Miller's Marine War Risks

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The history of the war risks policy

The history of the war risks policy

1.1 Whilst this new Fourth Edition of the book has been heavily updated in many places, we (the authors) could not better the masterly recapitulation of the history of the War Risk Policy penned by Michael Miller, and nor would we wish to. What follows below, therefore, subject to only the smallest of amendments, is the text from the Third Edition.

The S.G. Form

1.2 The picturesque and archaically worded S.G. Form1 which was used by the London market up to 1983, had its origins in the bond or document by which seventeenth-century merchants and shipowners (in those days there was rarely the distinction that now exists between them), meeting together in Lloyd’s Coffee House, bound themselves one to ­another to make good any loss which any of them might suffer. This, in the course of time, emerged as a policy whereby one or several of them took all the risks in consideration of a premium. The S.G. Form was not a planned document and never during the whole of its long life did it acquire this characteristic. Risks and exceptions were added on an ad hoc basis as the demands of the insured shipowners, the practices of the market, and the decisions of the courts indicated were necessary. It was issued with the relevant clauses attached, usually by no more than a paperclip. For instance, an agreement to insure hulls or freight against marine risks would have required the attachment to the S.G. Form of the Institute Time Clauses, Hulls or Freight and an agreement to insure a ship against war risks, the attachment of the Institute War and Strikes Clauses. 1.3 Insured risks, exceptions and limitations were dotted about in the S.G. Form itself and in the attachments and often required experience and persistence to find them. Agreements varying the terms of the policy, whether made at the time that the Agreement to insure was made or subsequently, were evidenced by endorsement slips which were stuck on with paste. Sometimes clauses bore the puzzling words stamped on them with a rubber stamp “deleted”. The policy itself, particularly when compared with a conveyance of real property or a mortgage of a ship, had an untidy and unworkmanlike appearance. It was drawn up by the brokers who placed the risk, and was then checked and signed by the Lloyd’s Policy Signing Office from the broker’s slip, hardly a paragon of neatness and ­order in itself. This recorded each underwriter’s agreement to provide the insurance and his

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agreed proportion or percentage. The slip, being the only document that the ­underwriter ever signed to bind himself to the risk, is the evidence of the actual agreement to give insurance and the policy, when it came to be prepared, reflected its terms. When an underwriter has signed a slip, the brokers use the expression that he has “scratched” it, an expression which is more descriptive of the slip’s appearance than many would care to agree. 1.4 That said, it must be appreciated that the pre-eminence of the London market in marine insurance is founded on the S.G. Form. If an individual insured shipowner did not understand what insurance it provided, there were plenty of average adjusters, brokers, solicitors and counsel to help him. If he had to go to law, he found judges on the benches of the High Court and the Appellate courts who were well acquainted with its terms, and who could give judgment based on their own profound knowledge obtained from their own experience whilst practising at the Bar and from case law, going back to the start of the eighteenth century. It did not require the wisdom of some secret, closed and remote society to unlock its secrets. Untidy and unworkmanlike in appearance the policy may have been, but it proved on many occasions how flexible it could be, and by its changes, even though on an ad hoc and unplanned basis, how well it could respond and adapt to changing requirements.

The MAR Form

1.5 Much to the disgust of those who had grown accustomed to its ways and to the despair of the nostalgic, the S.G. Form was swept away in 1983 to be replaced by the new form of Lloyd’s Marine Policy (in the case of the Institute of London Underwriters, the Companies Marine Policy) known as the MAR Form. It is the first policy for marine risks ever issued by the London market as a comprehensively planned document. No doubt over the years changes will be made to it, but there is a great difference to changing a document which has been planned as a whole from changing one which grew on an ad hoc basis. No doubt some measure of untidiness will remain because endorsements will still have to be added and the relevant clauses attached so that the paperclip and the paste will retain their essential use. 1.6 An examination of the MAR Form will, however, reveal how systematic it is. It begins with a declaration that in consideration of the payment of the agreed premium, insurance is provided against “loss, damage, liability or expense”—surely a most comprehensive definition—and makes it clear that each underwriter’s liability is confined to his agreed proportion. There follows a page devoted to the individual description of the subject matter insured and the agreed (insured) value with a space for the endorsements and another page to identify the underwriters who have accepted the risk and the proportions of the risk they have agreed to accept. Most importantly of all, and essential if the MAR Form is to be used for all marine insurances, be they hull and machinery, freight, cargo or war risks, or whatever variation the insurance is to assume, attached clauses, in our case the Institute War and Strikes Clauses, contain the insured risks, or perils, set out in a comprehensive list with the exclusions and other conditions also printed in their respective places in an easy-to-read format. No doubt questions will arise on some of the terms which are used and litigation will ensue, but it would be wrong not to pay tribute to Mr. Alan Jackson and to his Committee whose members laboured long and hard to produce some readable and comprehensive documents in which clarity is the main objective

