MARINE INSURANCE (GAMBLING POLICIES) BILL. (Hansard, 16 September 1909)

LORD HAMILTON OF DALZELL

My Lords, I am almost ashamed to ask your Lordships to consider another insurance Bill before we have got rid of the one which is already on the Paper, but I make bold to do so because I believe that this is a Bill which will meet with a very general measure of acceptance. Its object is to put a stop to gambling in marine insurance policies—a practice which there is reason to believe has been carried on to a very considerable extent lately and with results which have been far from satisfactory.

I think that first of all I ought to define what a gambling policy of this kind is. Under Section 1 of the Marine Insurance Act of 1906 a contract of marine insurance is defined as a contract whereby the insurer undertakes to indemnify the insured against marine losses—that is to say, a contract of marine insurance is a contract of indemnity. Under Section 4 of the Act it is laid down that every contract of marine insurance by way of gaming or wagering is void; and in subsection (2) of that clause it is stated that any contract of marine insurance is deemed to be a wagering contract (a) where the assured has no insurable interest in the ship or cargo, and (b) where it is stipulated that no further proof than the policy shall be 1242 required of the existence of such an interest. The ordinary business of marine insurance is done by the owner of the vessel or by some person who has a clearly defined interest in the ship or cargo.

But besides these transactions a considerable amount of business is done in what are known as P.P.I. policies, those initials standing for the words "Policy Proof of Interest." These policies are gaming contracts within the meaning of Section 4 of the Marine Insurance Act, and, as such, claims under them cannot be enforced at law in the event of a dispute. Their position in the eye of the law is exactly the same as that of a bet in every way. But, as a matter of fact, these honour policies, as they are called, are never disputed. They are invariably paid by the underwriters when claims under them fall due, in exactly the same way as very large sums of money change hands every Monday morning—sums which are equally irrecoverable at law, and which change hands as the result of a week's racing. These P.P.I. policies are used for two purposes. One of these purposes is a perfectly legitimate one, with which we do not wish to interfere. The other is an illegitimate use, and a use which there is reason to believe has led either directly or indirectly to, or at all events has been connected with, the loss of more than one ship in recent years, and it is the latter use of these policies which this Bill is intended to stop.

I will give an instance of what I will call the legitimate use of P.P.I. policies. It often happens that a merchant wishes to effect some extra insurance on a cargo while it is in transit. A very frequent cause of this being done is where the market has risen, and where consequently the cargo is more valuable than it was when he took out the policy, and in order that his risk may be fully covered, as the easiest and the readiest and the speediest way of covering that risk, he often takes out one of these P.P.I. policies. That is a perfectly legitimate thing to do, and we have no desire to interfere with it; but, besides that, a practice has arisen of people taking out these policies purely as a speculation. Policies are taken out by people who have no interest whatever in the ship or her cargo, and there are several evils connected with that practice. In the first place, it is very often extremely detrimental to the owner of the ship, because when he wishes, in a perfectly straightforward way, to insure his interest and to 1243 insure himself against risk, he may find that he has been forestalled by these gamblers, and that either he cannot insure his ship at all, or has to do so at a very exorbitant premium.

Then it has been found to be most unfair to the officers of these ships, and that is a point which has been raised before in your Lordships' House by a noble Lord whose interest in these matters is well known, and who I am sorry not to see in his place to-day. It has sometimes happened that when it becomes known that a number of these policies are outstanding on any particular ship the owners think—and they have very good reason for thinking—that there is a screw loose somewhere, and in consequence more than once an owner has discharged all his officers, and sometimes the crew as well, so as to make his position safe; but, of course, the greatest evil of all which we have to deal with in this matter is that very large sums of money are to be won by the loss of the ship, and we have to bear in mind the consideration that that fact makes it probable that unscrupulous people will adopt measures to secure the loss of the ship. As I have said, there are grave reasons for believing that on more than one occasion in recent years something of that sort has been done, or, at all events, if it has not been done, the least that one can infer from reading the evidence of these cases is that certain people have been in possession of knowledge which showed that there was something wrong with the ship which was likely to cause her loss, and instead of going, as any straightforward person ought to go, with such information to the owners in order to avert possible loss of life, they have kept that information to themselves and have betted upon it, often with very large profit.

It is, of course, very difficult to get at the truth in a matter of this kind, but one cannot help being suspicious when one finds, for instance, that a relation of the master profits to the extent of £6,000 by the loss of a ship. That actually happened in one case. One's suspicions are again aroused when one finds a man insuring a ship for £1,000 at a premium of 100 guineas—a ship which was lost a short time afterwards. That transaction from a gambling point of view meant that this man accepted a bet of nine to one against the ship going to the bottom on one single voyage. That is, of 1244 course, a totally inadequate rate of odds unless he had very good reason indeed for supposing that it would happen. The man who had that particular speculation gave a rather interesting account to the Court of Inquiry of several other speculations of the same sort which he had had. He seems to have had five in all. One of these he lost, as the ship arrived safely in port. Another bet he lost, if I may use the expression, by a short head, for the ship went to the bottom a very little time after the policy expired. The other three he won, the ship going safely to the bottom in each case. That may have been luck or it may have been judgment, but it is extremely difficult to believe that it was all quite fair and above board.

