully insured. If the contributory value
is in excess of the insured value, then the

40

underwriter only pays his pro rata share;
if the goods have been damaged and the
underwriter has been called upon to pay
Particular Average, then, in estimating the
amount for which he is liable for General
Average, he is entitled to deduct from the
insured, value the sum which he lias paid for
Particular Average, end his liability for
General Average will be based on the in-
sured value less the Particular Average.

Say, for example, the contributory value
of goods is £2000 and the General Average
contribution is £20, and the goods are in-
sured for £2000. The goods, however, have
been damaged and the underwriter, say, has
paid for Particular Average £200, then the
liability of the underwriter will be for one
per cent, on the insured value of £2000 lees
Particular Average £200, equal to £1800,
viz. £18. The owner of the cargo would
have to bear the difference between this
£18 and the amount which he had paid to
the shipowner.

TRIED LECTURE.
Delivered January 14, 1921.

SALVAGE CHARGES.

Sue and Labour Charges.

F.C. AND S. CLAUSE.

In my last lecture I dealt with the sub-
ject of General Average, indicating what is
meant by a General Average Loss, such as
jettison of cargo, damage to engines in
getting a vessel off the ground, dam-age by
water used to extinguish a fire, or the
cutting away of ship's materials, such as a
mast to ease the vessel when in a danger-
ous position, and I also dealt with general
average expenditure, such as the expenses
incurred in discharging cargo to lighten the
vessel and cost of reloading, and expenses
incurred through putting into a pert of
refuge. I explained that such damages anu
expenses, being incurred for the common
safety of all interested in the adventure,
must be borne rateably by all the parties
concerned, each in proportion to the values
they have at stake. This evening I will deal
with the question of salvage charges which,
although of the like character to general
average expenses, yet differs so far as re-
gards the basis on which they are recover-
able from the interested parties.

LIABILITY OF INSURER.

The Marine Insurance Act describes sal-
vage charges as follows : —

Sect. 65, para. 1 :

Subject to any express provisions in the
Policy, salvage charges incurred in pre-

42

venting a loss by perils insured against
may be recovered as a loss by those
perils.

Para. 2 :

Salyage charges means the charges re-
coverable under Maritime Law by a salvor
independent of contract. They do not in-
clude the expenses of services in the
nature of salvage rendered by the
assured or his agents or any person em-
ployed for hire by them for the purpose
of averting a peril insured against. Such
expenses may be recovered as particular
charges or as a general average loss, ac-
cording to the circumstances under which
they were incurred.

It must be particularly noticed that in
para. 1, the insurer is only liable for sal-
vage charges incurred in preventing a loss
by perils insured against. For instance,
if a vessel was insured against the risk of
collision only, the Underwriters would not
be liable for salvage charges or even general
average arising out of the stranding of the
vessel, nor for salvage or general average
occasioned by a war peril, if the war risk
was excluded from the policy. In para. 2,
the difference between a general ayerage
and salyage is denned, for it is laid down
in this paragraph that salvage charges are
charges incurred independently of contract.
General average arises out of the contract
between the shipowner and shipper for
carriage of his goods. Salvage charges are
charges claimable by third parties, i.e., the
salvors, not under any contract, but
under Maritime Law. For example :
Supposing a vessel is at sea and is in
trouble owing to the machinery being dis-
abled, and is in great danger and sends out
A S.O.S. signal to vessels in the neighbour-
hood for assistance. A vessel receiving her
signal hurries to her assistance and tows
her into port This is salvage, pure and
simple. On the other hand, supposing the
vessel i» ashore, and the Master is able,
through Lloyd's Agents or other sources, to
get in touch with the owner or his agents,
and these latter make arrangements with a

43

tugowner to send a tug to the help of his
steamer, and they arrange to pay him so
much a day for the services of the tug.
These expenses being incurred under con-
tract between the shipowner and tug, are
not salvage charges, but charges of the
nature of General Average.

AN IMPORTANT DIFFERENCE.
There is, further, this important differ-
ence between these two classes of charges :
Where, in the first-mentioned case, the
vessel reaches port, the Master of the salv-
ing vessel is entitled to claim salvage on
the value of the ship ,and cargo at the port
where his services end, and, further, he is
entitled to have a lien on the ship and
cargo at that port, and he will not release
the vessel until he has received from the
owner of the salved vessel a guarantee
or bond or some form of security by which
he will be able to collect any salvage money
that subsequently he may be entitled to
receive. The salvor is entited to claim in
local Courts compensation for his services.
For instance, supposing an English vessel
tows an English ship into a French port.
The owners of the salving steamer can have
their claim adjudicated in the French
Courts. It is becoming, however, the prac-
tice in such a case .as this for the owner of
the salving vessel to arrange with the owner
of the salved ship to agree to have the
claim settled in the English Courts or by
arbitration, but, of course, the owner of the
salving vessel will require security before
releasing the steamer which has been
salved. This security is often arranged
between the two owners on this side, and
if the matter is to 'be settled by arbitration,
Lloyd's Salvage Agreement is often signed.
Under this Agreement it is agreed that the
Committee of Lloyd's shall appoint the
Arbitrators. The Arbitrators selected by
Lloyd's are generally well-known K.C.'s
engaged at the Admiralty Bar. In due
course, both sides, through their legal repre-
sentatives, appear before the Arbitrators to
state their case, and after consideration the

Arbitrators issue their award. In deciding
the sum to be paid, the Arbitrators take
into account three items : — (1) The immi-
nence of the peril from -which the vessel
has been saved. (2) The value of the
property saved. (3) The value of the
property engaged in the salving operations
and risk run by the salving vessel. The
example of salvage which >T have given you,
as I have already said, is a case of pure
salvage; there is no contract for salvage —
the steamer is, in effect, picked up at sea.
I call this a " pure " salvage for this reason,
that there can be no question but that such
a salvage complies strictly with the rule I
have quoted from the Marine Insurance
Act. In the next example it is open to
question whether it is strictly a case of
" Salvage Charges," although it is
commonly so called. A vessel is badly
stranded and efforts to rescue her by local
means are unsuccessful. The owner advises
his Underwriters, and they, in their turn,
place the matter in the hands of the
Salvage Association. The Salvage Asso-
ciation, like Lloyd's, has its ramifica-
tions all over the world. It possesses
branch offices at Cardiff and New York,
and it has also an American Lakes De-
partment. It is in touch with all the
Salvage Companies, and when a casualty
occurs and the matter is placed in their
hands, they at once get in touch with their
Agents or Lloyd's Agent and arrange for
one of the Salvage Companies to proceed to
the scene of the casualty. If the case is a
difficult one they send one of their own
Officers to the spot to watch the operations,
and generally to protect Underwriters' in-
terests. The terms on which these Salvors
generally act is that known as the " no cure
no pay " principle, i.e., no payment is made
to the Salvor unless the salvage operations
are successful and the vessel is saved.
Lloyd's Salvage Agreement is generally
accepted, although it is frequently agreed
that Sir J. Lowrey, the well-known Secre-
tary of the Salvage Association, is to decide
what sum should be paid to the salvors.

45

CONSIDERATIONS FOR ARBITRATOR.

In estimating the sum to be .paid, the
Arbitrator has to bear in mind, in addition
to the factors I have already mentioned,
that it is a "no cure no ipay " contract;
in other words, the salvor has run the risk
of heavy expenses, which he would have
had to bear himself if the operations had
not 'been successful. If the salvor runs the
risk of losing heavily if unsuccessful, he
naturally expects to receive a handsome re-
muneration if successful, for he has risked
much and will expect much. It sometimes
happens that after a time the salvor comes
to the conclusion that it is impossible to
save the ship, and abandons the operations.
A new contract is then entered into for
stripping the vessel, i.e., taking off the
vessel all salvable articles, such, as winches,
&c. A very important difference between
general average and salvage lies in the fact
that while general average is based on
values at place of termination of the voyage,
the values ifor salvage are based on values
at the place where the services of the
salvors terminate.

The Sue and Labour charges provision
reads as follows : —

And in case of any loss or Misfortune,
it shall be lawful to the Assureds, their
Factors, Servants, and Assigns, to sue,
labour and travel for, in and about the
Defence, Safeguard, and Recovery oif the
said goods, Merchandizes, and Ship or
Vessel, &c., or any part thereof, without
prejudice to this assurance; To the
Charges whereof the said Company will
contribute, according to the Rate and
Quantity of the sum herein assured.

These are of a like nature to general
average charges, but differ in this respect.
In General Average there are two or more
interests, otherwise the average could not
be general. General Average may consist
of sacrifice as well as expenditure. In
Salvage there is no contract. In Sue and
Labour there is a contract, and it is a con-
tract for saving specific interests, i.e., it

might be that the vessel is in ballast, or,
even if it is a case of a vessel with cargo,
there might be a separate contract for sav-
ing the cargo and one for saving the ship.
There is one fundamental difference between
General Average charges and Salvage
charges and Sue and Labour charges, and
that is that Sue and Labour charges are
paid by the Underwriter in full, even if the
cargo or ship is under-insured, while in
General Average or Salvage, if the value
of the goods or ship is in excess of the
value for which they are insured, the
Underwriter only pays his pro rata share : —
Market value of ship, £15,000; General
Average, £150; insured value, £10,000, pays
£100 — and the same with goods. If, instead
of General Average, the charges were Sue
and Labour, the Underwriters would pay
£150.

INTERESTING EXAMPLES.

I once had a case before me winere a
vessel was >ashore and ibadly damaged. The
owner made a contract for a salvor to
endeavour to save the ship. The salvor was
successful, and we had to pay 100 per cent,
for repairing the ship and 15 per cent, for
charges under the Sue and Labour clause.
The same principle applies if the Suing and
Labouring are unsuccessful; these expenses,
if properly incurred, would have to be paid
in addition to a total loss. Supposing a
vessel were ashore and no salvor would
attempt salvage on a " no cure no pay "
contract, but offered to send a tug in con-
sideration of being paid so much per day.
These expenses, 'being under contract, would
have to be paid even if the vessel were not
saved, and -would be recoverable from the
Underwriters in addition to the total loss.
The thought naturally arises, Why should
Underwriters pay Sue and Labour charges
on a different basis to Salvage and G
Average Charges? The reply is to be found
in tho clause itself, which reads : —

... To the charges whereof the said

Company will contribute, according to the

rate and quantity of the sum herein

insured

47

and the view is confirmed by the well-known
case of Aitchison v. Lorle, decided in 1876.
This anomaly is rectified to some extent in
the Institute Time Clauses, which provide
for a division of these expenses in cases
where the ship is not fully insured.

Sir Joseph Lowrey has given me a list of
the various salvage companies who have at
one time or another acted for the Salvage
Association. The list comprises the names of
some fifty salvage companies who operate
in their various spheres in different parts
of the world. In England we have nearly
twenty salvage companies operating off the
coasts of the British Isles. The well-known
Neptun Salvage Company, of Stockholm,
one of the chief companies, operates in the
Baltic, and the Svitzer Company, of Copen-
hagen, operates in the Mediterranean, while
the powerful Merritt's Salvage Company
operates in American waters off the Atlantic
Coast of the United States of America.

MERITORIOUS SALVAGE.

Many have been the highly meritorious
salvages. To enumerate a few I would men-
tion the P. & O. steamer Oceana sunk after
collision off Beachy Head, where nearly
£700,000 of gold and silver were recovered
by divers. The R. M. S. P. steamer Agadir
stranded off Mazagan, North Africa. The
salvors refused to attempt salvage on the
" no cure no pay " terms, and arrange-
ments were made for the Liverpool Salvage
Association to send their steamer Linnet,
which vessel subsequently floated the Agadir.
The steamer Milwaukee stranded off the
coast. In order to salve her it was found
necessary to cut off her .bows. This was
done by explosives. The remainder of the
vessel was towed off, and a new bow was
fitted to her in dry dock. I might
add that the Salvage Association and the
Liverpool Salvage Association are Under-
writers' associations and are not commercial
concerns, and do not work for profits. The
management of these two Associations and

48

also that of the Glasgow Salvage Associa-
tion is in the hands of Committees of
Underwriters, the Officers of all three
Associations being persons of well-known
ability. The Liverpool Salvage Association
owns salvage steamers, while the Salvage
Association content themselves by simply
owning a certain quantity of salvage plent.

This concludes my remarks regarding
General Average, Salvage, and Sue and
Labour charges, -which remarks are some-
what limited owing to time.

THE F.C. AND S. CLAUSE.

The F.C. and S. Clause reads as follows :

Warranted free of capture, seizure,
arrest, restraint, or detainment, and the
consequences thereof or of any attempt
thereat (piracy excepted) and also from
all consequences of hostilities or warlike
operations whether before or after
declaration of war.

As I have already explained, the words
" warranted free of " mean that the
policy or the Underwriter is not liable to
pay for any loss arising out of the risks
from which he is " warranted free of."
If this clause is in the policy, the policy is
said to be free of " war risk." The better
view to take, however, is to say that with
this clause in the policy the Underwriter is
free of any claims arising from risks men-
tioned in the policy if such risks arise from
capture, seizure or detention, &c. Some may
imagine that the deletion of this clause
implies some additional risk which would
not exist if the clause was not in the policy
at all. They might think that the deletion
of the clause makes the Underwriter re-
sponsible for all risks arising out of hostili-
ties. This is not so; you cannot exclude
from the policy anything which is not con-
tained therein, and, consequently, the dele-
tion of the clause has the same effect as if
a policy were issued which did not contain
the clause. Let me explain. Among the

49

risks enumerated in the policy are men-of-
war. These are eminently war risks and
would be excluded by the F.C. and S.
Clause. There are, however, other risks
mentioned in the policy, such as Jettison,
Fire, Strandings. If losses arising from
these risks were occasioned by acts of hos-
tilities, these would also be excluded by the
F.C. and S. Clause. In order to make such
losses war losses, they must have been
caused by the imminence of the peril of
warlike operations.

