Marine/maritime insurance has a history that dates back many hundreds of years, but is also an important component of vessels on the high seas in 2013. This paper covers the history of maritime insurance and brings the subject up-to-date with material from the recent literature.
History of Maritime Insurance
The growth of maritime insurance companies in the eighteenth century was "…one of the major developments in the history of English commerce," according to A.H. John, writing in the peer-reviewed journal Economica (John, 1958, p. 126). John writes that the origins of maritime insurance go back "…to the later middle ages," just a very small amount of "underwriting" was conducted prior to the American Civil War because there was great competition from important European commercial centres like Antwerp, Amsterdam, and Hamburg (126).
The author of this article explains that the maritime insurance market in London did not really expand and grow until the "…second half of the seventeenth century" -- about the time that financial activity began to flourish and resulted in the rise of the Bank of England, the "Funded Debt" and an "…embryonic Stock Exchange" albeit there were three types of printed insurance policies by 1675, John continues (126).
In the Dictionary of International Trade (Hinkelman) the author notes that maritime insurance dates back to 3,000 BC when Chinese traders "…redistributed cargo across several vessels" in order to put a limit on "potential losses" if one single vessel should sink (Hinkelman, 294). In 1750 BC, the "Code of Hammurabi" was instituted in ancient Babylonia; this allowed a merchant who was obtaining a loan for a particular shipment of goods to pay a little extra to the lender "…in exchange for the lender's promise to cancel the loan should the shipment be stolen" (Hinkelman, 294).
In 750 BC (in ancient Greece) the concept of "general average" was established whereby several maritime merchants that were shipping goods at the same time could pay "…a premium into a fund" that would be reimbursed to any merchant whose "goods are intentionally sacrificed for the safety of the vessel and remaining property" (Hinkelman, 294). During the years 1200-1300 a system was developed in Italy in which a loan was made to the owner of a vessel "…using the vessel's cargo as collateral"; the loans were then repaid ("with significant interest") when the ship's cargo arrives safely at its intended destination (Hinkelman, 294).
The earliest known maritime insurance contract was found in the archives of Genoa, Italy, dated February 13, 1343, Hinkelman writes on page 294. In 1601, England established a "specialized chamber of assurance" which was apart from the existing courts at the time, Hinkelman continues (294). England became the first "preeminent maritime, commercial, financial and insurance power" in the years 1650-1700; the UK combined the growth of their powerful navy, a merchant fleet, banks, and "marine insurance" into the world's "greatest trading and colonial power" (Hinkelman, 294).
Coffeehouses in London (around the mid-1600s) became not just a place to have a cup of coffee but also a center for social and business life -- and for ship owners, merchants, and insurers met to cut deals and "…exchange gossip, news, and shipping information" (Hinkelman, 294). And it was in a London coffeehouse -- Edward Lloyd's Coffeehouse, near the docks on the Themes River -- that Lloyd's of London was launched in 1688 (Hinkelman, 294). In 1693, five years after Lloyd's of London was founded, about 100 British merchantmen vessels sailing in a convoy "…are captured or destroyed in the Bay of Lagos by the French"; as a result of having to pay for those losses, "many marine insurance underwriters go bankrupt" (Hinkelman, 294).
Speaking of the convoy system, Eugene Rasor writes in his book (English/British Naval History to 1815: A Guide to the Literature) that convoys actually "reduced losses" and "insurance helped" the merchants. "The most serious threat" to maritime safety (between 1689 and 1815) was "French privateers" and that threat was perceived to be the greatest when convoys sailed the English Channel. Due to the relative safety of merchant ships traveling in convoys during the American Revolution "..insurance rates actually decreased" (Rasor, 295).
The first marine insurance company authorized by the British House of Commons
Author Frederick Martin explains that after several other companies attempted and failed to get the backing of the House of Commons -- to become exclusive purveyors of maritime insurance -- the "London Assurance Corporation" and the "Royal Exchange Assurance Corporation" were officially authorized to do business as monopolies on the 24th of June, 1720 (Martin, 1876, p. 96). The Act 6 George I cap. 18 stated, in explaining the authorization for these two insurance companies, the following:
"Whereas it has been found by experience that many particular persons, after they have received large premiums, or considerable monies, for or towards the insuring of ships, goods, and merchandize at sea, have become bankrupts, or otherwise failed in answering or complying with their policies of assurance, whereby they were particularly engaged to make good, or contribute towards the losses which merchants and traders have substained, to the ruin and impoverishment of many merchants and traders, and to the discouragement of adventurers at sea, and to the great diminution of the trade, wealth, strength, and publick revenues of the kingdom; and whereas it is conceived that if two several and distinct corporations, with a competent joint stock to each of them belonging, and under proper conditions, restrictions, and regulations, were created, and established for assurance of ships, goods, or merchandize, at sea, or going to sea (exclusive of all or any other corporations…already created, or hereafter to be created…) several merchants, or traders, who adventure their estates, or part of their estates, in such ships, goods, and merchandizes, at sea, or going to sea (especially in remote or hazardous voyages) would think it much safer for them to depend on the policies or assurances of either of these two corporations, so to be erected and established, than on the policies or assurances of private or particular persons" (Martin, 1876, 95-96).
The statue signed by the British authorizes -- which was opposed by "great opposition" in the House of Commons -- also allows the two companies to buy lands (up to one thousand pounds per annum) and may be allowed to "…sue and be sued at law," Martin explains (96). Moreover, these two insurance companies must keep on hand a "sufficient stock of ready money" in order to discharge "…all just claims" that arose from losses at sea; also, should the two companies that have been authorized to sell insurance for any reason "make refusal of payment, without good grounds, the insured parties should be entitled to recover double damages and costs" (Martin, 97).
Meanwhile, since 1906 the English Marine Insurance Act (EMIA) has been an "applicable law" and a "highly influential" document in the maritime industry (Institute Marine Cargo Clauses, 1982). The risks that the EMIA covers includes "all risks of loss or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below."
Those Clauses specifically exclude the following "general" items from coverage: a) loss due to "willful misconduct" of the assured; b) ordinary leakage, ordinary wear and tear of the subject matter insured; c) loss due to "insufficiency or unsuitability of packing or preparation" of the materials insured; d) loss damage resulting from "inherent vice or nature of the subject-matter insured"; e) loss due to delay; f) loss resulting from "insolvency or financial default of the owners managers charterers or operators of the vessel"; and g) loss or damage arising from "the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter" (Clauses 4.1 -- 4.7 / EMIA).
When it comes to "unseaworthiness and unfitness" regarding the competence and fitness of the vessel that is being insured, there are two exclusion clauses (Clauses 5.1-5/.2): a) the insurance will not cover (in any case) loss damage or expense due to "unseaworthiness of vessel or craft, unfitness of vessel craft conveyance container or liftvan for the safe carriage of the subject-matter insured" in the event that the insured parties or their servants were "privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein"; and b) the underwriters "wave any breach of the implied warranties of seaworthiness of the ship and fitness of the ship to carry the subject-matter insured to destination, unless the Assured or their servants are; privy to such unseaworthiness or unfitness" (EMIA, p. 2).
The "War Exclusion Clause" made it clear that the insurers will not cover any damage or expense that resulted from "war, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power" (EMIA 6.1).
Also 6.2 of the War Exclusion Clause explains that insurance won't cover a situation in which the vessel is captured, seized, arrested, or the insured is detained…