HL Deb 27 June 1910 vol 5 cc1004-17

*LORD ELLENBOROUGH rose to call the attention of the House to Clause 19 (which deals with over-insurance) of a Merchant Shipping Bill brought into the House of Commons by the Right Hon. Joseph Chamberlain when President of the Board of Trade in 1884, and to the reports of the Courts of Inquiry into the circumstances attending the abandonment and loss of the "Cadoxton" on the 22nd of November, 1909, and the abandonment and loss of the "Kingswell" on the 21st of January, 1910; also to an article on the over-insurance of ships which appeared in The Times of the 4th of February, 1910, which contained what the writer considered to be a solution of the problem of the insuring of the older class of ships; and to ask His Majesty's Government whether they will make preparations for following up their legislation of last year on P.P.I. policies by drawing up and introducing a Bill making over-insurance against total loss illegal, and punishable by fines so graduated as to make any profit on such transactions impossible.

The noble Lord said: My Lords, the Government axe to be congratulated on having passed a Bill dealing with P.P.I. policies last year, which has had the effect of checking these insurances on ships which were made as a gamble by persons who had no interest whatever in the ships concerned. That measure, however, only dealt with a portion of the evils connected with the insurance of "crazy" vessels. It was passed with the approval of both sides of both Houses of Parliament, and I am sanguine enough to say that I hope before long to see another Bill passed as a non-Party measure, which will have the effect of putting an end to the over-insurance of old and worthless ships. Outsiders have been warned off by the P.P.I. Act, but the system and practice of some owners and underwriters in connection with worn-out vessels has, since the passing of that Act, been severely criticised by Courts of Inquiry which have looked into cases of total loss. Under the present system, some shipowners still make more money by the loss of a ship than they would by her safe arrival in port. When these ships are never heard of again after leaving harbour, it is very difficult to get sufficient evidence as to the cause of their loss, because the principal witnesses are drowned. Even when the crew are saved and the vessel is abandoned in the open sea, the inquiry into her loss is something like a coroner's inquest without a post mortem, the evidence in connection with which is often more important than all the rest of the depositions. The crews of these ships who are unrepresented in the other House are worthy of more attention than they generally receive, and although there may be differences of opinion as to the actual distribution of the burden, I think that it is quite clear that every penny-worth of property that goes to the bottom of the sea is taken from the available wealth and productive resources of this country.

The "Cadoxton" was thirty years old. She left Cardiff for Lisbon on November 16,1909, with a crew of eighteen men and a cargo of coal. She met with heavy weather, and was abandoned on November 22 at the mouth of the Channel. Her crew were picked up by a passing Vessel. The Court at Cardiff considered that the outside value of the ship was £6,000. Her hull and machinery were insured for £12,000, exactly double her worth, and the total of the insurances amounted to £14,000. The owners were, therefore, in the position of a racing man who stood to win £8,000 on bets against his own horse. The Court reported that— The loss of the vessel was due primarily to her making abnormal water owing to some mysterious cause, and proximately to the omissions of the master and chief engineer to take prompt and obviously available measures, for which the Court finds them in default. In the annex to the report they stated— There is considerable conflict of evidence as to when the vessel was first found to be making an unusual quantity of water. Many of the witnesses are not only directly in conflict with each other, but (notably the master and chief engineer) also self-contradictory. But in the mass of discrepancies, of contradictions and inconsistencies disclosed by the evidence, there are also some matters constituting common ground, and some matters not in dispute. The Court concluded by saying— 'The Cadoxton' did not sustain serious damage. For the reasons above stated, her abandonment was caused by the wrongful default and serious omissions of the master and chief engineer. If proper measures had been taken she might have been saved. The culpable omissions of the master and chief engineer indicate an absence of desire to save the vessel. There is evidence that neither the master nor engineer had any pecuniary interest in the vessel; and there is no evidence that either of them knew that the vessel was more valuable to her owners when foundered than when afloat. But the Court notes that the history of, and the story of the loss of, the 'Cadoxton' are not dissimilar from previous wreck eases in their salient features—viz.: an old vessel, trading at a loss, over-insured, cause of loss a mystery, and neglect of prompt and obviously available measures to save the vessel.