" CONSEQUENCES " CONTROVERSY.

Supposing a vessel had gold on board and
was being pursued by enemy craft and the
gold was thrown overboard to avoid its
being captured. That jettison would be a
war loss. Or supposing a ship was sel on
fire by a shell from an enemy cruiser, that
fire would be a war risk; or if a vessel was
being chased by a submarine and was
run aground, that grounding would be a
war risk. There has been more controversy
over the effect of the word " consequences ''
in this clause than over any other clause
at any other time. Take for example losses
due to collision between two vessels sailing
without lights. Acting under Admiralty in-
structions, a breach of which would involve
a Master in severe penalties, vessels had to
proceed at nights without showing lights and
solely in consequence thereof many collisions
occurred and vessels were lost (thereby. The
sailing without lights was without doubt due
to the existence of war, and was for the
purpose of avoiding, if possible, attacks by
submarines. The loss of a vessel sunk by
a submarine is, of course, a war loss, and
would be recoverable under a policy as a
loss caused by "men of war." The sailing
without lights is merely taking precautions
to avoid loss by " men of war." Should not,
therefore, a loss arising solely by reasons of
the precautions so taken be equally classed
as a loss arising out of the consequences of
hostilities? I suppose the man in the street
would at once say " Yes," and perhaps the

majority of people who are acquainted with
Marine Insurance matters were of the
same opinion. I, myself, thought so.
They were wrong. The House of Lords
lias set all doubts at rest by deciding in the
case of the Petersham that such a col-
lision is a Marine risk, and not a " war "
risk. The reason being that the lose was
not due to a warlike operation, the sailing
without lights being merely a preventive
action against a, possible hostile operation,
and not the result of it. The result might
possibly be different if there was evidence
that a submarine was actually following.

WAR CASES.

This is merely one example of the many
interesting cases affecting Marine insurance
arising out of the war. I might add here
that the French Courts on the whole are
inclined to regard such a loss as a " war "
loss. Now it is commonly supposed that the
F.C. and S. Clause merely excludes from
the policy only losses arising out of war
operations. This is not so. The clause com-
mences " warranted free of capture,
seizure and detention." These three risks
need not necessarily arise out of warlike
operations. If it was intended to limit the
clause to warlike operations it would not be
necessary to mention these specific risks, for
such losses could be recovered under the
words " warlike operations." A vessel or
her cargo might be seized for illicit trading,
i.e., smuggling. Such a seizure would not
be a warlike operation, but the loss would
nevertheless not be recoverable because the
policy is warranted free from seizure. This
was decided in the case of Cory v. Burr in
1883. The policy contains the words " Re-
straint of Princes." Now " Restraint of
Princes " need not necessarily be the out-
come of a warlike operation. In Miller v.
Law Accident Insurance Society, Ltd.
(1903), where a vessel having on board a
shipment of cattle arrived at Buenos Ayres
but the authorities, owing to an outbreak
of disease, refused to allow the cattle to

51

be landed, and they were transhipped to
another steamer and were carried on to
Montevideo, the assured claimed that this
was a loss covered by a Marine policy in-
cluding the F.C. and S. Clause, but the
Court held that the loss was due to a risk
of the nature of "Restraint of Princes,"
and that " Restraint of Princes " was one
of the risks excluded from the F.C. and S
Clause.

SAILING WITHOUT LIGHTS.

It is necessary, therefore, to bear in mind
that the F.C. and S. Clause does no more
than exclude from the Policy losses arising
from risks mentioned in the Policy when
such losses are the consequence of hostili-
ties or warlike operations, and also, of
course, losses arising from capture, seizxire
or detention, &c. As an example of this I
would quote another case of collision due
to sailing without lights. The Saint Oswald
was engaged by the Admiralty in the con-
veyance of troops, while the Suffren was a
man of war, and was naturally also occupied
on warlike operations. The Saint Oswald
was sunk, and the Courts held that the loss
was recoverable as a " war " risk. There
is in the opinion of the Courts a vital differ-
ence between this case and the Petersham,
and that difference lies in the fact that both
the Saint Oswald and the Suffren were on
warlike operations, while in the Petersham
case the two vessels were merely engaged
in an ordinary commercial enterprise. As
the Saint Oswald and the Suffren were both
engaged in warlike operations, and for the
purpose of carrying out those operations it
was necessary to sail without lights, then
the collision being due to the sailing with-
out lights, and the sailing without lights
being part of the warlike operations, the
consequential loss of the vessel was there-
fore a loss due to the consequences of war-
like operations. While the Courts have
made the distinction between the two cases,
and have therefore established the law on
the point, yet there is considerable diver-
sity of opinion as to the correctness of the

52

distinction so made. T.he principles I have
enumerated with regard to the application
of the F.C. and S. Clause apply equally to
what is known as the strikes clause, which
reads as follows : —

Warranted free of loss or damage caused
by strikers locked out workmen or per-
sons taking part in labour disturbances
or riots or civil commotions.

This clause excludes from the Policy any
losses arising from risks mentioned in the
Policy if such losses are due to strikes,
riots, &c. The deletion of the clause does
not import into the Policy any additional
risks to those enumerated in the Policy.
For instance, damage done by fire to goods
by the action of strikers would be excluded
if the strike clause were in the Policy, but
the deletion of the clause would not render
Underwriters liable for damage by strikers
unless such damage were due to one of the
risks mentioned in the Policy.

POSITION OF UNDERWRITER.

I repeat that you cannot exclude from
the policy something which does not exist
therein. The risks covered by the policy are
enumerated therein, and the deletion of the
strikes clause does not a/dd to the risks
specified in the policy. The inclusion of the
strikes clause means that if any of these
risks are the work of strikers, then the
policy does not pay losses arising therefrom.
To make the matter quite clear, let us sup-
pose that a policy is issued covering the risk
of loss by fire, and the " strikes " clause
is in the policy. The policy would cover all
risks by fire except those caused by
" strikers, locked-out workmen, &c." If the
" strike " clause is deleted you have simply
a policy covering the risk of fire and nothing
more. I have rather laboured this point
because it is one of great importance, and
there is an impression that if an additional
premium is paid to cancel the strikes clause
the Underwriter is liable for losses arising
from the action of strikers, however caused,
which is not the case.

53

The British and Allied Capture Clause can
be dealt with very shortly. The clause
reads as follows :

But this policy is warranted free of any
claim arising from capture, seizure, arrest,
restraint, or detainment, except by the
enemies of Great Britain or by the ene-
mies of the country to which the Assured
or the ship belongs.

The introduction of the clause was due to
an effort to make the blockade against Ger-
many effective. Of course, no Britisher
would attempt to insure goods to Germany,
but frequently goods were shipped to
Neutral countries, ostensibly for consump-
tion in those countries, but which were, in
reality, shipped to those countries merely
for forwarding to Germany. This was spe-
cially the case of goods shipped to Holland,
Sweden, &c. The English market being the
paramount insurance market of the world,
such goods, to a large extent, were insured
through the agencies of English companies,
and if the goods happened to be captured
by any of the Allied countries the holders
of such policies could proceed against the
agents of the English companies in the
countries where the agencies were estab-
lished, and could claim a total loss. In
order to deprive, as far as possible, the
agents of Germany from facilities for in-
surance, this clause was inserted in British
policies, so that in Neutral or Allied coun-
tries the holder of such a policy could not
recover for goods capture'd or seized by
British or Allied authorities.

FOURTH LECTURE.

Delivered February 8, 1921.

HULL POLICIES.

CLAUSES RELATING THERETO.

In dealing with claims on hull policies, I
propose to base my remarks for the greater
part on the usual form of Institute Time
Clauses. These clauses are those most
common in use. Some owners use their
own particular clauses, which, however, in-
clude many of the clauses contained in the
Institute form, and do not differ much from
the Institute Time Clauses except perhaps
in regard to the franchise clause. In con-
sidering claims on hull policies one must
bear in mind that ships are not like produce
and goods. The latter are intended for
sale, while ships are built for the purpose
of transporting the produce and goods and
so earning freight for their owners. There-
fore, in calculating a claim for particular
average 011 ship there is no comparison be-
tween the sound and damaiged values for
ascertaining the depreciation. A particular
average on ship is the cost of repairing the
damage sustained. In the absence of any
clause in the policy regarding average,
claims on ships would be subject to the
memorandum which reads as follows : —

The ship and freight are warranted free

from average under three pounds per

cent, unless general or the ship be

stranded.

The memorandum is, however, now obsolete.
The policy always contains a special aver-
age, or, as one may call it, a special franchise
clause. The average or franchise clause
in the Institute Time Clauses reads as
follows : —

56

Warranted free from particular aver-
age under 3 per cent, but nevertheless
when the vessel shall have been stranded,
sunk, on fire, or in collision with any
other ship or vessel, Underwriters shall
pay the damage occasioned thereby, and
the expense of sighting the bottom after
stranding shall be paid, if reasonably in-
curred, even if no damage be found.

A short explanation regarding the words
"stranded, sunk, on fire or in collision" is
perhaps desirable.

MEANING OF "STRANDED."

The literal meaning of the word
"stranded " is that the vessel must be cast
on the strand or shore, but a vessel is
equally said to be stranded if she acci-
dentally grounds on a boulder or iwreck or
some other obstruction. It is quite im-
material whether or not the vessel sustains
much, little or even no damage ; such would
be a strand within the meaning of the
word in the policy. A mere touching of
the obstruction would not be a strand, the
vessel must remain on the obstruction for
an appreciable time — a mere " touch and
go " is not a strand. No definite period can
be fixed. In one case a vessel remained a
minute and a half— that was held not to be
a strand. On the other hand, if a vessel
grounds in her berth where it is usual for
vessels to ground at low water and float
with the rising tide, such grounding, being
usual and not accidental, -would not be
deemed to be a strand. Clause 15 of the
Institute Time Clauses provides that : —

Grounding in the Panama Canal, Suez
Canal or in the Manchester Ship Canal
or its connections, or in the River Mersey
above Rock Ferry Slip, or in the River
Plate (above Buenos Ayres) or its tribu-
taries, or in the Danube, Demerera, or
Bilbao River, or on the Yenikale or
Bilbao Bar, shall not be deemed to be a
stranding.

67

The reason for the insertion of this clause
is that vessels frequently ground in these
localities because of the lowness of the
water or the narrow channel ways. It is
not, of course, intended that they should
ground, but a very slight deviation may
take a vessel out of the channel and cause
her to ground. If Clause 15 is not in the
policy then the grounding in the localities
mentioned would be subject to ordinary test
to ascertain whether such were " strand-
ings." The word " sunk " means an actual
immersion of the vessel in the water, not
necessarily a resting on the bed of the
ocean, for a vessel laden with timber might
sink and still float on her cargo pertly sub-
merged. The word " fire " needs no ex-
planation. Underwriters pay for all
damage caused by fire. If instead of
" fire " the word " burnt " appears in an
average clause on ship, the burning must
be of a substantial character with an actual
destruction of part of the ship herself. The
Glenlivet Steamship Company v. Titcombe.
(Court of Appeal, 1893.)

SUBTLETIES OF COLLISION LAW.

In the clause quoted, the word " collision"
is followed by the words " with any other
ship or vessel." The addition of these
words is perhaps unnecessary, because in
a Marine Insurance policy the word " col-
lision " when not qualified means collision
with another ship or vessel. (Richardson v.
Burrows.) It does not include collision with
a pier, quay or such like stationary object.
A vessel within the meaning of this clause
need not necessarily be a body used solely
for navigation, such as barges, ships, &c.,
but rather a body that can be navigated —
for instance, an elevator used in discharging
or loading cargo may be a vessel if it is
not a fixed object, but one that can be
moved from one place in a harbour to
another. Also a vessel which has been sunk
may be deemed to be a vessel if it can
be shown that she could have been raised and
repaired. (Chandler v. Blogg, 1897.) A case

58

recently came before me where a steamer
collided with a steamer which had been
sunk and damaged her. The sunken
steamer was, at the time, in the hands of
the salvors, who helped to raise her, and
it was claimed that the collision had caused
such extra damage to the sunken steamer
that the salvors gave up all hope of saving
the vessel. The Courts, after hearing expert
advice, came to the conclusion that the
damage done by the second collision did not
prevent the saving of the vessel as she was
unsalvable before the collision took place.
This second collision was not, therefore, a
collision with a ship but with a wreck, and
would not have been a collision within the
meaning of the word as used in the policy.
If, on the other hand, the Courts had come
to the conclusion that the vessel could have
been raised as a vessel, the collision would
have come within the definition of a
" collision." Contact with a ship's cable
would be a collision because the cable is
considered part of the ship. A vessel was
moored away from a quay with her mooring
ropes carried to the bollards on the quay.
A tug passing between the quay and the
vessel had her funnel damaged by coming
into contact with the mooring ropes. This
was a collision within the meaning of the
clause. In the clause I have quoted above
you will notice that the Underwriter agrees
to pay for damage caused by stranding, &c.,
even if it does not amount to 3 per cent.,
and he will pay the cost of drydocking the
vessel after stranding for examination, if
reasonably incurred, even if no damage be
found. This latter part of the clause is
inserted because the clause, in referring to
stranding, only provides for payment of
damage caused by stranding, and if no
damage occurs the Underwriter would not
be liable for drydocking expenses, but for
the special agreement to pay such expenses.
In some ship policies, however, the franchise
clause follows in some respects the old cargo
F.P.A. clause, inasmuch as the breaking of
the warranty lets in all damage arising from
perils insured against even if the damage

59

does not arise from the accident which
breaks the warranty. In such a clause a
stranding, &c., will bring in all heavy
weather damage, although both stranding
and heavy weather damage is below the 3
per cent., while the Institute Clause makes
Underwriters liable for stranding, &c.,
damage although not 3 per cent., but will
exclude heavy weather damage if the total
claim for both stranding and heavy weather
damage is below 3 per cent.

DESCRIPTION OF SUBJECT MATTER.