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and which, in themselves, do much to assist the London market to retain the pre-eminence that it has already won for itself. Some criticisms of the drafting will follow, but they will be made with the recognition of the sound nature of the Committee’s work. 1.7 We cannot, however, dismiss the S.G. Form from our consideration. Much of the London market’s practice grew up on its basis and the huge body of existing case law judicially defined its terms. The Marine Insurance Act 1906, which codified the law existing at that date with only minor alterations, was founded on the S.G. Form which is set out in a schedule to the Act itself. During its life of some 80 years, the Act has given rise to many legal decisions. Moreover the MAR Form, whilst it does introduce some welcomed clarifications, does not set out to make substantial alterations to the marine insurance hitherto provided by the London market.

The development of war risks insurance, and the f.c. & s. Clause

1.8 It is difficult for anyone now living to remember that the very firm and concise distinction between marine and war risks which is so well known to us today has existed only since 1898. Before that date the distinction, whilst it had existed to a greater or lesser degree for many years, was nothing like so clear and the degree to which it did exist at any particular moment is best appreciated from the history of the f.c. & s. Clause which follows.2 The reader will find it helpful to compare the date of the case they are studying with this history. 1.9 From the start of the use of the S.G. Form in the seventeenth century, marine and war risks were insured by the same policy. No fewer than 12 (some would say more) of the perils we would today describe as war risks were insured by the same policy which also insured such marine risks as “perils of the seas”. Underwriters sometimes wished to exclude war risks and an early example of this is The Charming Peggy.3 In 1739 there was even greater tension than usual in the relations between the United Kingdom and France, so “capture and seizure” were excluded from the perils insured by the policy. Wars in the eighteenth and nineteenth centuries were fought on the seas as much as they were on the land and made the enemy’s seaborne trade an especial target. Even though Britannia ruled the waves, the powerful and omnipresent Royal Navy was never able to obviate ­entirely the depredations of skilled, determined and resourceful enemy seafarers. The Seven Years’ War, the American War of Independence, the 1812 War and the Napoleonic Wars emphasised that there was a real distinction to be made between marine and war risks, and a variety of exclusions were then added to the policies by endorsement as the chapters on war, capture and seizure will show. 1.10 A particularly favoured exclusion, which seems to have been directed at excepting risks to ships in European ports which may have been affected by Napoleon’s ­Continental system read: “Free of capture and seizure in the ship’s port of discharge.” This has a ­familiar ring and can be said to have been the beginnings of the f.c. & s. Clause as it later appeared. The perils thus excepted could be insured by underwriters willing to write war risks. They seem to have found the business very profitable, although several were ruined by the disaster in 1780, when only eight British ships out of a convoy of 63 escaped capture.

