policies at £6000 was run down by another steamer. The latter was held to blame and had to pay up to the limit of her statutory liability (at £8 per ton) £5684 or thereabouts. So far, it seems only right that the underwriter should receive this amount in full. But it appeared that in the statement made by the owner of the sunken steamer and accepted by the court, the actual value of that steamer was stated at £9000. The assured claimed the portion of £5684 attaching to the difference between £9000, the actual value, and £6000 the insured value, namely, onethird or £1895. But it was held that he had no right to any share of the amount recovered, and as far as can be seen the decision would have been the same had the full £9000 been recovered. Lord Cockburn in the course of his judgment said: "Just as the underwriter would be entitled to the ship if it could have been got bodily back, so they are entitled to that which is the representative of the ship in the shape of damages to be paid by the owners of the vessel which caused the collision."

If this is carried a step further, it will be found in the case of loss of a vessel by collision with another vessel of the same owner, that although the owner has to pay for the cargo lost in the vessel not in fault, the underwriters on the hull of that vessel have no claim for their loss against him or his underwriters of the other vessel. The principle of this distinction is that in each vessel the underwriters are simply the bearers of a part of the shipowner's responsibilities. When a loss to either vessel occurs by the fault of the other, the underwriters on the injured ship have no rights of action beyond those enjoyed by the owner, which are in payment of the loss or damage subrogated to them; their rights of action are only his rights of action passed on to them. But as a man cannot have a claim against himself or raise an action against himself, his underwriters, although interested in entirely different and independent parts of his property, have no claim or right of action against one another (Simpson v. Thompson, House of Lords, 1877, reversing decision of First Division, Court of Session).1

13 App. Cas. 279.

"In King v. Victoria Ins. Co. (Privy Council, March 1896: 12 Times L. R. 285) it was held that where underwriters bona fide paid a loss for which they were not legally liable, they were subrogated to the rights of the assured." Lord Hobhouse said that such "a payment

was a

claim made under the policy and entitled the insurers to the remedies available to the insured."

Course of Settlement of Constructive Total Loss.-At whatever point in a voyage, short of destination, the existence of a constructive total loss is proved, as soon as the loss is paid, the whole property passes over to the underwriter. The result of this is, that when a ship is sold at an intermediate port because it cannot be repaired or proceed on the voyage without repairs, and when goods are sold because they cannot be forwarded, they are sold on the underwriter's account, and the net proceeds are accounted for to him. The ordinary course of business, however, does not follow the matter thus particularly. The person who takes charge of the venture at the intermediate port, probably the captain of the ship or his agent, sends the proceeds to the shipowner, who passes over to the shippers the proceeds of their respective parcels of goods. Then the various underwriters have claims made on them for the difference between the insured value of the ship and its net proceeds, and of the goods and their net proceeds. Thus practically the claim takes the form of a total loss less proceeds. As proceeds are in such a case technically termed salvage, this form of settlement is known in the language of insurance by the name salvage loss."

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It is important to bear in mind the reason for the system followed in this payment. It is not that the goods are damaged, or that they are at an intermediate port in a damaged state; but that at a point which is not the destination of the venture the goods are sold because they cannot (physically or commercially) be carried on to destination, and being consequently a constructive total loss are surrendered to the underwriter (or sold on his account) in return for his payment of the insured value.

CHAPTER XI

THE MEMORANDUM-F.P.A. CLAUSE

THE form of policy discussed above leaves, as has already been pointed out, some uncertainty about the extent of underwriters' responsibility for total losses. The same indefiniteness prevails in the case of losses other than total. The underwriter merely undertakes "the true performance" of the contract in which he is described as being content to bear and as actually taking on himself liability for all "hurt, detriment, or damage" inflicted on the property insured by certain named perils or others ejusdem generis. The policy contains no words restricting the underwriter's liability to cases of total loss only there appears, therefore, to be no doubt that unless excluded by commercial custom or by special agreement, loss of a portion of the property insured, or damage to the whole or any part of the property insured, proximately caused by perils insured against, forms a liability of the underwriter.