The method of describing the subject
matter insured in a policy on ship differs,
but a fairly general description is : —

Hull and materials valued at ... £
Machinery and boilers and 'bunker
coals and stores valued at £

In order to lower the franchise for the
benefit of the assured, it is customary to
insert two valuations in a policy on a
steamer, one being the value of the hull and
the other being the value of the machinery.
In vessels which have some of their holds
insulated for the purpose of carrying meat,
&c., there is sometimes a third valuation,
that of the insulation >and refrigerating
machinery. In passenger vessels there is
occasionally another valuation, viz., that of
cabin fittings. Clause 12 provides that
donkey 'boilers, winches, &c., shall be deemed
to be part of the hull and not part of the
machinery. Clause No. 11 deals with these
separate valuations as follows : —

Average payable on each valuation
separately or on the whole without deduc-
tion of thirds, new for old, whether the
average be particular or general.

A similar clause appears in nearly all hull
policies where separate valuations are in-
serted. If the damage on the hull alone
leaches the franchise on the hull valuation,
the Underwriter pays the damage to the

hull. A similar remark applies to the other
valuations. If the damage on one valuation
is under the franchise on that valuation,
and the darr.age on the other is above the
franchise and both damages together reach
the franchise on the whole valuation, then
the whole damage is recoverable, although
one valuation may be under the franchise.
For example : Hull £10,000, machinery £8000,
total £18,000; hull £200 not recoverable
(under 3 per cent.), machinery £300 recover-
able (over 3 per cent.), total £500 (under
3 per cent, on whole valuation) ; hull 1200,
machinery £400, total £600 (over 3 per cent.)
both recoverable. Even if the words "or
on the whole " were not inserted in the
clause, the claim of £600 would be recover-
able. The reason for this is that the separate
valuations are inserted for the benefit of
the assured, and, therefore, if a claim would
be recoverable if there were only one valua-
tion instead of two or three, it cannot be
excluded by reason of the clause to pay
average on each valuation. It is an im-
portant principle to bear in mind that a
clause which has been inserted for the benefit
of an assured is intended to give him a better
insurance than he would have if the clause
were not inserted, and consequently you
cannot place him in a worse position than
if the clause had not been inserted. Mr.
McArtliur, a great authority on Marine In-
surance Law and Practice, says : —

As Clauses of this kind are inserted for
the benefit of the assured, they may not
be construed to his disadvantage so as
to deprive him of any right he would have
possessed without them.

I draw attention to this point because
I once had a claim before me where there
were three valuations, say, for example : —
Hull valued £50,000, machinery valued
£35,000, insulation valued £5000, total
£90,000.

The insulation was damaged and cost
£6000 to repair. Some of the Underwriters

61

considered that as the insulation was valued
at £5000 this sum was the extent of their
liability. This is not so. If, instead of
three valuations there had only been one,
that is " steamer valued at £90,000," it
would not have been open to them to raise
such a point. The damage being £6000
and over 3 per cent, they would have paid
the claim without hesitation.

APPLICATION OF PRINCIPLE.

Applying the principle I have just quotea,
if the Underwriters would have paid had
there been only one valuation, they must
also be liable although there were three
valuations, the three valuations being in-
serted in the policy for the benefit of the
assured and not for the benefit of the
Underwriter. This clause also provides that
Mie average is to be paid without deduc-
tion of thirds, new for old. In the days
of wooden ships, when a vessel sustained
damage, it used to be the rule to deduct
from the cost of repairs a certain percent-
age supposed to represent the improve-
ment to the vessel by reason of the
repairs, the law being that a policy of
insurance is a contract of indemnity and
that an assured must not be better off by
reason of his vessel having sustained damage
and being repaired at Underwriters' ex-
pense. This deduction did not apply to
a new vessel on her maiden voyage. This
so-called improvement was fixed at one-
third, and while it may have been equit-
able in wooden vessels, it was not so as
regards iron ships, and modifications were
subsequently made and sometimes sixths in-
stead of thirds were deducted, or the de-
ductions were abolished altogether accord-
ing to circumstances. Now this rule is prac-
tically non-existent as regards steamers so
far as concerns average, Iby the inser-
tion in hull policies of the clause
quoted above. The rule, however, still
exists in connection with General Average
repairs. The reason, I suppose, being that
while Underwriters may, if they choose, give

62

up any rights to insist on a deduction,
there is no reason why owners of cargo who
have to pay a share of the General Average
sacrifice of ship should do so too. Reference
to the York-Antwerp Rules will show what
deductions are to .be made from General
Average repairs. The amount to be de-
ducted depends upon the age of the vessel
or on the materials sacrificed. Up to one
year no deduction is made in repairs to
iron vessels. If over one year then some
repairs are subject to a deduction of one-
third, some to one-sixth and other repairs
ere made good without deduction, and so
on. The parts of the ship more liable to
deterioration have the greater deduction.
The Underwriter, having by the clause,
waived his right to deduct thirds in' par-
ticular average claims, agrees further to
pay the thirds or sixths that are deducted
from the General Average repairs. For
example. Supposing General Average repairs
amount to £300, and the Adjuster deducts
one-third new for old, i.e., £100. There
would be a sum of £200 to be allowed in
General Average. This £200 would be
charged against the ship, cargo and freight.
The Underwriter on ship would pay the
share chargeable to the ship, and, in addi-
tion, would pay the one-third deducted, viz.,
£100. It is only natural that the Under-
writer should do this because the assured is
entitled to call upon him to pay direct the
whole of the general average repairs in the
same way as he pays the particular average
repairs. This principle was laid down in
the case of Dickinson v. Jardine (1868),
where Underwriters were held liable to pay
direct a loss by jettison, although such loss
was a General Average sacrifice. The
Underwriter could not, therefore, with
reason pay Particular Average repairs in
full and General Average repairs under de-
duction. If he pays the General Average
repairs direct then he receives credit for
the amount collected ifrom cargo and freight
as their share of the General Average sacri-
fice, and such share would be diminished by
the deduction of thirds, &c.

63

THE VOYAGE CLAUSE.

Closely connected with the Franchise
Clause is the voyage clause (No. 16). The
Franchise Clause, i.e., the 3 per cent,
clause, is applicable to each voyage, i.e.,
the damage, in order to fee recoverable,
must reach 3 per cent, on each voyage, and
not 3 per cent, during the whole period of
the policy. What is a voyage? Voyage,
as we should define it, probably would be
the setting ooit, say, from this country to
another country, or in the case of a coastal
voyage, the sailing, say, from the Tyne to
Liverpool; sometimes we speak of an out
or home voyage, i.e., a voyage out from
this country and back to this country. In
order to avoid any dispute as to what is or
what is not a voyage the following clause
has been inserted in the Institute Time
Clauses : —

The warranty and conditions as to aver-
age under 3 per cent, to be applicable to
each voyage as if separately insured, and
a voyage shall be deemed to commence
at one of the following periods to be
selected by the Assured when making up
the claim, viz., at any time at which the
vessel (1) begins to load cargo, or (2) sails
in ballast to a loading port. Such voyage
shall be deemed to continue during the
ensuing period until either she has made
one outward and one homeward passage
(including an intermediate ballast pas-
sage if made) or has carried and dis-
charged two cargoes whichever may first
happen, and, further, in either case, until
she begins to load a subsequent cargo or
sails in ballast for a loading port. When
the vessel sails in ballast to effect dam-
age repair such sailing shall not be
deemed to be a sailing for a loading port
although she loads at the repairing port.
In calculating the 3 per cent, above re-
ferred to, particular average occurring
outside the period covered by this Policy
may be added to particular average
occurring within such period provided it
occur upon the same voyage (as above

64

defined), but only that portion of the
claim arising within such period shall be
recoverable hereon. The commencement
of a voyage shall not be so fixed as to
overlap another voyage on which a claim
is made on this or the preceding Policy.

This clause is a very liberal definition of
a voyage, and under it a voyage such as
the following would be deemed to be a
voyage within the meaning of this clause.
A vessel leaves Antwerp in ballast for
London, loads a cargo there for South
Africa, leaves South Africa in ballast for
Australia, where she loads for the West
Coast of South America, and the voyage
continues from the time she leaves Antwerp
until she has discharged her cargo at the
ports on the West Coast of South America
and until she loads a fresh cargo or sails in
ballast to a loading port. This voyage,
it is obvious, would take several months,
and may be called a very long voyage. On
the other hand, the same rule would apply
to a short coasting voyage, say, a vessel
left Middlesbrough in ballast for the Tyne
to load for London, thence proceeds to
Southampton and loads for Liverpool; the
voyage would end when she commenced to
load another cargo at Liverpool or left
Liverpool in ballast to another port. This
voyage would take less weeks than the
other voyage would months. It frequently
happens that at the date of the expiry of
a Time Policy the vessel is on a voyage,
and may have already sustained some dam-
age which does not reach the fran-
chise. She may perhaps sustain further
damage during the remainder of the voyage,
which damage would not, of course, be
recoverable under the expired policy but
would attach to the succeeding policy. If
the damage on the whole voyage exceeds
the franchise then by this clause both sets
of Underwriters agree to pay the propor-
tion of damage occurring during the cur-
rency of the policy issued by them, although
it does not reach 3 per cent, on the part
of the voyage covered thereunder. Suppos-
ing a vessel is insured from Jan. 1, 1920, to

65

Dec. 31, 1920, and the next policy runs from
Jan. 1, 1921, to Dec. 31, 1921. The vessel
is valued at £20,000. She starts on a voyage
from the United Kingdom to India and
back on Dec. 1, 1920, and arrives back on
March 31, 1921. If the damage sustained
between Nov. 1, 1920, and Dec. 31, 1920,
and between Jan. 1, 1921, and March 31,
1921, exceeds 3 per cent., then the whole
damage is recoverable, each set of policies
paying the damage which occurred during
the period covered thereby.

Before leaving the subject of the 3 per
cent, franchise, I would point out that it
is very important to bear in mind that the
clause refers to particular average only, and
in no way concerns general average. The
averages >are quite distinct, and general
average damage cannot be added to par-
ticular average to make up the 3 per cent,
franchise. (Price v. A.I Ships Small
Damage Association, 1889,) General aver-
age is recoverable irrespective of franchise,
and although a general average sacrifice
gives rise to a contribution by the other
parties interested, yet the shipowner, as I
have already mentioned, if part of his vessel
has been sacrificed, or the cargo owner if
his interest has been sacrificed, has the
right to claim such sacrifice direct
from his Underwriter, the Underwriter
receiving credit in due course for the
contribution due from other parties. For
instance, an anchor is let go to bring up a
vessel that is drifting ashore and the cable
parts and the anchor and cable are lost;
Such a loss is a general average loss and
is recoverable from the Underwriter even
if under 3 per cent. If in addition the
vessel sustained heavy weather damage
which in itself was under 3 per cent., but
with the loss of cable and anchor would
increase the claim to over 3 per cent., the
heavy weather damage would not be
recovera-ble. In dealing with this franchise
clause there is another important fact to
be borne in mind, viz., that the expenses
which may be taken into account in ascer-
taining whether the claim reaches the

66

necessary franchise are expenses neces-
sarily incurred to repair the damage.

It goes without saying that the actual re-
pairs will be one af the items, other items
would be the costs of proceeding into and
coming out of dry dock, pilotage charges,
if incurred, and so on. Surveyors' fees,
Average Adjusters' fees, &c., would not be
included. The same remarks would apply
to a cargo claim. If the actual damage,
exclusive of survey fees, did not reach the
franchise, then the damage would not be
recoverable, and further, if the claim is
not recoverable, neither will these extra
charges be recoverable. This does not, of
course, apply to the fees of a Surveyor em-
ployed by the Underwriters, as they, having
employed him, would have to pay his
charges.

SURVEY AND TENDER CLAUSE.

Survey and Tender Clause No. 20 reads as
follows : —

In the event of accident whereby loss
or damage may result in a claim under
this policy, notice shall be given in writ-
ing to the Underwriters, where practic-
able, and, if abroad, to nearest Lloyd's
Agent, also, prior to survey, so that they
may appoint their own Surveyor if they
do desire; and whenever the extent of
the damage is ascertainable, the Under-
writers may take or may require the
assured to take tenders for the repair
of such damage. In cases where a tender
is accepted by or with the approval of
Underwriters, the Underwriters will make
an allowance at the rate of £30 per cent,
per annum on the insured value for the
time actually lost in waiting for tenders.
In the event of the assured failing to
comply with the conditions of the clause,
£15 per cent, shall be deducted from the
amount of the ascertained claim.

This clause provides that in the event
of damage, advice is to be given to the
Underwriters so that they may appoint a

67

Surveyor. When notice is given to the
Underwriter he usually instructs the brokers
to advise the Salvage Association, who in
their turn appoint one of their Surveyors
to survey on Underwriters' behalf. This
Surveyor, in conjunction with the Surveyor
appointed by the owner, surveys and agrees
the damage with the owners' Surveyor and
agrees also as to the method of repair.
The Underwriters' Surveyor reports fully
to the Salvage Association. If the damage
is extensive the Underwriters have the right
to call for tenders for repairs. The method
usually adopted is for both Surveyors to
draw up a specification of the necessary
repairs and submit same to various ship-
repairers asking for their prices for effect-
ing repairs according to specification, and
in what time they will undertake to carry
out the repairs. This will, of course, cause
some delay in commencing the repairs, ap
the repairers will require some time to
make out their calculations to see for what
sum they can undertake the work. A
specified time for sending in tenders is
mentioned in the specification, and when
the tenders are received they are examined
and it is then agreed between owners and
Underwriters, through the Salvage Asso-
ciation, which tender shall be accepted.

Tenders are, as a rule, the best mode of
getting repairs effected at the lowest cost.
Another method of effecting a large repair
is on what is known as a " percentage "
basis, i.e., the repairers undertake to charge
only the actual amount expended by them
in the repairs, plus a percentage for estab-
lishment charges, such as office work, rent
of dock, &c., and a percentage on all charges
by way of profit.