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By the time of the Ionides case4 the f.c. & s. Clause in common use read: ­“Warranted free from capture, seizure and detention, and all the consequences thereof, or any attempt thereat, and free from all consequences of hostilities, riots, or commotions.” 1.11 In 1883, the underwriting community of the United Kingdom assembled at Lloyd’s wanted “warlike operations” added to this list. The Royal Navy had the year ­before bombarded Alexandria; apparently there was no state of war, and it was merely aiding a friendly State to put down a rebellion. In 1889 the Clause is recorded as reading: “Warranted free from capture, seizure and detention, the consequences thereof, or of any attempt thereat, unless arising from piracy or barratry, and from all consequences of hostilities or warlike operations, whether before or after declaration of war.” In 1893 there was a further amendment to add the “consequences of riots and civil commotions”, which had appeared in a slightly different form in the 1863 version, to “hostilities and warlike operations”. This gave rise to much opposition, so that the 1898 version omitted them. 1.12 During the 1890s, war risks came to be viewed with some disfavour by the ­London market, and this led to pressure for changes for an organised and uniform method to be used by the entire market. 1.13 The ancients who lived at the time told us this was a golden age of peace and plenty. The history books tell us a very different story. This was a time of great tension between the United States of America and the United Kingdom which could have led to a war, and of a crisis between the United Kingdom and France over the Fashoda incident which very nearly did. Both the United States and France possessed powerful navies, which, even if numerically inferior to the Royal Navy of the time, could have caused enormous damage to the United Kingdom’s maritime commerce. 1.14 The Imperial German Navy was, at the time, of little consequence, but, as Robert K. Massie’s interesting book Dreadnought shows, the Kaiser had ambitions to build a large and powerful fleet, and it could be anticipated that he would succeed in doing so. The memory of the 1812 war in particular, when the infant United States Navy had wreaked havoc in spite of all that the mighty Royal Navy could do to prevent it, was still green. In 1895 the London Assurance Company wrote to the Committee of Lloyd’s suggesting that there should be separation of marine and war risks perils, and that the latter should be ­insured by a separate policy. This should have its own rating which would be separate from the rating of the Marine Policy. It is not known why the Committee returned a chilling answer that it was not in a position to dictate to the Lloyd’s underwriters how they should conduct their business, but the companies were not then looked upon with much favour by the Lloyd’s underwriters. A suggestion of this nature from such a source may not have been welcome. 1.15 There was soon to be a change of heart. In addition to Dreadnought, there is Thomas Pakenham’s equally interesting The Scramble for Africa which also describes in vivid detail the tense relations that existed between Great Britain, France, Germany, ­Russia, and to a lesser extent only, the United States of America. On 15 June 1898, a ­General Meeting of Lloyd’s decided that marine risks and war risks would be insured by separate policies. In 1899, spurred on no doubt by the tense situation caused by the Fashoda ­incident in the previous September, it was further resolved that all marine policies should

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include an f.c. & s. Clause excluding war risk perils unless otherwise specifically agreed. The companies followed suit. From this date onwards, it has been the practice of the ­London market (an expression which in this book will include both the Lloyd’s underwriters and the companies) to insure marine risks and war risks under separate policies. This is still the practice today, even though the f.c. & s. Clause is no longer used. The important point is that in 1898, the totally different nature of marine and war risks was recognised to the extent that, from thenceforth, they had to be separately insured. 1.16 It is easy to be critical of the method chosen in 1898 to effect this division ­between marine and war risks. It must be borne in mind that the draftsmen, whose job it was to give effect to the decision, did not have the experience that we have today with two World Wars, the Spanish Civil War, the Sino-Japanese War, the Iran/Iraq War and numerous small but dangerous wars since the Second World War, all of which have had a considerable impact upon merchant shipping. To a great extent, they were bound by precedent to the forms of exclusion which were used in the eighteenth and nineteenth centuries. They were particularly concerned not to exclude unwittingly existing cover which an error in drafting might have done and thus, unintentionally, have deprived the Assured of cover which he previously enjoyed. The 1898 f.c. & s. Clause which was to be so used read as follows: “Warranted nevertheless free of capture, seizure and detention, and of the consequences thereof, or any attempt thereat, piracy excepted, and also from all consequence of hostilities or warlike operations, whether before or after the declaration of war.” (“Nevertheless” is recorded by some writers but not by others. Its effect in any case appears negligible.) 1.17 In 1901 a further attempt was made to exclude from the Marine Policy “riots and civil commotions”. Although on this occasion the opposition was not quite so forceful as it had been in 1893, it was still powerful enough to compel abandonment of the attempt. The clause was still in the same form on the outbreak of war in 1914 with only minor changes; there was now a comma after “seizure” and the attempt provision now read: “or of any attempt thereat”. The Sanday case,5 however, drew attention to the proper character of “restraint” as a war risk. In 1916 the f.c. & s. Clause was again altered to: “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 the declaration of war.” 1.18 In a 1921 case, this clause is quoted with some differences; there were commas after “thereof” and “warlike operations”, and “piracy excepted” was in brackets (in some versions it already was). These differences could have had an important consequence in the interpretation of the clause. It appears, however, that there was no case where these differences became important so there is no point in discussing them here. The troubles of the world between the wars led to further redefinitions of marine and war risks so that in 1937 the 1916 version was changed to:

Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities or warlike operations, whether there be a declaration of war or not, civil war, revolution, rebellion, insurrection or civil strike arising therefrom, or piracy.

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