The inquiry into the case of the "Kingswell" was held at Newcastle-on-Tyne. The Court was composed of different judges and assessors from that which sat on the "Cadoxton" at Cardiff. The "Kingswell" was nineteen years old, she had had a severe collision in 1908 and was beached at Hythe to prevent her sinking. Her hull was seriously damaged, her deck plates being twisted. After being repaired she was sold for £9,000 in July, 1909. The Court stated— The shareholders consisted of friends and business connections of the manager, and on the 26th August, 1909, the vessel was mortgaged by Lloyd's Bank, Limited, to secure an account current and interest on which at the time of the casualty about £5,000 was due. The vessel was insured for £14,000, and in addition the manager effected a disbursement policy on his own account of £1,000. Here was a comparatively old ship with a somewhat chequered career—a ship which had not been continuously kept up to standard as regards her condition, and whose market price, under the circumstances detailed, was but £9,000, actually insured for £15,000. The premiums for the twelve months amounted to some £2,000 and were payable in advance, and nearly the whole of this was provided by the ship's insurance brokers, to whom bills were given by the company to cover the amount advanced. It is fair to the manager to say that he made some attempt to get the vessel insured for a rather less amount but unsuccessfully. The system under which Lloyd's and other insurance agencies insure old vessels of this character at a figure far above their market value is, in the opinion of the Court, most pernicious, and is, in effect, a gamble. If such vessels were insured only for their market value, and there were not the chance of a 'total loss' resulting in a 'handsome profit' to the owners, the certainty is that it would not pay to keep them afloat, and they would be 'scrapped.' The "Kingswell" carried a crew of twenty-two hands, and left the Tyne on December 6 last. On her way out she bumped on the Galloper Shoal but no entry of this was made in the log. She arrived at Siphnos, an island in theÆgean Sea, on January 14. She was loaded up with 3,400 tons of iron ore, and left on the 19th. On the 20th she met with bad weather, and on the 21st she was abandoned in a hopeless condition. We here have two Courts differently constituted, sitting one at Newcastle and the other at Cardiff, strongly condemning the present system of over-insurance of worn-out or damaged ships.

The "Selworthy" took a cargo of coals from Cardiff to Las Palmas. She left that place on March 16. An explosion took place on board of her on the 17th, she was abandoned shortly afterwards. I have much sympathy for her unfortunate crew, who were forty-three hours in her boats before being picked up by a passing steamer. But I have none whatever for her fortunate owners, because, if The Times report of June 11 is correct, her managing owner stated that he had purchased her for £8,300 and that the total of the insurances amounted to £15,750—a gain to them of over £7,000. The captain of the ship attributed her loss to twenty-four-hour bombs placed on board of her by labourers, who had threatened to damage her winches while discharging her at Las Palmas. As a Home Office inquiry into the cause of the explosion appears to be still going on, and as the Board of Trade inquiry has not yet been held, I shall say no more about her, except to express a wish that the inquiry into the causes of her loss may be thorough, and to say that it is a case in which I think detectives might be usefully employed.

The article in The Times of February 4 is too lengthy and too technical to be suitable for repetition in a speech. It is, however, well worthy of perusal. Most persons, however, if unacquainted with the subject, would have to read it twice before understanding it thoroughly. The following solution of the problem is suggested in it— The arrangement is for underwriters to insist on a high valuation on not very desirable boats for ordinary claims, but to pay only a certain proportion of that amount, perhaps seventy-five, sixty, or fifty per cent., should a total loss occur. Thus in case of an accident repairs would be paid for in full, but in case of a total loss only a percentage of the sum insured. In my opinion, the smaller the percentage the better. In the case of an over-insurance, the owner makes a bet against the safe arrival of his own ship. Your Lordships all know what the Jockey Club would do to one found to be betting many thousands against his own horse. Now I should like to see the over-insuring managing owner warned off the Newmarket Heath of shipowning, and forced to sell all his interest in ships within three months of such an offence being proved against him, under penalty of such interest being forfeited to the Crown. One remedy against over-insurance would be to enlarge the powers of the Courts of Inquiry. They have power to stop a negligent captain from earning his livelihood at sea. Why not give them similar powers to deal with any owner if by his misconduct, negligence, or undue economy, he has contributed to the loss of a ship? The owner should, of course, have the right of appeal to a higher Court. If such was the law, there would be fewer of these managing owners of single ship companies who bring such discredit on the shipowning profession. It has been said that if the law was to interfere with maritime insurance it would drive the work abroad. In my opinion it is only the dirty work that would go abroad. Foreigners who found that they were only insuring "crazy" ships would soon get sick of it. The clean work would remain in England. It is only because the dirty work has been mixed up with the clean work that it has been allowed to go on so long.