POSITION OF UNDERWRITERS.

In the event of the owner agreeing to
repair by way of tender, the Underwriters
agree to pay him at the rate of £30 per cent,
per annum on the insured value for the time
actually lost in waiting for tenders. If,

68

however, 'he fells to give notice of damage
to Underwriters or refuses to call for
tenders, then the Underwriters are entitled
to deduct £15 per cent, from the amount
of the ascertained claim. The General
Average Clause No. 9 reads as follows : —

General Average and salvage to be
adjusted according to the law and practice
obtaining at the place where the adventure
ends, as if the contract of affreightment
contained no special terms upon the sub-
ject; or if the contract of affreightment so
provides, according to York-Antwerp
Rules, or in the case of "wood cargoes,
York-Antwerp Rules omitting the first
word of Rule I. (" No "), but, in all other
matters not specifically referred to in
York-Antwerp Rules I. to XVII. inclusive,
the adjustment shall be in accordance with
the law and practice obtaining at the place
•where the adventure ends, and as if the
contract of affreightment contained no
special terms upon the subject.

This clause states the basis on which the
Underwriters agree to pay General Average.
While it may be open to a shipowner to
insert in the contract of affreightment a
general average clause inconsistent with
York-Antwerp Rules, or with the law at port
of destination, the can only recover under the
policy General Average in accordance with
the clause inserted in the policy. He can
recover General Average as per law and
practice at port of destination, or as per
York-Antwerp Rules if in accordance with
the contract of affreightment, but in the
latter event he can recover, in addition, any
items allowable by the law and practice at
port of destination if such items are not
already specified in York-Antwerp Rules.

For example, according to American
law, when a Master decides to seek a port of
refuge, there is allowed in General Average
the cost of bearing away to the port of
refuge, i.e., coals, engine stores, &c., con-
sumed in the operation. The Underwriter,
by this clause, agrees to pay his share of
such allowance, because there is no reference

in York-Antwerp Rules to this particular
matter. On the other hand according to the
law of some foreign countries the ship only
contributes on one-half of her value. York-
Antwerp Rule No. 17 provides for contribu-
tion on her actual value, therefore accord-
ing to the clause, if the General Average
is according to the York-Antwerp Rules, the
Underwriter will not pay in this respect
according to foreign law because the ques-
tion of value is specifically dealt with in
Clause No. 17 of York-Antwerp iRules. A
short explanation is required with regard
to Rule No. 1. This rule reads :—

No jettison of deck cargo shall be made
good in General Average.

JETTISON OF DECK LOAD.

According to English Law jettison of
deckload is allowable in General Average
in those trades where it is customary to
carry deck cargoes. For instance, ships
engaged in the Timber Trade nearly always
carry some deck cargo. If part of this deck-
load is jettisoned for the safety of the vessel
and her remaining cargo, the loss is ad-
missible in General Average. Underwriters
agree, therefore, in the case of wood cargoes
that jettison of deckload shall be allowed in
General Average, and they do this by in-
serting in the General Average clause the
words : —

In the case of wood cargoes York-
Antwerp Rules omitting the first word of
Rule No. 1 (No).

I would here refer to Clause No. 14, which
states : —

No claim shall in any case be allowed
in respect of scraping or painting the
vessel's bottom.

Vessels have to be scraped and painted
periodically owing to the vessel's bottom
plating becoming foul, and to the deteriora-
tion of the paint. Scraping and painting
become, therefore, an ordinary charge, and
when a vessel strands and damages her
paint, if Underwriters paid for repainting,

70

the owners might be relieved of this ordi-
nary charge. The clause often operates
hardly on owners, for it might sometimes
happens that a vessel strands shortly after
having been painted and the clause throws
upon the owner the cost of repainting her
although such repainting has been caused
solely by an accident. In some General
Average statements, chiefly foreign General
Average statements, there is sometimes
allowed part of the cost of repainting after
stranding, on the ground that in pulling the
vessel off the ground the paint has been
damaged. Even if allowed in general
average the painting would not be recover-
able in view of this clause.

LATENT DEFECTS.

I now come to Clause No. 8, which is
known as the " Latent Defect " clause and
also as the " Inchmaree " clause. It is
called the " Inchmaree " clause as its origin
arose out of a decision in favour of Under-
writers in regard to a claim on a vessel
called the Inchmaree (Hamilton v. Fraser).
The claim arose out of the bursting of an
air chamber of a donkey pump owing to a
valve being closed. The closing of the valve
was either accidental or due to the negli-
gence of an engineer. The Court held that
the damage was not due to a peril covered
by the policy. This clause reads as follows :
This insurance also specially to cover
(subject to the free of average warranty)
loss of, or demage to hull or machinery
directly caused by accidents in loading,
discharging or handling cargo, or caused
through the negligence of Master, Mari-
ners, Engineers or Pilots, or through ex-
plosions, bursting of boilers, breakage of
shafts, or through any latent defect in
the machinery or hull, provided such loss
or damage has not resulted from want of
due diligence by the owners of the ship
or any of them, or by the Manager,
Masters, Mates, Engineers, Pilots or crew
not to bo considered as part owners within
the meaning of this clause should they
hold shares in the steamer.

71

A latent defect is a flaw in the material
due to faulty manufacture. This flew is not
observable from the outside, but when the
article is subjected to the ordinary stress
and strains the flaw develops and eventually
becomes patent and renders the article use-
less for its intended purpose. The " latent
defect " clause therefore adds to the risks
covered by the policy; it makes the Under-
writer liable for the effects of latent defects.
If, owing to a latent defect, a piston rod
broke and smashed the cylinder, the Under-
writer would have to pay. The damage is
not due to a sea peril, but to a latent defect.
The Underwriter also has to pay for damage
to the ship caused by the .negligence of the
crew. If owing to negligence the Engineer
fails to see that there is a proper supply of
water in the boiler .and the furnace crowns
in consequence get unduly heated and
buckle, that is a loss due to negligence of
the Engineer and not to a sea peril. The
Underwriter, however, has to pay under this
clause. It must not be assumed that if this
clause were not in the policy Underwriters
would be free of ell damage to the ship
caused by the negligence o,f the Master,
Mariners, &c. The clause, as I have said,
adds to the risks covered by the policy, and
its absence does not remove from the policy
any of the risks mentioned in the body of
the policy, viz., the ordinary sea perils. If,
owing to the negligence of the Master, the
vessel strands or comes into collision, the
Underwriter would have to pay the damages
caused thereby, as the causa proxima of the
loss would be stranding, collision, &c. — risks
covered under the heading of perils of the
sea. The clause also provides that if by
the exercise of proper supervision the defect
would have been previously detected, any
loss would amount to a want of due dili-
gence on the part of the Owner, and Under-
writers would not be liable.

The clause further provides for payment
of damages to the vessel caused in loading,
discharging or handling the cargo. Such
damages are obviously not necessarily
damages due to sea perils, but under the

72

clause Underwriters agree to pay all such
damages. It must be borne in mind that
claims under this clause are subject to the
3 per cent. Franchise Clause. The damage
under this clause would be particular
average, and if it is under 3 per cent, it
would not be recoverable. If, however, other
damage has occurred due to another peril
covered by the policy, and both damages
together exceed 3 per cent., the whole will
be recoverable.

OTHER CLAUSES

There are other sets of clauses issued by
the London Institute in connection with in-
surances on hulls to which I would briefly
refer. (1) Excess 3 per cent. Particular
Average. — This clause takes the place of the
Franchise Clause which I quoted earlier in
my lecture. There is only one valuation
and claims for particular average are paid
in excess of 3 per cent., the owner being
his own Underwriter for 3 per cent,
of any particular average damage
sustained by a peril covered under
the policy. (2) F.P.A. Absolutely.— This
policy does not pay for particular average
damage, but the owner can recover certain
damages to hull and machinery if same are
allowed in general average. (3) F.O.D.
Absolutely. — The Underwriter under these
clauses does not pay any damage caused
to the steamer, either of a particular
average or of a general average character.
In so far as they can apply those
of the ordinary Institute Time clauses are
included. There are still further sets of
clauses issued by the Institute in connection
with hull policies, but I have dealt with
those most commonly in use, and time will
not permit me to deal with the remainder.

FIFTH LECTURE.
Delivered February 15, 1921.

ABANDONMENT.

TOTAL AND CONSTRUCTIVE
LOSSES.

Total loss, as the words imply, means
that the subject matter insured is lost, not
necessarily absolutely so lost that not a
fragment remains, but that it has lost its
identity as the object insured. For in-
stance, a vessel is stranded; she (breaks up
end what is left is merely the keel and ribs
of the vessel and perhaps a few plates
clinging to them. In such a condition the
remains of the vessel can no longer be called
a ship — they are the remains of the ship
and ere designated as a wreck. The same
remark applies to cargo. For example,
Roux v. Salvador, where hides were so badly
damaged by sea water that the Master of
the ship, which had put into an inter-
mediate port, decided to discharge them
and sell them. The Court held that if they
had been carried on to destinetion they
could not have been delivered as hides but
as a putrefied mass. Underwriters had to
pay a total loss.

C.T.L.; this differs from a " tobal loss"
in this respect; the vessel by the accident
has not been so utterly destroyed that she
cannot be called a " ship." She is very
badly damaged, tut the question is whether
she can be restored to a similar condition
as that in which she was before the
accident, at a cost within what would
be considered to be her value after
repair. If she cannot, then there is
a constructive total loss. You construct or
build up on paper, or in other words you

74

ascertain by certain factors whether it is
worth while repairing the ship. It goes
without saying that if one had a bicycle
which was damaged and found the cost of
repairing it would exceed its value when
repaired, one would not be so foolish as to
have it repaired. One would rather use the
money in buying a new cycle. So also a
prudent shipowner would not spend more
money to repair a damaged ship if, after
repairing, he estimated that the ship would
be of less value than the cost of repairs.

DEFINITION OF C.T.L.

Sect. 60, Sub-Sect. 2, para. 2, of the
Marine Insurance Act gives the definition
of a C.T.L. as follows :

In the case of damage to a ship, where
she is so damaged by a peril insured
against that the cost of repairing the
damage would exceed the value of the
ship when repaired.

As Chief Justice Tindal in Benson v.
Chapman, 1843, remarked : " If the damage
to the ship is so great from the perils in-
sured against that the Owner cannot put
her in a state of repair necessary for pur-
suing the voyage insured, except at an
expense greater than the value of the ship,
he is not bound to incur that expense, but
is at liberty to abandon and treat the loss
as a total loss." Now what are the factors
necessary to take into account? (1) The
estimated cost of effecting the repairs. This
would include General Average repairs in
full, not merely ship's proportion of such
repairs. (2) Ship's share of any general
average expenditure or salvage charges. (3)
Any other expenses necessarily incurred to
effect the repairs. As, for example, sup-
posing for the purpose of effecting repairs
at a cheap port the vessel is towed to that
port; the expense of towage would have
to be included. (4) The estimated value of
the vessel after incurring expenses under
Nos. 1, 2 and 3. If the total of items 1,
2 and 3 exceed No. 4, then the vessel is a
constructive total loss.

75

The Institute Time Clauses contain what
is known as the Valuation Clause, which
reads :—

In ascertaining whether the vessel is a
C.T.L., the insured value shall be taken as
the repaired value and nothing in respect
of the damaged or break up value of the
vessel or wreck shall be taken into account.

The question as to the probable value of
a vessel .after repair must necessarily be one
of much conjecture, and would give rise to
considerable discussion. The Valuation
Clause I have quoted fixes the value and
removes the ground for speculation or dis-
cussion and provides that the value to be
taken is the figure which .appears in the
policy as the valuation of the subject matter
insured. You will notice that the clause also
provides that the value of the vessel in its
damaged condition shall not be taken into
account.

A DEBATABLE POINT.

It was formerly a debatable point as to
whether the value of the wreck should not
also be a factor to be taken into account
when considering whether a vessel was or
was not a C.T.L. If the matter was con-
sidered solely from the point of view as to
what a prudent uninsured owner would do,
there is little doubt but that it 'would be
taken into account. The question has been
before the Courts for consideration, and it
has been decided in some cases that the
value of the wreck should be taken into
account. The decisions were given in the
Lower Courts, but the case of Macbeth v.
The Maritime Insurance Company was
taken to the House of Lords and the decision
in that case was that the value of the wreck
should be taken into account. This decision
was given in 1908, but in 1906 the Marine
Insurance Act was passed, and Sect. 60, sub-
Sect. 2, para. 2 of that Act provides that :—
In estimating the cost of repairs no de-
duction is to be made in respect of G.A.
contributions to those repairs payable by
other interests but account is to be taken

76

of the expense of future salvage operations
and of any future general average contri-
butions to which the ship would be liable
if repaired.

There is no mention of taking the value of
the wreck into account, and the Act, there-
fore, settles all disputes on this point. This
decision of the House of Lords in the case
of Macbeth v. Maritime Insurance Com-
pany confirmed the view of those who con-
sidered that the value of the wreck should
be taken into account. The House of Lords
had, however, to deal with the matter as at
the time of the issue of the writ, viz., Octo-
ber, 1905, a year before the passing of the
Marine Insurance Act. If, therefore, the
law prior to the Act of 1906 was to the
effect that the value of the wreck was to be
taken into account, then the law on the
point has been altered by the passing of the
Act.

THE OWNER'S OBLIGATION.

Now it must not be assumed that because
the cost of repairing a vessel will exceed her
value when repaired, the owner is bound
to accept a settlement as for a construc-
tive total loss. The value in the policy
may be below the actual value of the vessel,
as was frequently the case during the war
when ships were scarce and freights were
high, and the yalue of vessels rose in conse-
quence. In such a case an Owner might
not be able to replace his vessel for a sum
equal to the valuation in the policy, and,
that being so, he would prefer to have his
vessel repaired. In such a case the Under-
writers would be liable for general and
particular average for the full amount of
the policy. The Owner would collect the
same sum as if he had claimed a C.T.L.
and would keep his vessel, while the Under-
writers would pay a sum equal to a total
loss and not have the vessel to sell as sal-
vage to diminish their loss.

