CHAP. V. OF THE PARTIES BY WHOM THE POLICY IS ACTUALLY Of the parties by whom the policy is actually effected. Insurance Brokers and other agents. Almost all policies are in this country effected by in surance or policy brokers, SECT. I. Of Insurance Brokers-their Course of Business and $60. Ir very rarely happens, as we have already intimated, that the party whose interests are really to be protected by a policy of marine insurance, effects it himself; he may be a merchant or shipowner residing either in a foreign country, or, at all events, at a distance from the place where the business of marine insurance is carried on: even if resident on the spot, he will, generally speaking, find it more convenient, especially where, as in England, policies are principally effected with private underwriters, to employ a class of men who make the transaction of such business their principal occupation. In this country almost all policies are effected by insurance, or, as they are frequently called, policy brokers, whose business it is to act as middlemen between those merchants and shipowners who wish to insure their property, on the one hand, and the private underwriters, or public insurance companies, on the other. Primâ facie, the business of a policy broker would seem to be limited to receiving instructions from his principal as to the nature of the risk, and the rate of premium at which he wishes to insure; communicating these facts to the underwriters; effecting the policy with them on the best possible terms for his employer; paying them the premium; and receiving from them whatever may be due in case of loss. The usage, however, of this great commercial metropolis has introduced modes of transacting business between in surance brokers and underwriters, the object of which appears Of the parties to have been to facilitate the transaction of insurance busi- by whom the policy is ness on an extensive scale, by substituting, as far as possible, actually credits for payments, in all dealings between broker and underwriter. This system has introduced a considerable degree of complexity into the relations subsisting between the assured, the broker, and the underwriter: in order the better to understand which, we will consider the subject under separate heads. effected. Insurance Brokers and other agents. ART. I. General Course of Insurance Business between the line of the course of trade between the assured, the broker, and the underwriter. § 61. The general course of the business of marine in- General outsurance, as actually carried on in London, and most of the more important provincial towns of this country, is thus briefly, but comprehensively, described by Mr. J. Bayley:"According to the ordinary course of trade between the assured, the broker, and the underwriter, the assured does not in the first instance pay the premium to the broker, nor does the latter pay it to the underwriter. But, as between the assured and the underwriter, the premiums are considered as paid. The underwriter, to whom, in most instances, the assured are unknown, looks to the broker for payment, and he to the assured. The latter pay the premiums to the broker only, who is a middleman between the assured and the underwriter. But he is not solely agent: he is a principal to receive the money from the assured, and to pay it to the underwriters." (a) Hence the general rule of law is, that the broker is the debtor of the underwriter for premiums, and the underwriter the debtor of the assured for losses. mode in which accounts are If we enter a little more minutely into the subject, the Detail of the following will be found to be the actual course of practice :The insurance broker opens a separate account with each separate underwriter with whom he effects policies for (a) In Power v. Butcher, 10 B. & C. 340. his kept and losses settled between the insurance broker and the underwriter. General course different principals, and the underwriter opens a like account with the broker. of business between the assured, the broker, and the underwriter. In this account the broker credits the underwriter in his books for all premiums payable on the different policies subscribed by that particular underwriter (less his commission of 5 per cent. thereon), and debits him for all losses and returns of premium which may take place on any one of the policies so effected. The underwriter, in like manner, enters in his books all premiums payable to him, to the debit of the broker, and credits him for all losses that may become due. When a loss has occurred, and the per centage payable by the underwriters in respect thereof is ascertained, an indorsement to that effect is made on the policy, which is frequently in the following form: "Adjusted - per cent. on loss by £ the [name of ship] payable in a month." The policy, thus endorsed, is taken round to each of the underwriters, who signs his initials under such indorsement. This is called the adjustment of the policy. If upon this adjustment it be found, on examining the accounts, that the sum then due from the broker to the underwriter for premiums, on the general account between them, exceeds the sum due to the underwriter for losses and returns of premium, the account is said to be in favour of the underwriter, who generally strikes his name off the policy at the time, and at the end of a month from the adjustment credits the broker in his books for the