Part of Clause 6 of Mr. Chamberlain's Bill of 1884 was as follows— Notwithstanding any agreement to the contrary or any valuation in a policy of the subject-matter of insurance— (1) A marine insurance, whether effected by one or more policies for a sum that exceeds the insurance value of the subject-matter of insurance, shall be valid to the extent of the insurance value and no more, and shall be void as to any excess of the insurance value; and in case such insurance is effected by several policies shall be void to the extent of a rateable part of the excess over the insurance value and shall be valid for the residue only. (7) Under an insurance on a ship the insurance value shall not cover or include the cost of or expenses of wages, provisions, stores, consumable outfit of any kind, or any outlay incurred in sending a ship to sea on a voyage with a view to earning freight. (8) When freight is insured and the costs and expenses of wages, provisions, and stores, consumable outfit of any kind, or other outlay incurred in sending the ship to sea with a view to earning such freights are insured or covered by any other insurance or insurances effected by or on behalf of the same person as effected the insurance on the freight there shall be deemed a double insurance of such freight lossand expenses. The ninth subsection dealt with what are practically double insurances. Clause 19 ran as follows— (1) Any person who shall insure by or effect any insurance declared to be void by the Act passed in the nineteenth year of His Majesty George the Second, intituled an Act to regulate insurance on ships belonging to the Subjects of Great Britain and on Merchandises or Effects laden thereon, shall incur a penalty equal in amount to the whole sum insured by the void insurance. (2) Any person who, being the owner of a ship, or of any interest therein, on being entitled to receive or interested in the freight of a ship, shall knowingly effect any insurance declared by this Act to be void, or for the purpose of evading or contravening any of the provisions of this Act, shall incur a penalty equal in amount to the whole sum insured by such insurance. As regards subsection (2), I think it would be right to strike out the word "knowingly." It is part of a shipowner's business to know the value of his ship. He has the means of knowing it, and he really does know it unless he is abnormally stupid, in which case he is unfit to own a ship. He knows what he has paid for his ships, the accidents that have happened to them, what he has spent on repairs, and the average amount of the depreciation of ships of their class. Subsections (3) and (4) ran— (3) Any person who as an insurer shall knowingly insure by any insurance declared by this Act to be void, or for the purpose of evading or contravening any of the provisions of this Act, shall incur a penalty equal in amount to three times the value of the premium received or contracted for by such person as the consideration for effecting such insurance. (4) The provisions of this section shall apply to all British subjects insuring or effecting insurances, wheresoever such insurances may be effected, and also to all insurances on British ships, wheresoever the same may be effected, and in the case of insurances of or with relation to foreign ships, to insurances effected within the limits of the United Kingdom. In subsection (3), which deals with underwriters, I would not strike out the word "knowingly." Their position is quite different from that of the shipowner. An underwriter would have much greater difficulty in obtaining accurate information about the very much larger number of ships in whose fate he has an interest, especially when dealing with a bad class of shipowner, as the latter would attempt to deceive him. Had Clauses 6 and 19 become law in 1884, the owners of the "Cadoxton" would only have received about £6,000 for the loss of their vessel, and the over-insurance of £8,000 would have been forfeited as a penalty. In the case of the "Kingswell," £9,000 might have been paid to the owners and £6,000 would have been forfeited as a penalty. Whether the underwriters would also have had to pay penalties is not clear, but the premiums for the twelve months in the case of the "Kingswell" amounted to about £2,200. The rates were fifteen to sixteen guineas per cent., no discount, payable in advance.

