COPY OF MARINE INSURANCE ACT

(The following is a copy of the Marine Insurance Act:)

[Public, No. 677]

SEVENTY-SIXTH CONGRESS OF THE UNITED STATES OF AMERICA; AT THE THIRD SESSION, BEGUN AND HELD AT THE CITY OF WASHINGTON ON WEDNESDAY, THE THIRD DAY OF JANUARY, ONE THOUSAND NINE HUNDRED AND FORTY

AN ACT To amend the Merchant Marine Act, 1936, as amended, to provide for marine war-risk insurance and reinsurance and for marine risk reinsurance, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title II of the Merchant Marine Act, 1936, as amended, is amended by adding at the end thereof a subtitle to read as follows:

"SUBTITLE-INSURANCE

"SEC. 221. (a) For the purpose of protecting the water-borne commerce of the United States from the impediments and burdens arising from the lack of adequate facilities for the insurance of such commerce, due to extraordinary risks arising under existing war conditions, the Commission is authorized to provide marine insurance and reinsurance against loss or damage by the risks of war and reinsurance against loss or damage by marine risks, as prescribed in this subtitle, whenever it appears to the Commission that such insurance adequate for the needs of the water-borne commerce of the United States cannot be obtained on reasonable terms and conditions from companies authorized to do an insurance business in a State of the United States.

"(b) There shall be in the Treasury of the United States a revolving fund to be known as the marine and war-risk insurance fund (hereinafter referred to as the fund), to be used for carrying out the provisions of this subtitle, and to be constituted of such sums as may be appropriated to such fund and of moneys and receipts credited thereto as herein provided. There are hereby authorized to be appropriated to such fund such sums as may be necessary to carry out the provisions of this subtitle. All moneys received from premiums and from salvage or other recoveries, and all receipts in connection with this subtitle shall be deposited to the credit of such fund. Payments of return premiums, losses, settlements, judgments, and all liabilities incurred by the United States under this subtitle shall be made from such fund.

"SEC. 222. The Commission may insure against loss or damage by the risks of war, property, as follows:

"(a) (1) American vessels (including vessels under construction), (2) cargoes shipped or to be shipped therein: Provided, That in the event of the suspension of the present neutrality law no vessel or its officers and crew, carrying contraband and no cargo of contraband shall be insured under any provision of this Act, (3) their disbursements, and freight and passage moneys, and (4) personal effects of the masters, officers, and crews of such vessels.

(b) (1) Commercial vessels (including vessels under construction) owned or controlled by the United States or any department or agency thereof, (2) cargoes owned by the Government or in which the Government has an insurable interest, to the extent of such interest, (3) their disbursements, and freight and passage moneys, and (4) personal effects of the masters, officers, and crews thereof. "SEC. 223. (a) The Commission may reinsure any company authorized to do an insurance business in any State of the United States on account of marine and marine war risks, including protection and indemnity risks, assumed by any such company, or (1) property or interests as set forth in section 222 (a) and (b) of this subtitle, and (2) masters, officers, and crews of American vessels (including any such vessel owned or controlled by or chartered to the Commission) against loss of life, personal injury, or detention by any government except that of the United States following capture.

"(b) The Commission may reinsure, in whole or in part, with companies authorized to do an insurance business in a State of the United States, war risks assumed by the Commission under this subtitle.

"(c) Any department or agency of the United States is hereby authorized to procure insurance from the Commission as provided for in section 222 (b) of this subtitle, except as provided in the Government Losses in Shipment Act, approved July 8, 1937 (50 Stat. 479).

"SEC. 224. Whenever the Commission determines that insurance for masters, officers, and crews of American vessels against loss of life, personal injury, or detention by any government except that of the United States following capture, arising from risks of war, cannot, with the aid of reinsurance provided for under this subtitle, be obtained on reasonable terms and conditions from companies authorized to do an insurance business in a State of the United States, the Commission is authorized to provide such insurance on a basis corresponding to the war-risk insurance protection supplied, prior to such determination, for such personnel by companies authorized to do business in a State of the United States.

"SEC. 225. In the event of disagreement as to a claim for losses or the amount thereof, on account of insurance under this subtitle, an action on the claim may be brought and maintained against the United States in the district court of the United States sitting in admiralty in the district in which the claimant or his agent may reside, or in case the claimant has no residence in the United States, in a district court in which the Attorney General of the United States shall agree to accept service. Said suits shall proceed and shall be heard and determined according to the provisions of an Act entitled 'An Act authorizing suits against the United States in admiralty, suits for salvage services, and providing for the release of merchant vessels belonging to the United States from arrest and attachment in foreign jurisdictions, and for other purposes,' approved March 9, 1920, as amended (known as the Suits in Admiralty Act), insofar as such provisions are not inapplicable and are not contrary to or inconsistent with the provisions of this subtitle.