loss, and the broker, on his side, enters the loss to the debit of the underwriter. In this case, no money whatever passes between the broker and the underwriter; but the general account between them is carried on to the 31st of December in each year, when a balance is struck, which is either paid in money, or carried on into the next year's account. (b) If, on the other hand, upon such adjustment, it appears (b) As the underwriter allows 12 per cent. on all cash payments, it is generally to his interest to let the money run on in account. M'Culloch's Comm. Dict., tit. Marine Ins. This allowance is generally made in prac tice; but cannot be recovered by a broker against the underwriter in a court of law, as it is a mere gratuity, and not a demand of right. Levi v. Burnes, Holt's N. Pr. 412. that the whole amount of losses exceeds the whole amount of premiums which had become due to the broker up to the date of the knowledge of such losses, the underwriter, at the expiration of one month from the adjustment (which time is allowed him as an indulgence), either pays the amount to the broker in cash, or carries it on to the credit side of the broker's account, and at the same time strikes a pen through his subscription to the policy and his signature to the memorandum of adjustment. In either case, as between the broker and underwriter, the amount of the loss is considered as paid directly it is thus passed in account; whether such settlement in account is also to be considered payment as between the broker and the assured is a question that, as we shall presently see, has been the subject of considerable litigation. (c) Mode of keeping accounts between the assured. Payment of The broker also keeps an account current with the assured, in which he debits him for all the premiums, and credits him for all the losses which may be due upon the various in- the broker and surances effected by his orders: at the expiration of the month allowed the underwriter after the adjustment of a loss, the amount due from the broker to the assured in respect of such loss is ascertained by deducting all the premiums with which he is debited in his general account with the broker up to that time, from the sum payable in respect of the loss, and such amount is then generally paid him by the broker's accepting a bill at three months for the balance. If, however, the dealings between the assured and by bill at three the broker are very extensive, the balance, instead of being thus paid, is frequently carried on into the general account. (d) Such is a general sketch of the actual mode of carrying on the business of Marine Insurance in the city of London: it is inserted here in order to make the following cases more intelligible to the student. These cases are, in fact, merely so many illustrations, under various complicated circumstances, (c) See Todd v. Reid, 4 B. & Ald. 211. Russell v. Bangley, ibid. 398. Bartlett v. Pentland, 10 B. & Cr. 760. Scott. Irving, 1 B. & Ad. 605. Stewart v. Aberdein, 4 Mees. & Wels. (d) Stewart v. Aberdein, 4 Mees. loss by broker to the assured months. General course of the general rule already referred to, and of the relations of of business between the assured, the broker, and the underwriter. Commissions del credere. Broker entitled to his commission del credere immediately on entering into the guarantee of solvency. the broker, the assured, and the underwriter, under the mode of settling losses as above detailed. In order to afford greater security to their customers, policy brokers frequently guarantee to the assured the solvency of the underwriters: the greater hazard to which they are thus exposed of course entitles them to a higher commission upon the business they perform: in such cases the brokers are said to act del credere, and the higher per centage which they are entitled to receive is called a commission del credere. This commission they are legally considered to be entitled to immediately upon entering on their guarantee, without waiting to see whether such guarantee may in the event subject them to loss. (e) The assured is not liable to the under miums, by the form of the common policy, which creates an estoppel against the underwriter. Nor would be so, as it seems, though the ART. II. Actions by Underwriter against Broker for Premiums, and Broker's Right to set off Losses and Returns of Premiums. § 62. In our common forms of policy, as we have already seen, the underwriter expressly acknowledges the receipt of writer for pre- the premium from the assured, and he is therefore estopped by a well known rule of law, from bringing an action against him for its recovery. (f) Even where the policy (as is the case with those of the Indemnity Mutual Marine Company) contains no such acknowledgment, yet the courts will not, it seems, imply a contract by the assured to pay the premium to the underwriter in the face of the general usage by which the underwriter looks, not to him, but to the broker, as his debtor. (g) It follows, as a consequence from this rule, that, in an action brought by the assured himself against the underwriter on the policy for a loss, the latter, as against the assured, form of policy created no estoppel. Hence, as a general rule, the under writer, as (e) Carruthers v. Graham, 14 East, 578. (f) Dalzell v. Muir, 1 Campb. 592. (g) Power v. Butcher, 10 B. & Cr. 329. the policy for a loss. 341. See per Bayley J., ibid. p. 340, |