Of the solutions that I have suggested, I greatly prefer Mr. Chamberlain's, but his Bill of 1884 contained 101 clauses and three schedules. It attempted too much, and had to be withdrawn in consequence. Had Clauses 6 and 19 become law, they would, I believe, have relieved the country of the disgrace of these over-insurances and their natural consequences. I can scarcely expect that any legislation on this subject will be non-contentious, but I hope, if the Government have the courage to bring in a short two clause Bill, that it will be strongly supported by the Opposition Benches in both Houses, and that both Parties will vie with each other in endeavouring to carry a Bill which will have the effect of doing away with what has been a shame and disgrace to Great Britain for many years. I also hope that such a Bill will have the support of the vast majority of shipowners, men who do not carry on their business on the lines that I have referred to. Though I feel very strongly, I have endeavoured to express myself in moderate language. There is a calm in Party politics at the present moment—the calm in the centre of a storm. Why not make use of that calm to pass a small non-Party measure for the benefit of British seamen?


My Lords, having served as a member of the Royal Commission on Unseaworthy Ships and of many Select Committees of the other House of Parliament who have inquired into this subject, I rise, under a strong sense of duty, earnestly to support my noble and gallant friend. Of all the preventible causes of loss of life at sea, over-insurance is the most fatal. The testimony borne by experienced and authoritative witnesses before Royal Commissions is unanimous. I recall the evidence of Mr. Harper, secretary to the Salvage Association of Lloyd's, before the Commission on Unseaworthy Ships. He said— It is in the very nature of things and in human nature that a rule of law which enables the assured to recover more than the value of the property insured must have a tendency to make the shipowner or shipmaster negligent. If we were to do away with insurance altogether, the business of this Commission would be at an end directly. The care of a ship divides itself into a hundred particulars: care in the appointment of a master, care in the selection of a crew, care in the condition of a ship when she leaves, and general watchfulness; and I say that it is certainly likely to be relaxed in the case of an owner who knows that if his ship goes to the bottom, perhaps from the very circumstance that he has not given sufficient attention to her, he not only gets the whole of his money invested in the ship but a profit besides into his pocket.

Turn to the Commission on the Loss of Life at Sea. In their Report they give special prominence to the evidence they have received from Mr. Rothery, Wreck Commissioner. He was strong for amendment of the law of marine insurance. The seaman, as he pointed out, cannot insure his wages, and this prohibition is founded upon a very intelligible principle—namely, that you should not hold out to him a premium to cast away his vessel or induce him to refrain from exercising all his energy in preventing her from becoming a wreck. Why the same principle should not be applied to the shipowner, and why he should be entitled to make a gain by losing his vessel, he never could understand. Both the Commissions to which I have referred were agreed as to first principles. Both concurred that insurance should not give to the shipowner more than an indemnity against loss.

The Commission on Unseaworthy Ships laid it down that the contract of marine insurance is in its essence a contract of indemnity, and that the spirit of the contract is violated if the assured can make the occurrence of a loss the means of gain. The Commission on the Loss of Life at Sea reported in almost identical terms. The Commissions, whilst strongly recommending revision of the law, recognised that the process must be gradual. The Commission on Unseaworthy Ships recommended that an attempt should be made to induce foreign nations to adopt a general code. Action on this wise recommendation has been long delayed. It is never too late to mend. Pending the revision of the law, the remedy will best be found in the adoption of the suggestions which my noble and gallant friend has submitted to your Lordships.

I venture to supplement the authoritative opinion of Commissions and the evidence of witnesses with a personal experience. Some years ago, while lying at anchor off Constantinople, a steamer from the Black Sea dropped anchor near us, evidently much overladen. In the course of the day I received a letter from the engineer of the ship saying that they were about to go to sea in a dangerous condition, and asking me to take steps to detain the ship. I went to the British Consul; he said that if the crew complained prompt steps should be taken to detain the ship. I went aboard. The crew were mustered and I addressed them, offering to carry any complaint to the Consul. Instantly the engineer stepped forward saying that he was entirely satisfied. No member of the crew desired to make complaint. The steamer proceeded. Off the English coast, and in moderate weather, she foundered. A pilot boat was alongside, and the crew were safely removed. An inquiry was held. It was shown that the steamer was over-insured to a large amount. The owners were paid in full. Under the rule proposed by my noble and gallant friend this miscarriage of justice would not have occurred.