The correctness of this view appears established from the fact that the earliest addition to the form of policy discussed above was a paragraph in which special exceptions are made from the liabilities of underwriters. The form in which this was and still is effected is peculiar and will require examination; the effect is to free underwriters from all claims for damage or partial loss unless they reach a specified percentage. This addition to the policy is known as the Memorandum: it was first inserted in Lloyd's policies in May 1749, in the following form :

N.B.-Corn, fish, salt, fruit, flour and seed are warranted free from average, unless general, or the ship be stranded; sugar, tobacco, hemp, flax, hides and skins are warranted free from average under £5 per cent, and all other goods, also the ship and freight are warranted free from average under £3 per cent, unless general, or the ship be stranded.

The memorandum remains in Lloyd's policy unaltered except by the addition of a few words, which extend the underwriter's liability in case the ship has been sunk or burnt, or the damage has been caused by collision.

Stevens in his essay on Average (1st edition 1813, 5th edition 1835) says that "the intention of the memorandum appears to have been to prevent persons from being insured on certain articles particularly liable to waste, decay, leakage, or damage on a sea voyage, or which were of great value and small bulk, under the general expression of goods, whereby the insurer would run a greater risk than he had calculated on." Stevens proceeds to explain that the reason why articles subject to leakage or breakage are not enumerated in the memorandum is that, according to the custom of Lloyd's, such articles are free from average unless it can be shown that the ship struck the ground with such force as to make it probable that she had thereby deranged her stowage. He adds that the warranty respecting certain articles being made free of average under a certain percentage is of a later date than the general clause of "free of all average.” From this it appears that before the adoption of the memorandum as a permanent addition to every policy the component parts of it must have been used separately as required by underwriters.

Benecke (Principles of Indemnity, chap. x.) traces the memorandum to the attempts of underwriters to counterbalance the effect which the natural quality of certain articles must necessarily produce upon the risk of the underwriters, and to put goods of every description upon an equal footing. In different countries different methods have been tried for the attainment of the same end; in Holland an attempt to adjust the premium and introduce

special stipulations for different articles had to be abandoned (Marshall, p. 215).

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The paucity of the articles enumerated is striking: it would be inexplicable were it not that the application of the memorandum was only the first step towards the framing of special terms for the insurance of different classes of goods, which in the end have superseded the memorandum. As to what was understood to be included under the names of the articles, we learn from Park1 and Marshall 2 that under corn are included malt (Moody v. Surridge, 1794), pease (Mason v. Skurray, 1780), but not rice (Scott v. Bourdillon, 1806), that "salt" does not include saltpetre (Journu v. Bourdieu, 1787). In fact the words are used in their ordinary trade sense, according to which it is quite reasonable that jute should not be included under "hemp" or 66 flax," and that in the United States furs have been held not to be included under "hides" or "skins" (Phillips, § 1764, quoting Astor v. Union Insurance Company, 7 Cow. N.Y. 202).

The wording of the memorandum leaves much to be desired it has been the subject of litigation from 1754 to 1893. There have been disputes about (1) the meaning of the phrase "warranted free from average," (2) the effect of the words "unless general," and (3) the interpretation of the words " For the ship be stranded."

(1) Warranted free from Average.—The difficulty here is due to the uncertainty which prevails regarding the meaning of "average.” It will be more convenient to discuss this word later, meanwhile it is enough to say that it here means "loss less than total and resulting from sea damage." The effect of these words taken in connection with the percentages stipulated in the remainder of the clause is, as regards the group of articles first named, "to free the policy for any extent of deterioration by sea damage however great which does not amount to a total loss" (Arnould, p. 875); as regards the second and third groups, to give the same freedom for any extent of deteriora2 Insurance, pp. 216, 218.

1 Marine Insurance, p. 179.