"SEC. 226. (a) The Commission in the administration of this subtitle is authorized to adjust and pay losses, compromise and settle claims whether in favor of or against the Government, and to pay the amount of any judgment rendered in respect of any suit or settlement agreed upon in respect of any claim. The determinations of the Commission with respect to adjustments, compromises, settlements, and payments hereunder shall not be subject to review by any other executive or accounting officer of the Government.

"(b) The Commission is authorized to prescribe such forms and policies, to change or modify such forms and policies as may be necessary or appropriate under the circumstances, and to fix and adjust, as may be required by circumstances, the rates and changes of rates of insurance provided for in this subtitle. "(c) The Commission is authorized and directed to prescribe such rules and regulations as may be necessary or appropriate to carry out the provisions of this subtitle. The Commission is authorized, in administering the provisions of this subtitle, to exercise its powers, perform its duties and functions, and make its expenditures, in accordance with commercial practice in the marine insurance business.

"(d) The Commission, without regard to the laws, rules, or regulations relating to the employment of employees of the United States, may appoint and prescribe the duties of such number of experts in marine insurance as the Commission may deem necessary in carrying out the provisions of this subtitle. The Commission, with the consent of any executive department, independent establishment, or other agency of the Government, including any field service thereof, may avail itself of the use of information, services, facilities, officers, and employees thereof in carrying out the provisions of this subtitle.

"(e) The Commission shall include in the annual report to Congress a detailed statement of all activities and of all expenditures and receipts under this subtitle for the period covered by such report.

"(f) When used in this subtitle the term 'American vessels' means vessels registered, enrolled, or licensed under the laws of the United States.

"SEC. 227. Nothing in this subtitle shall be deemed to affect the rights of seamen under any provision of existing law.

"SEC. 228. All the provisions of this subtitle shall expire by limitation March 10, 1942, or sooner upon a proclamation by the President that the extraordinary condition upon which it is predicated is passed."

Speaker of the House of Representatives.

Vice President of the United States and
President of the Senate.

MONDAY, JULY 8, 1940.

MARINE INSURANCE-WAR RISK INSURANCE

STATEMENT OF HON. SCHUYLER 0. BLAND, CHAIRMAN, COMMITTEE ON THE MERCHANT MARINE AND FISHERIES

Mr. WOODRUM. All right, Mr. Bland.

Mr. BLAND. Gentlemen, I do not want to take your time, but I want to emphasize this, that marine insurance and war risk insurance-marine insurance in time of peace, and marine and war risk insurance in time of war-constitute the lifeblood of transportation of commerce by water. Without it, you just simply cannot move. You have to have insurance on your ships, you have to have insurance on whatever goes into the ships, you have to have insurance on the personnel, and on the added risk, if there is war.

Now, the question was asked about what was done before. I want to read from the statement submitted to us by the Maritime Commission on the operations under the War Risk Insurance Act of 1914:

From the annual report of the Director of the Veterans' Bureau for 1923, page 675, it appears that operations under the Act showed losses of approximately $30,000,000 and an income from premiums and salvage of approximately $47,500,000, leaving a net operating profit in excess of $17,500,000.

Of course, there would have to be deducted from that something in the way of overhead for administration, but there was a considerable profit, that was turned into the Treasury of the United States, by reason of this operation.

Now, the question was asked as to the cause of not more than $4,000,000 being available. In 1920, I think it was, or certainly before that time, there was a careful study made by the Committee on Merchant Marine and Fisheries of the insurance situation in the United States. The only Members of the House now who were members of the committee at that time were the Speaker (Mr. Bankhead) and Dr. Crowther, and a full study was made of the subject of marine insurance and war risk insurance. During the period 1840-60, marine insurance in the United States was in its heyday, because our merchant marine was in its heyday. Then, from 1860 down to the time we attempted to rehabilitate the American merchant marine, marine insurance went out, because we did not have the ships here and we were not interested in it. It has only been since we have commenced to restore the American merchant marine that we have been able to bring back this business to the United States.

I want now to call your attention to what Mr. Hedge, who is an insurance man, had to say. Mr. William K. Hedge, president of the Boston Insurance Co. and the Old Colony Insurance Co. of Boston, who advocated the original bill which insured also foreign bottoms and cargoes and went much further than the present law, said:

*

The wise man provides for the future and he does not wait until a thing hits him in the head before he puts his fist up. ** The whole theory of it is to arrange the details of our legislation and have it in shape, when an emergency arises, rather than to wait until the time the emergency actually comes. That was the position we were in in 1914. The result was that when the war came we had to pass legislation and it had to be amended, I think, five different times in order to get a proper set-up of what this country required to keep its commerce going.