In conclusion, it is cheering to turn from insurance against disaster to the notable reduction in deaths at sea by wreck and casualty. In 1887–8 there was one casualty in 157 of the total number of the crews; ten years later, one in 397; in 1907–8 one in 503. The improvement reflects the highest credit on our shipbuilders and shipowners. While correcting abuses in the law of insurance, let us not insist on vexatious and imperfect surveys and regulations. I recall a telling speech at the Trinity House by Mr. Milner Gibson. Columbus, he said, would never have won the honour of being the discoverer of America if in his time there had been a Board of Trade at Cadiz with a President full of laudable zeal at its head responsible for the equipment of every ship in the port. The expedition would not have been allowed to start. My noble and gallant friend's suggestions will cause no embarrassment to the honest shipowner. They may do something to relieve him from the unfair competition of reckless men.


My Lords, I was not surprised to see this Question on the Paper in the name of the noble Lord opposite, because not only is the interest which he takes in everything appertaining to the welfare of merchant seamen well known to your Lordships, but I remember that last year when he supported the P.P.I. Bill he gave an indication that he intended to bring this matter forward at an early date. We were very much obliged to him for his support on that occasion, and we do not in any way complain that he has brought forward this matter to-day. The Government recognise most fully that in a maritime nation such as this Parliament should not lose sight of these matters, and I can assure the noble Lord that the particular question which he has raised is receiving the constant and close attention of the Board of Trade.

The noble Lord calls attention in his Question to the loss of two particular ships which has occurred within recent months. He gave us a full account of the loss of those ships as far as it transpired at the Courts of Inquiry, and I do not think it is necessary for me to go over that ground again. The noble Lord pointed out, however, that in each case the Courts reported that the ships were insured considerably above their value. They also reported that in each case there was a certain amount of mystery connected with the loss of the ship; and, further, the Courts commented adversely in general terms upon the system of insuring ships considerably above their value. But it is to be observed, at the same time, that in both cases, although the Courts pointed out that there were suspicious circumstances I connected with the loss of the ship, they were not able to report that any malpractice I had actually taken place. In the case of the "Cadoxton" they went further, and stated that they found that two of the officers had been guilty of culpable negligence, but they did not seem to have been sufficiently convinced that that negligence was intentional to deal in any way with the, certificates of those officers—a course which lay within their power had they thought it right and proper to do so.

I admit fully that the practice of insuring ships above their value is clearly open to abuse, and it is natural that when a ship which is known to have been insured considerably above her value is lost suspicion should be aroused. In these cases it is very seldom that you can get beyond suspicion. As the noble Lord has pointed out, it is in the nature of things that that should be so. Not that that is an absolute bar to action, because, as the noble Lord will remember, the case in favour of the P.P.I. Bill last year rested almost wholly on suspicion, but in that case the suspicion was so strong that it was held to justify the interference of the Government. What I would say is that in this case of over-insurance, if the suspicion again becomes strong and if my right hon. friend the President of the Board of Trade is persuaded that the suspicion is of such a nature that the Government ought to interfere, he will do so again; but I cannot say that as at present advised he is prepared to introduce legislation.

There are really three suggestions in the noble Lord's Question. There is, first of all, the course proposed in Mr. Chamberlain's Bill of 1884. Then there is the proposal contained in the last paragraph of the noble Lord's Question. Those two proposals both deal with penal legislation. I have no doubt that if it is found desirable to introduce legislation dealing with this matter, and if penal legislation is necessary, it would have to be more or less on those lines. I think that is clear. The other suggestion—the suggestion contained in The Times article—really deals with a new method of insurance, and if that commended itself to underwriters and to shipowners as being the fair method of carrying on their business, there is no reason why it should not be adopted. At the same time, it is not easy to see how either party or both parties could be com- pelled to adopt such a method against their will. What it would really amount to would be this, that underwriters would retain a high valuation of a ship for the purpose of determining partial loss and a low valuation for the purpose of determining the amount to be paid in the case of total loss. As that proposal appears in The Times, on the face of it it seems rather one-sided and to favour the underwriter as against the shipowner, but that is a detail which could no doubt be adjusted by mutual arrangement if this system met with the approval of the gentlemen engaged in these two businesses.