Your Lordships must remember that in dealing with this matter we have not only to protect the interests of the underwriters, who are the victims in the first instance in these cases, but we have also to protect the owners of the ship and cargo, and, what is a great deal more important, we have to protect the lives of the officers and seamen. The Bill itself is a very short one, and I think its provisions are quite simple. There are only three, I think, with which I need trouble the House. First of all it is provided that any person taking out a gambling policy of marine insurance is liable to a penalty of £100 or to imprisonment with or without hard labour for six months, unless he has a bona fide interest in the safe arrival of the ship. The second provision is that any person in the employment of the owner of a ship who takes out such a policy will be liable to a similar punishment whether he has an insurable interest or not. But I may say, in passing, that that provision does not prevent a captain or other officer from insuring his clothes or instruments or other valuables; all that it does is to provide that he must do it in an open and above board way by means of an ordinary insurance policy. The third provision is that any underwriter who knowingly issues a policy in contravention of the Act will be liable to a similar penalty, and, as a safeguard against frivolous prosecution, it is provided that proceedings can only be taken under this Bill with the consent of the Law Officers of the Crown.

Before preparing this Bill, my right hon. friend the President of the Board of Trade consulted every interest concerned. He had conferences with the representatives of the underwriters, with repre- 1245 Sentatives of the shipowners, and with representatives of the merchant service officers' associations. The result of those conferences is the Bill which is now before the House, which has the approval of all those interests, which has passed through the other House without any opposition whatever, and which I now ask your Lordships to read a second time.

LORD ELLENBOROUGH

My Lords, I look upon this Bill as a useful instalment of the legislation necessary to put marine insurance on a proper footing so as to put a stop, if possible, to over-insurance. To prove that this can only be an instalment I shall call attention to the case of the "Gunford," on which vessel P.P.I. policies were effected to the extent of £6,500. This vessel was valued at £9,000, yet she was insured at £19,000. The value of her freight was about £4,800; half of this had been paid in advance and so was not at risk, yet it was insured for £5,500. The total of her insurances amounted to £35,800, of which £6,500 were P.P.I. policies on the personal account of the managers, Messrs. Briggs. It is therefore clear that the managers stood to win far more than they would lose if the "Gunford" was wrecked. To command this ship they appointed a man of German origin named Sember, whose chief qualification for the appointment appears to have been that he had had his certificate suspended for the loss of the "Perthshire" twenty-two years previously, and that he had not been to sea since. With the help of a tug, Sember brought the "Gunford" as far as Dungeness. Thence he managed to get out of the Channel into the open sea, but in making the South American coast he struck on three different shoals on three different days, making a total loss of his ship on the third shoal. The crew of the "Gunford" consisted of twenty-six men, mostly Germans, ten of whom died of fever shortly after the shipwreck. Some of the underwriters refused to pay their insurances to the owners, who went to law about it. The state of the law and the customs of insurers and underwriters are shown in the judgment of Lord Salvesen in this case, as reported in The Times of July 22 last, and with the permission of 1246 the House I will read a short extract from that judgment. Lord Salvesen said— The fact was that the responsibility for over-insurance of ships rested with the underwriter, and not with the shipowner. Underwriters habitually decline to insure vessels at their market value, or, indeed, substantially below the cost price. The reasons for which they adopted this course in their own presumed interest—although it would seem to furnish a motive to the ship-owner to be less careful of the safety of the ship—were disclosed in the proof. All such policies were free of particular average under three per cent. When the three per cent. was calculated on a small sum—say £10,000 —all average above £300 had to be paid for by the underwriter, whereas if the same ship was insured on a declared value of £20,000 he escaped all claims below £600. The same principle applied in cases of constructive total loss. Underwriters had, therefore, deliberately adopted the policy of declining to insure vessels at their market value, and they preferred to run the risks of the owners being careless or dishonest, rather than have to meet claims which they would otherwise avoid, or to raise materially the annual premiums. Lord Salvesen decided that the insurances were to be paid. Now I am not criticising Lord Salvesen's judgment. I am merely taking his words as evidence of the state of the law and of the customs of insurers and underwriters, many of whom do not appear to take into consideration the case of the merchant seamen who, as third parties, are exposed to a greater risk of shipwrecks by these transactions. In their interests I consider that the law requires further alteration and I hail this P.P.I. Bill as an instalment only. It may pay some owners to over-insure, and it may pay some underwriters to assist them in so doing; but the loss of a ship and cargo must fall on some one; and the world in general must be the poorer whenever a cargo of coal or wheat is lost through over insurance. It is said that bad cases make good law, and I hope that the "Gunford" case will eventually do so.