Then he points out the results of the inability to get insurance to take care of our ships at that time. And the same result, which would follow now, would be that our commerce would be tied up at the wharves, if the hulls could not be insured, and our foreign commerce would cease. Then he went on to speak of the post-war legislation on this subject, and that brings me to the point of the $2,500,000. Speaking of the post-war legislation on this subject, Mr. Hedge, the head of these insurance companies, said as to the result of the legislation enacted about or after 1920-in my opinion it was part of the Merchant Marine Act of 1920:

Syndicates were formed and they have worked admirably and when they were established we could take care of a line of $2,500,000. Today we can take care of a line of $4,000,000. Now, if you build for America enough ships of high value, that $4,000,000 can be made $10,000,000 or $14,000,000. As Mr. Chubb says, it is a matter of the spread. As a fire-insurance company, you would not want to take $100,000 on 1 house, but you would be delighted to take $1,000 on 100 houses, in order to get that spread, because the one may burn up. One is gambling; the other is insurance. And that is what restricts the market. It is not as somebody suggested yesterday-a lack of initiative on the part of Americans or a lack of capital (there is plenty of capital), but it is the spread of the business that you need in order to bring up the underwriting capacity. Now, in order to get an adequate spread, as you know, we go to London for part of our insurance, and London comes over here for part of her insurance.

In connection with that, yesterday it was brought out that we might be pouring money into a foreign country in the payment of losses, that is, in the payment of marine insurance.

Of course, he was directing his remarks there to a bill that guaranteed foreign ships. His statement continues:

* And, of course, the last thing in the world that a foreign company would want would be to lose its ships, so the danger of that is not great. Then, speaking of the headquarters of the marine-insurance business being in London, Mr. Hedge says:

Of course, today London is and has been for years the big marine-insurance nation. There was certain insurance with France, and there was certain insurance with Germany, and certain insurance with Italy. Personally, I would not want to place any insurance with Germany today, because I am not sure I would get the cash.

Now, the London market has been built up through all of this period of years when a British merchant marine dominated the seas, so that it is important that we have this assurance against stopping the movement of commerce.

When the bill was before the committee, there was no objection on the part of the insurance companies, but just before the bill was reported there was a little fear on their part that it might become a permanent sort of thing; but that was taken care of in the Senate, because the Senate has already fixed a limit to this of March 10, 1942, and this means, as I see it, helping to build up the insurance business in America, rather than destroying the insurance business. This is an essential thing if our commerce is going to move.

There is one other point. I want to call attention to an editorial that appeared in World Ports, the official organ of the American Association of Port Authorities, on the original bill:

If the great and copious British marine insurance market, including Lloyds, cannot face the situation, it is no strain to imagine what might happen here. During the Italo-Ethiopian impassé we saw the war-risk rates soar in the

Mediterranean, and ships were actually routed around Cape Horn. The preMunich period, when the world held its breath, caused war-risk premiums to ascend in such trades as United States to South America and even to Hawaii. Some shipments were withheld during that time because they could not stand the levy for the protection. Since that time, shippers have been making some rather futile efforts to obtain reduction in these assessments for the contingency of war. England sets the pace for the ratings, as it has many admitted marine insurers in this country and reinsures most of the straight American companies.

The evidence before the committee was that other marine nations are doing and have done what we are attempting to do now, and the necessity for doing something is very vital.

One matter that shows the development of the insurance business is that when this hearing was held before the committee, in 1939, there was considerable evidence about taking care of the seamen's risk and the personal casualties-insuring the crew and masters on matters of that kind. Then, after we had reported this bill, the labor organizations took it up with us. They felt that probably the market then would take care of that kind of insurance and we found out that, since 1939, there had been a growth in the American market. But we have provided in here, if they cannot get that insurance, that we may be at all times prepared for the Government to step in to assure the certainty of movement of commerce by

water.

Mr. LUDLOW. Do you think if this insurance is provided that there will be a normal flow of commerce under almost any conditions

that would arise?

Mr. BLAND. Do I think if it is not provided?

Mr. LUDLOW. Do you think, under this provision of insurance, that there will be a normal flow of ocean commerce under any conceivable conditions?

Mr. BLAND. I think so, so far as insurance is concerned. Of course, I do not know what other contingencies may interfere with the flow of commerce, but certainly it would not be impeded by reason of the want of insurance.

Mr. LUDLOW. I am speaking of insurance.

Mr. BLAND. I believe that.

The CHAIRMAN. What is your idea in answer to Mr. Taber's suggestion that we cut this thing in two?

Mr. BLAND. I think it would be very unfortunate and very dangerous, because it is only a guarantee fund, and it may be that we need it and need it badly. If we do not need it, it is not used.

Mr. JOHNSON of West Virginia. I want to ask Admiral Land one question: Suppose England fails in this war, what effect would that have on this insurance with regard to the Lloyds insurance company?

Admiral LAND. I think the effect would be, directly or indirectly, that we would have to do more insurance. I do not think that there is any doubt about it. Is that right, Ogden?

Mr. OGDEN. I think so.

Mr. JOHNSON of West Virginia. In other words, the entire burden, if Germany should take over the British Isles, would be much larger on you?

Admiral LAND. That is right.

Mr. JOHNSON of West Virginia. In your judgment?