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TYPES OF POLICY CONTRACTS IN MARINE
A contRACT of marine insurance has been defined as “a contract of indemnity, in which the insurer, in consideration of the payment of a-certain premium, agrees to make good to the assured all losses, not exceeding a certain amount, that may happen to the subject insured, from the risks enumerated or implied in the policy, during a certain voyage or period of time.” It is essential in a marine policy that the parties to the contract shall have undertaken the transaction in good faith. This is true of all contracts, but especially so of a contract of marine insurance, where the risks assumed are not only very numerous, but also very complex. Moreover, all material facts must be stated to the underwriter, and fraud of any kind will nullify the policy. The misrepresentation or concealment of material facts with a view, for example, to deceive or influence an underwriter into accepting a risk or in fixing the premium will deprive the offending party not only of any premiums paid, but of all rights accruing from the policy.
Equally essential to the validity of a marine-insurance policy is the requirement that the insured shall actually possess an insurable interest in the subject insured. Such an interest, however, need not necessarily represent ownership. As Mr. Justice Lawrence defined it: “To be interested in the preservation of a thing is to be so circumstanced with respect
"John Duer, “Law and Practice of Marine Insurance,” Vol. I, p. 58.
to it as to have benefit from its existence, prejudice from its destruction. The property of the thing and the interest derived may be very different. Of the first, the price is generally the measure; but, by interest in a thing, every benefit and advantage arising out of or depending on such thing may be considered as being comprehended.” This definition indicates that any one pecuniarily interested in the safe arrival of a vessel or cargo has an insurable interest in the same. A mortgagee has an interest in a vessel to the extent of his mortgage, which he may insure. A trustee or bailee possesses an insurable interest in property entrusted to him, as also does a consignee of goods who has advanced money against their value. Advances made for repairs to a ship at a port of refuge, which are to be repaid at the close of the voyage out of the ship’s cargo and freight, give rise to an insurable interest. Those concerned in any profits to be derived from a venture have an insurable interest in them; and among the numerous other ways, besides ownership, in which an insurable interest may exist in a given subject, it is almost needless to state, is the interest which the marine underwriter himself possesses in the risks he has underwritten, and which he very frequently finds it desirable to reinsure.
Summarizing, then, the essential features of a marineinsurance policy (following Mr. Gow's outline), it may be described as:
“(1) A contract of indemnity; (2) Made in good faith (in uberrima fide); (3) Referring to a defined proportion; (4) Of a genuine interest in a named object; (5) Being against contingencies definitely expressed, to which that object is actually exposed; (6) And in return for a fixed and determined consideration.” "
* William Gow, “Marine Insurance,” Second Edition, p. 77. * Ibid., p. 11.
An examination of the various types of marine policies in use in the United States shows that numerous titles are employed to designate them according to the subject matter insured. Thus among the various types of policies issued by American companies there are so-called “vessel policies,” “vessel and freight policies,” “cargo policies,” “steamboat policies only,” “tug policies,” “stranding or collision policies only,” “lighterage policies,” “yacht policies,” “whaling and fishing possess,” “canal hull policies,” “river cargo policies,” “lake cargo and vessel policies,” “cotton policies,” “builders’ policies,” etc. While a comparison of these numerous policies in different companies shows that scarcely two are exactly alike, yet a closer examination, whether we regard vessel, cargo, or freight policies, will show that they have all been adapted to the particular risk from a common form, and that, despite variations, the printed form of the contract is approximately the same as regards essential particulars. The only real difference exists in the adaptation of the contract to meet certain particular conditions, and not in the essential form or content of the document itself.
As special circumstances may render one form of policy more desirable than another, marine policies may also be conveniently grouped into four classes, according to the nature of the risk assumed, or the manner in which the policy is executed. Briefly stated, this fourfold classification depends, first, upon the manner in which the value of the subject matter of the insurance is expressed in the policy; second, upon the absence or presence in the policy of the name of the vessel which is to make the voyage; third, upon the period of time during which the risk is covered; and, fourth, upon the interest of the policy-holder in the subject insured.
Under the first classification the policy may be either “valued” or “open”; a valued policy being one which stipulates some agreed value (not necessarily the real value), such as $1,000 worth of goods, or a ship worth $50,000; an open policy, on the contrary, being one which omits to specify the value of the subject insured, but leaves this to be ascertained when a loss occurs. The important difference between the two is that in case of total loss, in the absence of fraud, the valued policy entitles the insured to receive the value specified in the policy without proving the loss, while the open policy makes necessary an adjustment as proof of the loss incurred. In case of partial loss, however, this difference does not exist, since the same adjustment must be made, irrespective of whether the policy is open or valued. Similar to the two types of policies just named is the second classification, namely, that referring to the presence or absence in the policy of the name of the vessel for a particular voyage. Under this classification policies may be either “floating” or “named.” By a floating policy is meant one which describes the limits of the voyage, the value of the property insured, and the type or class of vessel to be employed, but does not specify any particular vessel. The policy, in other words, is stated to apply to any “ship or ships.” The wording is thus made sufficiently broad to enable a merchant to insure his goods before ascertaining the name of the vessel on which they will be shipped, and to give him protection in case of loss, before he is able to make a specific insurance. As soon, however, as the name of the vessel employed on the voyage becomes known to the insured, this information, together with any important attending facts, is “declared” to the underwriter and “indorsed” on the policy, thus making it a “named” policy instead of a “floating” one. Under the third group there may be either “voyage” or “time” policies, the first denoting insurance for a specified voyage, as from New York to Liverpool, and the second referring to insurance for a period of time, usually one year. Lastly, we may have what is called an “interest” policy, or one clearly indicating that the insured possesses a true and substantial interest in the subject matter of the insurance, such as one hundred bales of cotton or a thousand bushels of wheat. In contrast to this type of policy is the “wager” policy, which, as its name implies, clearly shows that the holder has no insurable interest in the property covered by the policy, or that the underwriter, at least, will not demand proof of the same. One of the cardinal principles of insurance law is that an insurance policy, to be valid, must represent an insurable interest on the part of the insured. Hence in a wager policy it is customary to insert such expressions as, “interest or no interest,” “policy proof of interest,” and the like, which signify that by common agreement between underwriter and insured, the latter is entitled to the payment provided in the policy upon the loss of the subject insured, irrespective of the fact that he has no strictly insurable interest in the same. Owing, however, to the universal observance of the principle of insurable interest, it would be very difficult to collect on such a policy in any American court. In England, where such policies have been declared void by statute, they still continue to exist to a limited extent; their fulfilment, however, resting on the basis of so-called “honor” agreements. Marine insurance, as already noted, in connection with the discussion of Lloyd’s policy, has had a development of several centuries. Though introduced several hundred years ago, Lloyd’s policy still furnishes illustrations of the quaint language of earlier days, and affords a just basis for the characterization, often made, that it is an “incoherent and antiquated instrument.” But whatever may be said against the policy, because of its poor adaptation to the needs of modern commerce, is largely counterbalanced by the advantage of the certainty in meaning and the stability in marine transactions, which become possible through the use of a policy which has back of it several centuries of legal deci