The Marine Insurance Act, Sect. 60,
para. 3, provides that there is a C.T.L. in

the case of damage to goods where the cost
of repairing the damage and forwarding
the goods to their destination iwould exceed
their value on arriyal. If, for instance, a
vessel puts into a port of refuge and is so
badly damaged that she cannot be repaired
and the voyage is abandoned, and the ex-
penses of forwarding the cargo to destina-
tion would exceed the value on arrival at
destination, then there is a constructive
total loss.

There is >a constructive total loss on
freight if, owing to an accident to the ship,
the voyage is abandoned and the cargo
cannot be forwarded except at an expense
exceeding the original freight.

ABANDONMENT.

In order to entitle an assured to claim
as for a constructive total loss he must have
tendered abandonment to the Under-
writer. A notice of abandonment is a
notification by the assured to the Under-
writer that he elects to treat his claim as
one for total loss even though the subject-
matter of the insurance is not, in fact,
totally lost and may be recovered. This is
usually done by the broker on behalf of his
client. Notice may be given verbally, but
it is customary to give same in writing.
There is no specific form, but the broker
generally gives notice in terms similar to
the following : —

We regret to advise you that informa-
tion has been received that the above

vessel (here accident

is mentioned) and is

damaged to such an extent that the
Orwners fear the vessel may become a
total loss. In these circumstances we
are, at their request, notifying you that
they abandon to you their title and in-
terest in the said vessel, and that they
will in due course claim a total loss of
the amount insured under your policy
for

78

We presume in the event of abandon-
ment not being accepted you will agree
to place the Assured in the same position
as if a writ had been issued.

If the Underwriter declines to accept
abandonment, he does so in terms similar
to the following : —

In reply to your letter of , in

which you state that the above vessel

(here accident is mentioned)

and that you are instructed by

the Owners to abandon their interest
in her, we beg to inform you that we de-
cline to accept the abandonment, but
will give our best attention to any claim
which may arise. Meaniwhile we agree in
this instance to place the Owners in the
same position as if a writ had been served
upon us this day.

The notice of abandonment contains a
request to place the Assured in the same
position as if a writ had been issued.
This is to avoid the incurring of the expense
of issuing writs against each individual
Underwriter. The issue of the writ bears
a very important part in connection with
a claim for a constructive total loss, as I
shall show later. If the Underwriters decide
to eccept the abandonment then they pay
a total loss and the Shipowner's interest in
the vessel passes to them. The acceptance
of abandonment is equivalent to the sale of
the vessel to the Underwriters, and they
become thereby entitled to all the benefits
and subject to the liabilities of the Owner.

UNDERWRITERS AND FREIGHT.

Supposing a vessel went ashore and it ap-
peared probable that she could not be
selved, and- the Owner tendered abandon-
ment which was accepted by the Under-
writers. If the Underwriters took steps
to carry on the cargo they would be en-
titled to any freight that might be earned
under the original Bill of Lading, less,
of course, the expenses incurred by them to
earn »uoh freight. Such an advantage might

79

only accrue if it happened that the vessel
met with the accident comparatively near
her destination. By abandoning his interest
in the ship the Owner gives up all right
to earn the freight. In the case of Stewart
v. Greenock, Marine Insurance Co. (1848)
the Owner abandoned, the ship to the Under-
writers, who thereupon took steps to carry
on the cargo to destination and collect the
freight. The Shipowner claimed a total loss
from his freight Underwriters, but the Court
held thet the loss of freight to the Shipowner
was not due to a peril insured against. It
was due to the Shipowner's action in tender-
ing abandonment to the Underwriters and
Underwriters accepting same and taking
steps to earn the freight. The Shipowner
had transferred to the Underwriters his right
to earn the freight and his loss of freight
was due to this cause. The freight was not
lost, for it was earned by his ship Under-
writers. The Shipowner's position in such a
case was considered to be inequitable, and
in the Institute Time Clauses it is provided
that—

In the event of total or constructive
total loss no claim shall be made by Under-
writers for freight whether notice of
abandonment has been given or not.

We will take an example of a C.T.L.

A vessel, say, strands off the coast of
France. Salvors are employed to get her
off. They proceed to discharge the cargo
and perhaps throw part overboard ; the
vessel is leaking badly, pumps are employed
and eventually with the assistance of tugs
the vessel is towed off in a badly damaged
condition and taken into the nearest port,
where there are no facilities for permanent
repairs. Temporary repairs are effected,
the cargo is forwarded to destination and
the vessel is taken in tow to another port
for repadrs. When she arrives there she is
put into dry dock. Surveyors make an
examination and a specification of repairs is
drawn ,up. This specification is sent out to
the various ship repairers for the purpose of
obtaining tenders for repairs.

80

We will assume that the policy contains
the " valuation " clause, and the value of
the vessel in the policy is £15,000. Tenders
for repairs are received and they vary, say,
from £10,000 to £14,000, or, say, a mean
price of £12,000.

We take the repairs at £12,000

Towage 500

Proportion of Salvage end G.A. ... 3,000
Allow for extras, &c 500

£16,000

The insured value being £15,000 the vessel
is a C.T.L.

Supposing, however, the expenses instead
of being £16,000 are £14,500, then, as the
value of the vessel is £15,000 she is not a
O.T.L.

You may naturally say, if the Under-
writers have to pay £14,500, would it not
be to their advantage to pay a total loss
and have the vessel to sell for their own
benefit? Undoubtedly yes, but the Owner
has not only his rights under his policy on
hull to consider, but his rights under his
T.L.O. insurances on freight, disbursements,
&c. If he cannot prove a C.T.L. he cannot
recover under these policies, so it 'would be
to his advantage to make his hull Under-
writers pay £14,500 and to retain his rights
to the ehip. If one of the Underwriters
had accepted abandonment in such a case
as the above, the Owner could call on him
to pay a total loss, but he would have to
account to the Underwriter for a share of
the value of the vessel in its damaged con-
dition, less, of course, the expenses of
salvage, &c.

ARRANGED TOTAL LOSS.

Policies, generally reinsurance policies, are
sometimes issued to cover against T.L.O. ,
C. T.L.O. or arranged total loss. In Street
v. The Royal Exchange Assurance Corpora-
tion (July, 1913) the Courts had before them

81

a case where a claim was made under a
reinsurance policy containing the following
clause : —

Being a reinsurance and to pay as per
original policy or policies, but the insur-
ance is against the risk of the total or
constructive total loss of the steamer only,
but to follow hull Underwriters in event
of a compromised: or arranged loss being
settled.

The original Underwriters in this case did
not admit a, constructive total loss as they
were of opinion that the cost of repairing the
vessel would not exceed her value when re-
paired. The Owners, on the other hand,
contended that the vessel was .a constructive
total loss, and an action was brought against
the Underwriters, but was settled without
going into Court, by the Underwriters pay-
ing a sum less than the insured value and
allowing the Owners to take the proceeds
of the sale of the boat in her damaged con-
dition.

Mr. Justice Bray, in his judgment, stated
that there having been a claim for a con-
structive total loss and that claim having
been compromised, there was, in his opinion,
within the meaning of the clause in question,
a " compromised or arranged loss." He
added that he came to that conclusion with
some hesitation, but the difficulty entirely
arose from the fact that the parties had
not put their agreement into clear
language. An arranged Loss is, therefore,
a settlement effected in a case where there
is a dispute .between the Owners and Under-
writers as to whether or not the cost of
repairs is such as to entitle the Owners to
claim for a total loss : it is an amicable
settlement made to avoid the expenses of
litigation.

I have referred to the importance that
the issue of a writ bears in connection with
claims for constructive total loss. When
the case comes before the Courts the
circumstances, as they existed at the date
of the issue of the writ, are those considered

82

by the Court. The Owner has, in effect,
to prove that on the day he issued the writ
against the Underwriters for payment of a
C.T.L. the costs of salving and repairing
the vessel would exceed her value when
repaired. He may have already expended
money endeavouring to salve the vessel.
Such expenses would not be taken into
account 'because, as mentioned, it is the
expenses which will have to be incurred
after the date of the issue of the writ.

THE "BLAIRMORE " CASE.

There is a very good example of this rule
in the case of the Blairmore. The vessel
was stranded in the Bay of San Francisco.
The Owner tendered abandonment to his
Underwriters, which the Underwriters
refused to accept; the Owner, however, did
not issue a writ. The Salvage Association,
on the instructions of Underwriters, made
arrangements for salving the vessel, and
successfully did so, and the vessel was taken
into San Francisco. The salvage expenses
amounted to £7600. The vessel was placed
in dry dock and was found to be badly
damaged. The Owner issued a writ for pay-
ment of a C.T.L., and included in his
estimate of expenses necessary to restore
the vessel the sum of £7600. The Court
decided that the Shipowner was not entitled
to include this sum in his estimate. The
Court had to consider what, on the date
of the issue of the writ, would be the
expense to repair the vessel. The sum of
£7600 could not be called an expense that
on the date of issue of writ would have to
be incurred, because it had, in fact, already
been incurred. The Owner in the case of
the Blalrmore further claimed that
although the Underwriters had declined to
accept abandonment in writing, yet their
act of employing salvors to ealve the ship
was tantamount to an acceptance of
abandonment. This plea would probably
have succeeded but for the fact that the
policy contained what is known as the
waiver clause, which runs as follows : —

63

Under this clause it is agreed between
the Assured and his Underwriters that an
attempt on the part of the Owners or
Underwriters to salve the vessel after the
Owner has tendered abandonment does
not in any way prejudice the Owner's
tender of abandonment or the Under-
writer's refusal thereof.

What is the effect of an acceptance of
abandonment? The late Mr. MacArthur, an
Average Adjuster of great repute, in his
iwell-known work "The Contract of Marine
Insurance," says : —

The effect of a valid abandonment is to
transfer the whole interest in what
remains of the thing insured with all the
benefit or advantage incidental thereto
from the Assured to the Underwriters.
This transfer includes not only the pro-
perty insured but all the rights and lia-
bilities attaching to its Ownership, and it
is retrospective reverting to the time of
the casualty which gave the right to
abandon.

If an Underwriter accepts abandonment
he thereby admits his liability for a total
loss. If he refuses to accept abandonment
but subsequently pays a total loss, such pay-
ment is an admission that the Owner was
entitled to abandon. In Sect. 63, Para. 1 of
the Marine Insurance Act the effect of aban-
donment is stated to be as follows : —

Where there is a valid abandonment the
Insurer is entitled to take over the interest
of the Assured in whatever -may remain of
the subject-matter insured and all pro-
prietary rights incidental thereto.

It does not seem to me that these two
definitions quite tally, but I think they may
be reconciled. Mr. MacArthur says that a
valid abandonment transfers all rights and
liabilities attaching to the ownership, and
one would presume that an acceptance of
abandonment is an acceptance by the Under-
writer of all rights and liabilities, but the
Section I have quoted from the Marine In-
surance Act says that the insurer is entitled,

i.e., he has the option of taking over the
interest of the assured ; if he does so, then
he not only takes over the rights, but also
the liabilities that may attach to the dam-
aged ship or wreck.

In Suart v. Merchants Marine Insurance
Company (1898) the Underwriters were held
liable for damage caused to a vessel which
collided with the wreck of the Alleghany.
In this case the Alleghany had been sunk in
the Delaware River and the Owners had
tendered abandonment to their Under-
writers. The Underwriters refused to accept
abandonment, but it was agreed between
the two parties, the Owners and the Under-
writers, that attempts should be made to
raise the wreck. If it should transpire that
the Alleghany -was a constructive total loss,
the salvage would be for the Underwriters,
but if eventually it was proved that she was
not a constructive total loss, the salvage
would be for Owners' account. iWhere a
vessel sinks in a place where she becomes a
danger to navigation, the harbour or river
authorities have a duty placed upon them
to mark the wreck so as to warn passing
steamers of its existence. In this case, as
salvors were attempting to raise the wreck,
the duty of marking the wreck fell upon
them. The wreck of the Alleghany was not,
however, properly marked, and as a conse-
quence a vessel called the Siberian collided
with it and sustained damage. The Owners
of the wreck of the Alleghany were liable for
the damage done to the Siberian. The
Alleghany proved to be a constructive total
loss, and the Court held .that the salvors
became the servants of the Underwriters
and not the Owners, and the Underwriters
therefore were held to be liable for the
whole of the damage done to the Siberian.

Therefore if an Underwriter pays a total
loss and takes upon himself the rights of
the Owner and takes possession of the wreck
for the purpose of raising her, he becomes
responsible for any liabilities that may
attach to the wreck. If, on the other hand,
he prefers to let the wreck alone and com-

85

mits no act of ownership, then he does not
become responsible for the liabilities that
may arise in connection with the wreck. If,
therefore, a vessel sinks in a spot where she
is likely to be a danger to navigation,
Underwriters have to consider very care-
fully whether or not they will exercise their
option to take over the rights and liabilities
of the Owners. As I have said before, if
an Underwriter accepts abandonment, he
makes himself liable to pay a total loss,
whether or not subsequent events show that
the vessel is a constructive total loss, and if
after accepting abandonment he assumes
ownership of the property, he will, as I
have explained, become answerable for lia-
bilities. If an Underwriter refuses to accept
abandonment, then the assured must prove
the vessel is a constructive total loss to
entitle him to recover from his Underwriter.

Clause 17 reads : " In no case shall Under-
writers be liable for unrepaired damage in
addition to a subsequent total loss sustained
during the term covered by this policy." The
insertion of this clause is unnecessary, for
it is now settled law that an Underwriter
is not liable to pay for unrepaired damage
in addition to a total loss. An Owner is
not bound to have his ship repaired. A
vessel may strand and her bottom plating
may be set up ; this may not affect her sea-
worthiness, but in the event of the sale of
the vessel a buyer would naturally not give
so much for the vessel .as if she were in
sound condition. Therefore, if damages are
not repaired, the Underwriter is liable to
pay to the Owner the amount of deprecia-
tion suffered by the vessel owing to the un-
repaired damage. This depreciation is, of
course, a matter of estimate, but in any
event it must not exceed the estimated cost
of repairs.