There is a point which I think one ought to mention in speaking of over-insurance. It is that in insuring a ship there are really two risks which are insured—the risk of total loss, and the risk of partial loss. Those are really different things, and I will show where the difference comes in. An old ship is probably worth less in the market than a new ship, and for that reason it ought, no doubt, to be insured at a lower figure; but partial loss and damage is more likely to occur in the case of an old ship than in the case of a new one, and I understand that underwriters sometimes insist on a rather higher valuation of the ship than is justified by her actual value in the market, so as to protect themselves against that risk. That, I understand, accounts for these high values in many cases, and that is the reason why underwriters agree to them. In view of the fact that the Government are not prepared at present to introduce legislation to deal with this matter, I do not think that your Lordships will expect me to make any declaration in favour of any particular method of legislation supposing it is found to be desirable. That would clearly have to be based upon careful inquiry and investigation. What I would say is this, that I do not wish to minimise in the least the danger which may possibly arise, and in some cases probably has arisen, from over-insurance, but I hope the noble Lord will rest content with the assurance that the Board of Trade are keeping a very watchful eye on this matter, and will accept the Bill of last year as an earnest of the fact that if action is shown to be necessary the Government will not hesitate to take it.

Then the noble Lord alluded to the loss of the "Selworthy." I confess that I was not familiar with that case, but I will bring the noble Lord's remarks to the notice of my right hon. friend. The noble Lord behind me (Lord Brassey) pointed out, quite truly, that the whole principle of marine insurance rests upon the fact that it is in its essence a contract of indemnity. That is a matter which ought never to be lost sight of, and which I am sure the Legislature never will lose sight of in dealing with this question. I quite agree with what my noble friend said, that it would probably be a very useful precedent to any action which may be deemed to be desirable that counsel should be taken with foreign countries in regard to their law of insurance.


My Lords, I am quite certain that my noble and gallant friend who sits behind me will be at any rate satisfied with the very sympathetic manner in which the noble Lord who represents the Board of Trade in your Lordships' House has replied to his Question, but I am not sure that the noble Lord went much further than a sympathetic reply. He says that the Board of Trade are keeping a watchful eye on this question. No doubt they have been keeping a watchful eye on the question for the last quarter of a century, since my right hon. friend Mr. Chamberlain introduced his Bill in 1884; but I cannot help thinking that probably some conclusions have emerged from that long consideration of the subject. I do not think that the noble Lord himself communicated to your Lordships quite fully what the result of those considerations must have been. He told us that the Government were not prepared to legislate on the subject but were considering it. That is what we may call a sealed pattern reply. I do not, of course, complain of it for a moment, but it does not carry us very much further.

The case stands thus after this evening's discussion, that a very strong number of facts—not merely theories, but hard substantial facts—have been brought before your Lordships. My noble friend behind me had chapter and verse for everything he said. Then there was the very wide experience of the noble Lord opposite (Lord Brassey) and the most interesting instance which he gave out of his own experience of a ship which he had met in his maritime career and which was one of the offending ships. Not only was there evidence of its unseaworthy condition, but as a matter of fact the ship went down. Those are the sort of facts which the Board of Trade have been considering for twenty-five years. Now what are the arguments against legislation on this subject? The noble Lord did not tell us. What is it which makes the Board of Trade hesitate? That is what I should have liked him to tell your Lordships. It may be that the subject has two sides to it; it may be that there are difficulties with which your Lordships are not familiar; but if the noble Lord could have communicated them to the House, I am sure it would have given very great relief and satisfaction, because although to be told that nothing can be done is in one sense unsatisfactory, yet it relieves your Lordships from responsibility in the matter.

We should like to know what opinion the Board of Trade have formed of the prevalence of this over-insurance of unseaworthy ships. Is it done on a large scale? That would be one most important fact for us to know. The next is, if this is done on a large scale, whether there are any real difficulties in legislating on the subject. There is one direction in which I can give assurance to the Government. If on their responsibility they think it right to deal with the subject, I can assure the noble Lord that it will not be treated in a Party spirit either in this House or in another place. The lives of our seamen are too valuable for any proceeding of that kind. The noble Lord may take it for granted that if the Government think it right to legislate, their action would be treated in a perfectly fair spirit, in order that we may do the best we can for these men and the great service to which they belong.