"WAR" RISKS.

During the war the need for ships was so
great that the Authorities would not allow
Owners to lay up their vessels for permanent
repairs, and would only permit the use of

86

dry docks for essential repairs to make ves-
sels seaworthy. Therefore, during the war
there were very many vessels at sea with
damages unrepaired. If a vessel with un-
repaired damages should be lost, the loss
to the Owner would be a total loss only, not
a total loss plus unrepaired damages. It is
immaterial whether the vessel is sound or
damaged — he loses the whole and he cannot
lose more than the whole. The smaller loss
of unrepaired damage becomes merged into
the greater loss, viz., the total loss. It does
not matter whether or not the total loss is
due to a risk covered by the policy, the
effect is just the same, viz., the Owner loses
his ship.

In Livie v. Jansen (1810) a vessel which
had stranded and sustained damage was cap-
tured while she was ashore. The Owner
claimed from his Underwriters a partial lo&3
in respect of the damage due to stranding.
The Owner was uninsured for " war " perils.
The Court decided that the Marine Under-
writers were not liable as the Owner had
not sustained any loss by reason of the
stranding. The captors sustained the loss,
as instead of a sound ship they only cap-
tured a damaged vessel. It is quite im-
material whether the Owners are or are not
insured against the peril which caused the
loss, the fact that the vessel has been totally
lost during the period covered by the policy
relieves the Underwriter from liability for
payment of unrepaired damage. As I have
above remarked, during the war many ves-
sels were sailing with unrepaired damages,
and in many cases these ships were requisi-
tioned and the war risk was taken over by
the Government. The Charter-party pro-
vided that in the event of the vessel being
lost by a " war " peril they would pay the
Owner the value of his vessel. If, therefore,
a vessel with unrepaired damaged was tor-
pedoed, the Government only paid the
actual value of the vessel, i.e., the sound
value less the unrepaired damage. In the
case of Wilson Shipping Co. v. British k
Foreign Marine Insurance Company (1920)
the vessel having been lost by a " war "

87

peril, the Owner recovered from the
Admiralty her sound value less the unre-
paired damage of £1770, and .he sought to
recover from his Marine Underwriters the
amount which had been deducted by the
Admiralty, as this unrepaired damage was
caused by a sea peril. The House of Lords,
however, held that the principle laid down
in Livie v. Jansen applied to this case also,
and decided that the Marine Underwriters
•were not liable, in other words if the Marine
Underwriters would not have been liable if
the Owners had not been insured against
" war " loss (as in Livie v. Jansen), neither
are they liable because the Owner is insured
against " war " risks under conditions which
do not entitle him to recover the full value
in the event of loss.

LOSS AFTER EXPIRY OF POLICY.

If the total loss does not occur during the
period covered by the Policy, the position is
different. The assured is entitled, as at the
expiration of the Policy, to claim from the
Underwriter payment for depreciation
caused by a peril insured against and exist-
ing at that time. If the vessel is lost after
the expiry of the Policy, this would not re-
lieve the Underwriters from liability to pay
for the unrepaired damage and the under
writers on the succeeding Policy would have
to pay the full insured value, although the
vessel was in a damaged condition. (Lidgett
v. Secretan, 1871, and Woodside v. Globe
Marine Insurance Company, 1896.) We have,
therefore, two instances where vessels with
unrepaired damage are subsequently lost;
in the first instance the Owner does not re-
cover in respect of his unrepaired damage,
and in the other instance he recovers both
his unrepaired damage in respect of which
he has not sustained any financial loss, and
a total loss in addition. This may appear
to be inconsistent with the principle that
an assured must not make a profit out of a
loss, but this is only because the total loss
occurred during the currency of the succeed-
ing Policy. The vessel might, however, run,

88

say, for ten or twenty years with unrepaired
damage and then be totally lost, or the
Owner may not sell his ship for some years
after the accident, in which event the buyer
would still require an allowance for un-
repaired damaged. Looked at from this
point of view, the decision in Lidgett v.
Secretan is quite reasonable.

EXCESS GENERAL AVERAGE CLAUSE.

As I have explained to you, an Under-
writer is only liable for salvage and general
average expenditure in full, if the vessel is
fully insured. When policies are effected
to cover a period of, say, 12 months, the
valuation in the policy is supposed to repre-
sent the value at the commencement of
that time. During the period of 12 months
you will readily understand that the value
of vessels may alter — values may rise or
fall. The consequence is that sometimes
the value in the policy may be below the
actual value for the purpose of contribution
to general average, and the owner would
not therefore be able to collect the whole
general average under his ordinary hull
policy. If the vessel should be damaged,
the amount paid for particular average
would have to be deducted from the policy
value in order to ascertain the value on
which the Underwriter would be liable.

Contributory value £12,000 pays ... £120

Insured value £10,000

Less P.A 2,000

£8,000 pays ... 80

Amount unrecovered ... £40
This £40 would be recoverable from the
excess liability Underwriter provided that
the owner had taken out a policy for a
sum equal to the difference in value, viz.,
£4000, i.e., £12,000 less £8000. If his excess
general average policies were only for
£3000 he would recover three-fourths of
£40. If his policies were for £5000 he would,
of course, recover the full £40, but not more
than £40.

SIXTH LECTURE.

Delivered February 25, 1921.

THE COLLISION CLAUSE

AN ANALYSIS OF CLAIMS.

This evening I propose to deal with
Claims under the Collision Clause, or, as
it is' sometimes called, the Running Down
Clause. There have been in the past
several forms of R.D.C., but the form as it
appears in the Institute Time Clauses is
the one now generally in use, and my re-
marks will deal with this form of clause.
I -would, however, first refer to a ship-
owner's liability apart from the clause. Ac-
cording to law a shipowner is liable for
damages caused by the negligent navigation
of his ship. These damages need not neces-
sarily arise from collision, as, for instance,
if a steamer passing down a river at an
excessive speed which would naturally
cause a great disturbance of water, and the
wash thus caused did damage to barges,
causing them to collide with one another
or to break loose, the shipowner would be
responsible for the damage done. Ship-
owners are, by the terms of the Merchant
Shipping Act, entitled to limit their lia-
bility for damages caused by negligent navi-
gation. The Act, among other matters,
provides that if, by reason of improper
navigation of a vessel, there should be loss
of life or personal injury to any person
on board any other ship or vessel or
damage to such other ship or vessel or
cargo on board thereof, the owner of the
•wrong-doing vessel is only answerable to
the extent of £15 per ton of the vessel's
registered tonnage if there should be loss
of life or personal injury, or £8 per ton
if the damage consists only of damage to

90

ship and cargo. The limitation of liability
is only granted provided it can be shown
that the improper navigation is not due to
the actual fault or privity of the owner of
the wrong-doing vessel.

If, therefore, the damages caused to the
other vessel exceed the shipowner's liability
as fixed by the Act, he makes an application
to the Court for limitation of liability. Ap-
plications for limitation of liability are in-
variably granted, but quite recently a case
oame before the Courts where the applica-
tion was refused. A vessel had come in
collision and sunk another ship. The col-
lision was due to faulty steering gear which
failed to act properly, causing the ship to
manoeuvre badly and come into collision with
the other vessel. This steering gear had
caused trouble previously, and its defective
condition was known to the owners. The
Judge found that the owners did know, not
of the special defect, but of such failure of
action in the steering gear as shown, which
ought to have conveyed to them that it was
a dangerous thing to send a ship to sea
without making proper investigation to
ascertain the cause of the defective action.
Under these circumstances, the Court de-
clined to limit the shipowners' liability to
£8 per ton, and consequently they have to
pay the whole of the damage caused.

LIMIT OF LIABILITY.

As I have mentioned, if there is loss of
life, the shipowner's limit of liability is £15
per Ion. £7 per ton is used exclusively for
life and personal injury claims, and if thia
is not sufficient to meet such claims, the
balance of these claims rank pari passu with
the ship and cargo claims against the re-
maining £8 per ton. The R.D.C. provides
that in the event of the vessel in-
sured coming into collision " with
another ship or vessel and the
insured shall in consequence thereof bf»
liable to pay and shall pay by way of
damages to any other person or persons any
•um or sums in respect of such collision,"

91

the Underwriters will pay three-fourths of
such damages provided the total damage
payable by the owner does not exceed the
value, i.e., the insured value of the ship.
This does not mean that if the damages do
exceed the value of the vessel the Under-
writers do not pay anything, -but that in the
event of the damages exceeding the insured
value they will only pay on the basis of
three-fourths of the insured value. The
clause also provides for payment of three-
fourths of costs incurred in legal proceedings
in connection with the collision provided
same are taken with the Underwriters' con-
sent. There are other provisions in the
R.D.C. which I will deal with later.

The provision to pay only three-^fourths is
a very old provision, and it was probably
thought that if an owner had to bear one-
fourth of the damage himself then he would
bring pressure to bear on his servants to
exercise extreme care in the navigation of
his ship. A similar provision is, as you
know, made in connection with the pilferage
clause in cargo policies, where Underwriters
only pay three-fourths of pilferage claims
so as to bring pressure to bear on cargo
owners to have their goods properly and
securely packed so as to minimise the risk
of theft.

Shipowners, however, insure the one-
fourth of their liability in a Protection and
Indemnity Association. These Associations
are Mutual Associations formed by ship-
owners themselves by which they insure
themselves against their liabilities not
covered by ordinary Marine Insurance
Policies. The R.D.C. refers solely to
damage by collision, i.e., collision with
another ship or vessel. A collision with a
ship or vessel will include collision with
any part of its apparel which is in con-
nection with the ship, such as the anchor
or the ship's boat towing astern. It would
not, however, include fishing nets attached
to a trawler. This was so decided in the
case of the Bennett Steam Ship Company
v. Hull Steamship Protection Society. The

92

Burma collided with the nets of a
trawler off Boulogne. The trawler herself
was over a mile away ; the nets were . of
course, attached to the trawler. The owner
of the Burma had to pay for the damage
done and the question raised was whether
he could claim from his Underwriters under
the R.D.C. for their share of the sum so
paid. The Courts decided in favour of the
Underwriters.

Damage done to a sunken ship which
could have been raised and repaired would
be a collision with a ship or vessel, but
damage done to a sunken ship which was
unsalvable would not — that would be colli-
sion with a wreck.

Dealing with the R.D.C., BO far
as I have reference to it, I will take
the following example of its application.
A's vessel (insured value £10,000) comes
into collision with B's vessel and does
damage to the extent of £2000, which B
claims from A, together with demurrage
(damages for loss of use of vessel during
repairs) amounting to £500, a total of £2500.
The damage is due to the negligence of
those on board A's vessel, and in conse-
quence thereof A has become liable to pay
and has paid £2500, and he therefore re-
ceives from his Underwriters £1875, being
three-fourths of the £2500, the remaining
one-fourth of £625 he claims from his Pro-
tection Club. A's boat has also sustained
damage, but as the accident is due to negli-
gence of A's servants, he cannot recover
anything from B. He looks to his Under-
writer to pay him for the damage to his
ship, but he has to bear himself the loss
of his demurrage.

SINGLE LIABILITY.

If, however, neither A nor B will admit
liability for the damage done, but both
claim that the other is liable, then the
matter can either be dealt with by an agreed
Arbitrator or decided in a Court of Law.
Assuming that it is finally decided that both

93

vessels are equally in fault, then the two
owners have each to bear one-half of the
other's loss. A's damages £1000, demurrage
£500; total £1500. B's damages £2000,
demurrage £500; total £2500. B's damages
of £2500 being in excess of A's damages of
£1500 leaves a difference of £1000 in favour
of B, and A pays B one-half of £1000— £500.
This is the rule of settlement on the basis
of single liability which is the established
method of dealing with such a case. It
has the same effect as far as the relationship
between A and B is concerned, as if A had
paid B one-half of £2500, viz., £1250, and
B had paid A one-half of £1500, yiz., £750,
the difference of £500 being the sum
payable by A to B.

A having paid B the sum of £500 for
damages caused to B's ship then proceeds
to make his claim under the policy : —
He claims as P. A. the damage caused to
his own ship, viz., £1000; and from his
Underwriter three-fourths of the sum paid
to B, viz., £500; and from his Club one-
fourth of the sum paid to B, total £1500.

LOSS OF DEMURRAGE.

He has, however, in addition to the
damage to his ship, sustained a loss of
demurrage of £500. As B was responsible
to him for one-half of his loss, he would
naturally expect to recover one-half of his
demurrage of £500, viz., £250. This is,
however, not so, if the claim is recoverable
from the Underwriters on the basis
of single liability, as A having P. A
damage to the extent of £1000, and
having paid for damage to B's ship, £500,
and sustained a loss of demurrage of £500
of which £250 is supposed to be payable by
B, his recoverable loss either from his
Underwriters or Club and from B should be
£1750. But he only recovers P. A. £1000;
D/D to B's vessel £500, total £1500, leaving
him out of pocket for one-half of his de-
murrage, viz., £250.

94

This effect is brought about by the wording
of the R.D.C., under which Underwriters
pay three-fourths of the sum paid by the
Assured, i.e., the actual sum which he has
to hand over to the other Owner, which in
the instance quoted is £500.

CROSS LIABILITIES.

This is, of course, inequitable, inasmuch as
the Underwriters and Club in only paying
A the actual amount paid by him to B are
taking credit for the £250 demurrage (which
B is supposed to pay to A) to which they
are not really entitled. This hardship is
remedied by the insertion in the R.D.C. of
the Cross Liabilities clause, which runs as
follows : —

but when both vessels are to blame

claims under this clause shall

be settled on the principle of cross liabili-
ties as if the owners of each vessel had
been compelled to pay to the owner of the
other such vessel such one-half or other
proportion of the latter's damage as may
have been properly allowed in ascertaining
the balance or sum payable by or to the
assured in consequence of such collision.

I find the greatest difficulty in placing the
position in such a clear light that you can
readily follow my figures. The mass of
figures involved, I must admit, is enough to
confuse anybody, and they require very
careful study to enable one clearly to under-
stand the matter. In order to make my case
as clear as I can I propose to trkc as an
example a case where two vessels are in
collision, the collision is due to mutual fault
and the damages are both equal— a very
improbable supposition.

A's DAMAGES.

Ship £12,000

Demurrage 500

£2.500

95

B's DAMAGES.

Ship £2,000

Demurrage 500

£2,500

No payment passes between A and B,
and their only recourse is to their Under-
writers for payment of their Particular
Averages of £2000 each. A and B therefore
receive no recovery in respect of their de-
murrage, as neither Underwriters nor
clubs make any payment under the R.D.C.
under the Single Liability Principle.

ON CROSS LIABILITIES.

A's Underwriter pays £2,000

Less one-half recovery from B 1,000

£1,000

One-half of B's damages — three-
fourths paid by Underwriters,

one-fourth paid by Club 1,250

Leaving A to bear one-half of his
demurrage loss of £500 250

£2,500

and B recovers £2250 from his Underwriter
and Club on the same basis, and bears the
loss of one-half of his demurrage, viz., £250
himself.

We will now take the example previously
given and show the position of A as regards
his claim against his Underwriters : —

A's damages to his ship were £1,000

Demurrage 500

£1,500
B's damages to his ship were £2,000

Demurrage 500

2,500

Difference in favour of B £1,000

Of which A pays to B one-half £500

96

Under the Cross Liabilities Clause A's claim

on Underwriter is as follows : —

For P.A £1,000

Less credit for one-half recovered

from B 500

£500

and under the R.D.C.
One-half of B's damages of
£2500, viz., £1250, three-
fourths of which £937 10 0

£1,437 10 0

The remaining one-fourth
payable by Club 312 10 0

Makes the total recovery of A £1,750 0 0

A's recoverable loss is : —

Damage to ship £1,000

One-half of his demurrage of £500 250
Amount paid to B 500

£1,750

the whole of which he recovers from his
Underwriters and his Club, as above.

B's position with regard to his Under-
writers and his club on the Single Liability
basis is as follows : —
B's loss :—

Ship's damage £2,000

Demurrage £500, of which
he is entitled to receive
one-half 250

£2,250

He receives from A £500, of

which 20/25ths is for

damage to ship £400

And 5/25ths for loss of de-
murrage 100

500

B's loss after A has paid him £500 £1,750

He recovers '.from his Underwriters £2,000
Less Underwriters' share of re-
covery from A 400

£1,600

97

Here again his loss of demurrage

was £500

Of which he should be entitled to
recover one-half from A 250

£250

But of the 500 paid by A, his
Underwriters get £400, and he re-
ceives only £100

Showing that he receives short for

demurrage £150

As B has not paid anything to A his Under-
writers have nothing to pay under the
R.D.C.

If the matter is dealt with on the prin-
ciple oif Cross Liabilities, B's position will
be put right in the same way as A's, and
it will be found that B will receive one-half
of his demurrage in full and his Under-
writers and Club will pay B's liabilities for
his damages to A's ship.

UNEQUAL LIABILITY.

It does not always follow when two
vessels are in collision and are both to
blame, that the blame is equal; sometimes
one is more to blame than the other, end
if this is so, the Courts apportion the blame,
say, one-fourth and three-fourths, or other
proportion. In such cases the damages are
divided accordingly, instead of half and
half.

In quoting the paragraph in the R.D.C.
dealing with the principle of Cross Liabili-
ties, I omitted certain words, which were : —
Unless the liability of the owners of one

of both such vessels becomes limited by

law.

That is to say, in the event of there being
limitation of liability, then the principle of
Cross Liabilties icannot be claimed by the
assured when collecting under the R.D.C.
Where there is limit of liability there may
be an equal hardship on the owner by
reason of his claim under the R.D.C. being
based on the principle of single liability.

98

I once had a case before me like the fol-
lowing : —

A's vessel damages B's vessel.

A's damages are £3,000

Demurrage £1,000

£4,000

B's damages are £14,000

Demurrage £4,000

£18,000

Difference £14,000 — one-half of which
(£7000) payable by A to B. A obtains leave
to limit his liability to £8 per ton, which
we will take as £6000 — and pays this sum to
B. A claims from his Underwriters and
Club £6000; his own policy does not cover
him against Particular Average, so that
although he has sustained a loss of £4000
and B is supposed to be liable for one-half
of his damages, yet he recovers nothing but
has to bear the whole of his damages him-
self. As a prudent owner, he must, of
course, limit his liability, but as his Under-
writer and Club shoulder his liability for
damages done, it is they, and not he, who
gain. He, in fact, loses, for if he had not
limited his liability he would in theory have
paid £9000 and received one-half of his
damage of £4000 (£2000), leaving £7000, and
on the principle of Cross Liabilities his
Underwriter and Club would have had to
pay him £9000 instead of £6000.

The reason for excluding " limited lia-
bility " claims from the operations of the
"Cross Liabilities " principle is, I think, the
following : — In the instance I have quoted,
you will see that A does not pay one-half of
B's claim. B's one-half claim is £9000,
and A only pays £6000. It is really im-
material in the instance quoted whether A
is only half or wholly to blame — he has to
pay the same amount, i.e., his limited lia-
bility of £6000. If B was in no way to
blame and the blame was entirely due to
A's servants, A would still be entitled to
limit his liability and only pay £6000. It is
therefore impossible to assume in theory that

99

both sides pay to each other one-half of
their respective damages. In dealing with
claims on the principle of Cross Liabilities
you assume in theory that B's claim is re-
duced by A's claim, but A limiting his lia-
bility for £6000 does not pay as much — B's
claim, £9000, reduced by A's claim, £2000,
viz., £7000. Therefore you cannot, even in
theory, assume that B's claim is reduced by
A's, when A only pays £6000.

If you did you get the following incorrect
result : —

A's liability to B is £6000

which is less than half his damages, and

B's liability to A is £2000

one-half oif A's damages,

leaving a balance £4000

payable by A to B, whereas, in fact, A has
to pay £6000.

And moreover, as A, by limiting his lia-
bility, does not pay B one-half of his claim,
therefore it would not be equitable to assume
that A is entitled to receive one-half of his
claim.

CARGO CLAIMS.

Further, taking into consideration that in
both to blame cases cargo claims
may be involved in addition to
claims for damage to ship where " lia-
bility is limited," one can quite see that
the matter is altogether too involved to
permit the application of the Cross Liabili-
ties principle in such, cases. I would like
to point out here that as regards cargo
claims, there is no set off as in the case of
damages to ship. A's cargo owners claim
direct from shipowner B, and B's cargo
owners claim direct from shipowner A. Each
shipowner is liable to pay direct to the
cargo owners the proportionate share of the
damage done to the cargo on the other
boat, and such payments are not taken into
account in settling the balance of claim,
as between the two shipowners.

The method of apportioning a claim
where the shipowner limits his liability is,
of course, simple.

100

Limited liability of A £6,000

Apportioned as follows : —

B's half damages £9,000

A's half damages 3,000

Difference in favour of Shipowner

B 6,000

B's one-half cargo claim 12,000

£18,000

i.e., total claims of £18,000 have to be re-
duced to £6000, so that each claimant re-
covers 6/18ths, i.e., one-third of his claim,
viz. :

B recovers one-third of £6000 ... £2,000
B's cargo recovers one-third of

£12,000 4,000

£6,000

Supposing the damages to A's

ship are £5,000

Demurrage 1,000

£6,000
And damages to B's ship

are £14,000

Demurrage 4,000

£18,000

Difference £12,000

one-half of which (£6,000) would rank
against the limited liability of A.

You cannot apply the Cross Liabilities
principle to such a case. If A attempted
•to claim from his Underwriters on the prin-
ciple of Cross Liabilities he would find him-
self in an impasse, for he has not paid B
one-half of B's damages reduced by one-
half of his own. B's one-half damages was
£9000, but owing to A limiting liability and
there also being cargo claims, he only re-
covers £2000. It is, therefore, quite clear
that the amount paid to B has not been
reduced toy A's damages.

101

In the illustration I have given yoj • will
see that B's half damages are £9000, but
A only pays B £2000, and it would, there-
fore, be absurd to imagine that B would pay
A one-half of his damages, or £3000. You
could only apply the clause if it could be
shown that A's liability to B was reduced
by B's liability to A, which is not the case.

The clause provides for recovery of
damages that the assured may have to pay
in consequence of such collision, i.e.,
it may be that the consequences of
such collision are not merely the two vessels
coming into contact and doing damage to
each other, but there may be further
damages consequential on such collision.

In the case of W. France, Fenwick v.
Merchants Marine Insurance Company, the
Underwriters were held liable to pay for
consequential damage arising out of the
collision of the Cornwood with the Rouen.
These two vessels were in collision in the
Seine, the impact causing considerable suc-
tion, which drew another vessel called the
Galatea on to the Rouen. As the Cornwood
was held liable for the collision with the
Rouen, the owners also had to pay for the
damage done by the collision of the Galatea
with the Rouen, as it was considered that
the collision between the Galatea and Rouen
was a consequence of the collision with the
Cornwood and Rouen.

REMOVAL OF OBSTRUCTIONS.

The R.D.C. further provides that an
assured cannot recover damages which he
has become liable to pay for removal of
obstructions, injury to wharves, harbours,
&c., in consequence of such collision; or in
respect of the cargo or engagements of the
insured vessel, or for loss of life or personal
injury. If, as a result of the collision,
damage is done to piers, stages and similar
structures, the Underwriters will not pay
for such damages, although they may be
consequential on the collision. Neither are
they liable to pay any sums which the

102

1 may 'have to pay for loss of life or
personal injury, or for loss of cargo on
board the vessel itself, which may have been
damaged by such collision. The loss of life
and damage to wharves, harbours, &c., ex-
cluded under the R.D.C. are usually covered
by one of the Protection Indemnity Clubs,
while the owner generally escapes liability
for damage to his own cargo by reason of
the terms of the Bill of Lading under which
such cargo is carried.

The concluding paragraph of this clause
deals with cases where the two colliding
vessels belong to the same owners, part
owners, or are under the same management.

This clause, so far as collision claims are
concerned, was inserted as a consequence
of the decision in the case of Simpson v.
Thomson, 1877. Two vessels, A and B, be-
longing to the same owner, came in collision
and B was sunk. The collision was due to
the fault of those on board A. The claims
in respect of cargo on board B exceeded the
limited liability of the owner, who limited
his liability and paid the amount into Court.
The Underwriters, having paid a total loss
to the owner for the loss of B, claimed to
be entitled to participate in the money paid
into Court. The Court decided that the
payment of a total loss did not entitle the
Underwriters to any rights not possessed by
the assured, and as he, as owner of B, could
not recover from himself as owner of A,
neither could his Underwriters do so.

The same principle is .by the clause con-
ceded in the case where one vessel renders
salvage services to another, and the owners
of both vessels are the same— i.e., where A
has rendered salvage services to B. The
owner could not, as owner of A, sue himself
as owner of B.

This clause, of course, does not apply to
cargo. The owners of cargo, as I have pre-
viously remarked, have the right to claim
direct against the shipowner for damages by
collision, and the shipowner could claim sal-

103

vage services direct from the owners of
cargo on board the salved vessel.

The clause, however, removes a hardship
in cases of collision, for, as I have shown,
it enables the owner to recover parfc
of his demurrage, while as regards
salvage, he would naturally sustain
certain losses in respect of the salving
steamer — loss of hire, crews' -wages, &c.,
during the towage— which he would not be
able to recover from the Underwriter of
the salved vessel if this clause were not
inserted in the policy.

" CAUSA PROXIMA."

I can, of course, only touch on the fringe
of causa proxima — time will not permit me
to deal with it at length. An effect is the
result of a cause, and that cause may be
the outcome of other causes. Say two motor
oars came into collision — result, damage to
both cars. Why has the collision occurred?
Because one of the cars was being driven
at too great a speed. Why was the car
being driven at too great a speed? Be-
cause the owner was anxious to reach the
station in time to catch a certain train.
Why did he want to catch this certain
train? And so on ad infinitum. We here
have a number causes ending in one final
cause, viz., collision. The initial cause is
called causa remota. A little consideration
will show how far remote a cause may be.
The intermediate causes are called causa
causans, and the final cause is called causa
proxima. The application of the principle
of causa proxima in Marine Insur-
ance is important, for it in most cases re-
moves the ground for speculation in con-
sidering the cause to which losses may be
due.

The case of Pink v. Fleming is an excel-
lent example. A vessel having been in col-
lision, puts into a port of refuge for repairs.
To effect these repairs it is necessary to
discharge the cargo. While being dis-
charged the cargo becomes damaged by
handling. The goods were insured against

104

damage consequent upon collision with any
other ship. A claim was made on Under-
writers for the damage. The Court decided
in Underwriters' favour — the goods were
damaged by handling, not by collision. It
is true that if the collision had not occurred
the goods would not have had to be dis-
charged, and therefore could not have been
damaged by handling, but the collision did
not occur without cause. What was the
cause of the collision. The collision was due
to an error on the part of the steers-
man, who improperly manoeuvred the
ship. If you could claim that the
damage to the cargo was due to the
collision, you could with just as much logic
claim that it was due to the act of the
steersman or to the cause which made the
steersman commit the error. The goods
were not bound to be damaged because they
were discharged, and (consequently sudh
damage could not be said to be the in-
evitable result of the collision.

The sequence of causes from causa remota
to causa proxima resembles a chain with a
number of links, each of which links repre-
sent a cause, and each cause must reason-
ably bear the test of showing that the
succeeding cause is the inevitable outcome,
or perhaps, I should say, unavoidable out-
come of the preceding cause. In such a
way a cause, although not the final cause,
may in effect be the causa proxima. The
principle of causa proxima must be applied
in a reasonable spirit in those cases where
too literal application would cause a hard-
ship. Lord Selborne in the case of Inman
Steamship Company v. Bischop in 1882
said :

The general principle of causa proxima
non remota spectatur is intelligible enough
and easy of application in many cases, but
there are cases in which a too literal ap-
plication of it would work injustice and
would not be really justified by the prin-
ciple itself.

Causa proxima has been described as the
" dominant" cause.

105

THE " DOMINANT " CAUSE.

Take the case of the Ikaria. This vessel,
when in the Channel, was torpedoed about
25 miles from Havre. She did not sink but
sustained serious damage and was naturally
taken to the nearest place for safety, which
was alongside the quay at Havre. The
authorities, however, would not allow her to
stay there, and she was removed to a berth
which proved to be unsafe under the circum-
stances, and there she stranded and became
a total loss. Between the time of her being
torpedoed and the time that she became a
total loss no peril intervened to alter the
effect of the result of the torpedoing,
although there is some record of heavy
weather while she was moored in the outer
harbour, but this was considered to have
had no effect on the ultimate result. The
quay at Havre might not have existed at
all so far as the Ikaria was concerned, for
she was not permitted to stay there, and
therefore the narrative can be shortened by
stating that the vessel, having been tor-
pedoed, was placed in the safest place avail-
able, which, however, proved to be an un-
safe place. It is the same in effect as if,
after being torpedoed, the Ikaria had been
run on to the rocks to prevent her sinking
and had broken her back while there.

Looked at from this view, it is quite clear
that the total loss must be attributed to
the torpedoing. The next case I will refer
to is that known as the " rat " case —
Hamilton v. Pandorff (1887). Although not
a case where Underwriters were directly
involved (for it was a case of cargo owners
against shipowners, the cargo owners claim-
ing damages to goods from the shipowners
and the shipowners claiming that the
damage was due to a sea peril, and that
they were not liable) it is an instance where
the principle of causa proxima was applied.
We will assume for the purpose of illus-
tration that it is a case brought by an
assured against his Underwriters.

The matter concerned a cargo of rice
shipped from Akyab to London. On arrival

106

in London it was found that the rice was
damaged by seawater. On investigation it
was shown that the damage was caused by
seawater passing through a hole made by
rate in a leaden discharge pipe. Now
damage by rats is not a sea peril and is
not covered by a policy, but damage by
seawater is a peril of the sea and is
covered. One would naturally say that if
the cause of the water entering the hold
was due to the action of the rats the
damage by contact of the sea water with
the rice was a consequence of the action
of the rats. If you apply to this case the
same reasoning as I have applied to the
case of the Ikaria you would perhaps and
quite naturally arrive at that result,
as if the causa remota is the action of the
rats, the intervening causes were the direct
and unavoidable result of the action of the
rats.

But there is an important difference
between the two cases. In considering
Hamilton v. Pandorf strictly from an in-
surance point of view there can be no doubt
that the proximate cause of the damage is
contact with sea water, and sea water enter-
ing the ship from the outside would be a
peril of the sea. You will perhaps, however,
remark that, as I have just said, the causa
remota — i.e., the rats — has in effect become
the causa proximo, and if damage by rats
is not a peril covered by the policy, why
should the consequential damage arising out
of the act of the rats <be covered ?

In the case of the Ikaria I mentioned that
the total loss of the vessel was due to strand-
ing, and in the case of the rats that the
damage was due to sea water, both of which
perils are covered by an ordinary marine
policy. The marine policy in the former
instance contained an exception clause,
which clause excludes certain perils, as
follows : —

Warranted free of capture, seizure,
arrest, restraint, or detainment, and the
consequences thereof or of any attempt
thereat (piracy exccpted) and also from
all consequences of hostilities or warlike

107

operations, whether before or after de-
claration of war.

Now, in the case of the Ikaria, although
the stranding is a marine peril, yet it was
the direct consequence of an act of hostility,
and therefore the loss becomes excluded
from the terms of the policy. In the " rat "
case the Underwriters would have been free
from damage done by the rats themselves to
the rice, as such damage is not covered
under a marine policy.

There is, however, no similar exception
ckuse regarding rats as there is regarding
hostilities. If there had been a clause in
the policy warranted free from the conse-
quences of the presence of rats on board the
steamer, and damage to the rice being the
direct consequence of the action of rats, the
policy would have been free from the claim.
In one case — the Ikaria — the loss was not
recoverable because it was a consequence
of a peril excluded from the policy, viz.,
warlike operations, and in the other case
it would be recoverable because it was due
to a peril covered by the policy and there
was no clause in the policy which excluded
the consequences of the presence of rats on
board.

In the case of Cory v. Burr, the appli-
cation of the rule of causa proxima is clearly
seen. The Spanish authorities arrested a
steamer because her Master was endeavour-
ing to smuggle tobacco into Spain. The
act of the Master was an act of barratry and
the policy covered barratry, but contained
the F.C. '& S. Clause, i.e., " warranted free
of capture, seizure, &c." The owners had
to pay a heavy fine to obtain the release
of their vessel and they claimed the amount
from their Underwriters on the ground that
it was expense occasioned by the barratry
of their Master. The Court held that
the expense had been occasioned by the
seizure of the vessel, and as seizure was
one of the excepted perils, the Underwriters
were not liable.

Speaking of seizure, the following problem
was recently placed before me. A merchant

103

in perfect good faith bought some cases of
goods and dispatched them abroad. Before
they reached the seaport the police authori-
ties seized the goods, as it was found that
they were stolen goods. The policy covered
the goods from warehouse to warehouse,
and the F.C. & S. clause was deleted.
The owner claims on his Underwriter for
a total loss by seizure. Is the Underwriter
liable? I think not. The assured points,
out that the warranty *' free from seizure "
has been deliberately struck out of the
policy and that the effect of this deletion
is to make seizure one of the risks covered
by the policy. This is not the correct view
to take. The deletion of the clause
merely reinstates in the policy the risks
which it excluded. We have therefore to
ascertain whether " seizure " as such is a
risk covered by the policy. Now the word
" seizure " does not appear in the body of
the policy as one of the risks covered. The
nearest approach are the words " surprisals,
takings at sea," neither of which could
apply in this case. The policy mentions
" men-o'-war, enemies, pirates, &c.,"
" arrests, restraints, and detainments of all
kings, princes and peoples, &c." If seizure
arises out of one of these risks it would be
covered.

JUDICIAL PROCESS.
The next question is 'whether the risks
mentioned can cover the action of the
police. I think not. The words " arrests,
restraint. &c.," do not include loss arising
from ordinary judicial process as would be
the case here. There is, moreover, a further
point involved — it may probably be that
this stolen property, although purchased in
perfect good faith, can never be said to be
the property of the assured. Under some
circumstances a person who buys stolen
goods in good faith and in the open market,
is entitled to retain possession of them, but
there are othor circumstances where,
although the goods may be bought in good
faith, yet the buyer is not entitled to retain
possession. If, in the present instance, the
purchase came under the latter category,

:o9

he would have no insurable interest in the
goods, and having no insureble interest he
could have no claim. His loss in such a
case would not be a loss by seizure, but
loss by the fact that according to law the
sale of the goods to him wee invalid.

The next case to which I will refer is
that of Montoya v. London Assurance.
Hides were shipped in the same hold as
tobacco — the hides became badly damaged
by sea water, causing them to ferment and
decompose, and the noxious odour arising
therefrom tainted the tobacco. The Under-
writers were held liable for the damage to
the tobacco on the ground that the damage
to the hides was due to a sea peril and the
damage to the tobacco was the direct result
thereof.

I now refer to what is probably the most
often quoted case in connection with this
subject, viz., lonnides v. Universal Marine
Insurance Company. During the American
Civil War an insurance was effected on
6500 bags of coffee by a Federal ship from
Rio Janeiro to New York, with the F.C. &
S. Clause inserted in the policy. The ves-
sel went ashore near Cape Hatteras, the
light upon the Cape having been extin-
guished by the Confederates with hostile de-
sign against Federal shipping. The vessel and
her cargo were totally lost by the stranding,
with the exception of 120 bags of coffee,
which were landed and seized by the Con-
federate troops, and about 1000 bags might
have been salved had not the soldiers pre-
vented it. The Court held that the war-
ranty only exonerated the Underwriters
from [paying for the 1120 bags — holding that
the remainder were lost proximately by a
sea peril. The vessel stranded — stranding
is a sea peril, as in the case of the Ikaria.
If the stranding was inevitably due to the
extinction of the light (the extinguishing
of the light being a hostile act), the strand-
ing would have been a consequence of the
hostile act. There is little doubt but that
the stranding would not have taken plac«
if the light had not been extinguished.

110

This argument, however, is not sufficiently
effective. The link in the chain of causa-
tion is not strong enough. The Master by
taking his proper reckonings would have
known where and at what time he would
expect to see the light, and not seeing it at
that time and place his suspicions should
have been aroused, and if he had taken
precautions to ascertain his whereabouts by
using his lead, he would have found that
he was nearing the land and could have
taken steps to alter his course. The strand-
ing was, therefore, brought about by the
want of due care on the part of the Officers
of the ship. If it could have been shown
thet every ship on a voyage from Rio
Janeiro to iNew York at that time must
inevitably have gone ashore owing solely
to the absence of the light, the case would
have been decided otherwise.

WAR INSTANCES.

I will not detain you much longer, but you
will probably like to hear some remarks
on two important classes of cases which
have arisen during the war, viz., accidents
arising from collisions between vessels sail-
ing without lights, and losses sustained by
owners of cargo on board German steamers
which took refuge in Neutral ports on the
outbreak of war. With regard to the first-
mentioned class of case, the Courts have
decided that when two merchant ships
sailing without lights come into collision
owing solely to the absence of lights, the
damages arising from such collision are re-
coverable under the marine policy and not
the War Risk Policy. The " man in the
street " would naturally say, " If the ves-
sels in accordance with Admiralty instruc-
tions sail without lights, in order that their
whereabouts may not be disclosed to the
enemy submarines and thus minimise the
chances of attack, losses solely arising from
precautions to avoid the peril must be taken
as losses due to the peril." While this
appears to be a reasonable argument, it
will not bear the causa proxima test.

If it could be shown that submarines were
in the neighbourhood, and in order to re-

Ill

move the ships from imminent perils, orders
were given to steam full speed ahead, and
in so doing, owing solely to the absence of
lights, the collision occurred, the result
might be different. In the case where the
point was tried, viz., the Petersham, no
such suggestion was made. The order to
sail without lights was general, whether
submarines were known to be in the vicinity
or not. The damage was due to collision,
a risk covered by the marine policy, and was
not excluded by the F.C. and S. clause,
because the collision was not due to conse-
quence of hostilities but to a precaution
taken to prevent a possible hostile attack.
During the air raids, all lights were ex-
tinguished in the streets. Supposing a motor
without lights, proceeding along the road,
collides with another car, also not showing
lights, and the collision is solely due to
the absence of lights on both vehicles — you
could not say that the collision was the
result of hostile operations. The Zeppelins
might not come within miles of the place.

In another case the Saint Oswald and
Suffren were in collision, occasioned solely 'by
the absence of lights, and the Court held
that it was a " war " loss, the reason being
that the Suffren, which was a battleship,
and the Saint Oswald, which was engaged in
the transport of troops, were both employed
in warlike operations. The sailing without
lights was to enable these warlike operations
to be carried out with immunity from attack
by submarines, therefore the loss was attri-
buted to the consequence of warlike opera-
tions. I now deal with my last illustration,
that of the Kattenturm, Becker, Gray & Co.
v. London Assurance Corporation. The
Kattenturm was on a voyage from India to
Hamburg, and on the outbreak of war was
in the Mediterranean. The Master at once
made for Messina and decided to stay there.
It may be admitted that had he attempted
to proceed on his journey the chances were
ell in favour of the vessel being captured
by one of the Allied cruisers when he
approached Gibraltar. He very wisely did

112

not make the attempt, but decided to re-
main where the Allied cruisers could nofc
reach him. Messrs. Becker, Grey & Co.'s
goods were insured by a policy with the F.C.
& S. Clause deleted, so that the policy
covered such war risks as were included in
the body of the policy. A claim was made
for total loss on the ground, among others,
of capture, the plaintiffs alleging that had
the vessel proceeded she would have been
captured. This would have been quite pro-
bable had the steamer gone on, provided,
say, she reached the neighbourhood of Gib-
raltar, but, on the other hand, she might
have been sunk by collision or driven ashore
durinsr a storm before she came near to
Gibraltar. She was no more in peril of
capture at Messina than a man would be in
peril of drowning if he stayed on the bank
and did not go into the -water. If the
steamer had been chased by an Allied
cruiser and sought shelter at Messina, and
the cruiser remained outside waiting for her
to reappear, the assured might perhaps have
then reasonably claimed that the Master
was prevented from resuming the voyage by
reason of the presence, with hostile inten-
tions, of the cruiser off the port, and in
this way the imminence of the peril of
capture might have been said to have frus-
trated the adventure.

The facts were, however, quite otherwise.
The voyage was abandoned by the voluntary
act of the Master who, fearing capture,
sought shelter at Messina. A loss caused
by fear of a peril is not a loss by the peril
itself. If the peril is imminent or if it is
present, then a loss caused by attempts to
escape from it may be attributed to a loss
by that peril. As, for instance, a vessel
being chased by a submarine. The Master
orders steam full ahead, and if, in spite of
good seamanship, the vessel in escaping
meets with an accident, the resulting dam-
age would, I think, be considered to be a
consequence of warlike operations.

Printed at Lloyd'i, Royal Exchange, London, E.G. 3.

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