deductions has to pay the seamen's wages, to furnish provisions, to Sect. 337. defray the expenses of the voyage, and to make good that and other diminution in the value of the ship and her apparel which from the necessarily takes place more or less in the course of every freight. voyage, and which is familiarly called the wear and tear of the ship. What remains of the freight, after deducting these charges and outgoings, is the net profit of the voyage which the shipowner makes by the employment of his capital fixed in the ship. Now, on the principle of valuation just adverted to, it is plain that the ship, for the purposes of insurance, ought to be estimated at her value after deducting the wear and tear of the voyage, for that is what the ship would have been worth to her owner on arrival but for the loss against which the insurance is intended to indemnify him. In the same way with regard to freight, the true mode of estimating its value for the purposes of insurance on the above principle would be to take it at that sum, and no more, which the shipowner might calculate on receiving on the safe arrival of the ship-i.e., the net freight, deducting seamen's wages and the other expenses of earning it-because, in case the ship is lost, that is all the shipowner loses. insurances on So again with regard to goods, in order to put the merchant As applied to in the same situation as though no loss on his goods had taken goods. place-in other words, to procure him a complete indemnity— it is clear that the value of the goods should be estimated, for the purpose of insurance, at the price which they would actually have produced had they arrived undamaged at their port of destination. 338. Such, unquestionably, as was very ably and unanswerably pointed out by Benecke, is the only mode of estimating the value of the interest at risk by which complete and absolute indemnity can in all cases be procured for the assured (a). Yet this, be the reason what it may, is not (a) Principles of Indemnity, cc. i. ii. pp. 1-70, to which the reader is referred for a full exposition of the Practical principle of valuations assured in the Sect. 338. the principle of valuation which has been generally adopted in the practice of this or any other country. Parties engaged in the business of marine insurance are deemed to have connot to put the tracted for an indemnity of a more limited description; and the same situation object sought to be attained by the ordinary open policies on had occurred, ship and goods, both in this and other countries, is to put the but to replace assured not in such a position as he would have been in if no loss had been incurred, but in the same situation he was in at the commencement of the risk. as if no loss him in the same situation as he was in at the outset of the adventure. The assured on ship and freight generally receives more, and the assured on goods less, than an indemnity. It is upon this basis that the insurable value of the interest at risk is invariably calculated in all open policies effected in this country. The worth of the thing insured to its owner at the outset of the risk covered with the expenses of the insurance is, in all open policies, its estimated value for the purposes of insurance. As the ship in the course of every voyage is more or less diminished in value by wear and tear before the loss takes place; and as the goods would in most instances, but for the loss, have realized a higher sum at their port of destination than at their port of loading; it is very obvious that by this mode of insurance the assured on ship and on freight, in case of loss, will in all probability receive more than an indemnity, and the assured on goods less (b). Policies for the purposes of this chapter may be divided into two classes, valued and open. These we shall discuss in their order, and first as to valued policies. tice. See also McArthur on the (6) Mr. McArthur (p. 68) points which see s. 365, post) is in reality effecting a double insurance on certain of the component parts of his insurable interest. "The expenditure in outfit, stores, &c., which the law includes in the value of the ship, is also included in the gross freight, so that such expenditure is doubly insured." In principle, either such expenditure should be excluded in estimating the value of the ship, or the insurance on freight should be on the net and not on the gross amount thereof. Valued policies. 339. The statutory form, and usually every other form, of Sect. 339. policy in this country contains the following clause :— "The said ship, &c., goods and merchandises, &c., for so much as it concerns the assured, between the assured and the assurers in this policy, are and shall be valued at —" (c). The difference between an open and valued policy in form is solely this: that in a valued policy this blank is filled up with the sum at which the parties agree to fix the amount of the insurable interest; in an open policy it is left in blank. The difference in effect between a valued and an open Effect of policy is that under an open policy, in case of loss, the assured must prove the actual value of the subject of insurance; under a valued policy he need never do so, the valuation in the policy being conclusive between the parties (d). Thus, in Barker v. Janson (e), a vessel that had been worth 8,000l. was so much injured at sea that she was not worth repairing; this, however, being unknown at home, she was insured while in that condition for 6,0007., valued at 8,000%., and after the policy attached she was totally destroyed by perils insured against. In this case the valuation was held binding and the policy valid. And in the case of The Main (f), the vessel was driven on shore and was SO badly damaged as to amount to a constructive total loss. Whilst in that condition she was completely destroyed by fire. It was held firstly that her owners could recover as for a loss by fire, and secondly that, the policy being a valued policy, they could recover the full amount at which she was valued. The same rule has very recently been held to apply, in the (c) In a policy on freight the two words "as under" were added to this clause, and lower down in the margin was written "1,3007. on freight "-held, that this was not a valued policy: Wilson v. Nelson (1864), 5 B. & S. 354; 33 L. J. Q. B. 220; and see also Asfar v. Blundell, [1895] 2 Q. B. 196. (d) Barker v. Janson (1868), L. R. 3 C. P. 303; North of England Ins. Assoc. v. Armstrong (1870), L. R. 5 Q. B. 244; Lewis v. Rucker (1761), 2 Burr. 1167; Shawe v. Felton (1801), 2 East, 109; 2 Phillips, Ins. ss. 1189 et seq.; 3 Kent, Com. 274. (e) L. R. 3 C. P. 303. (f) Woodside v. Globe Marine Ins. Co., [1896] L. R. 1 Q. B. 105. valuation. Sect. 339. underwriter's favour, in a case where a vessel was undervalued in a policy and became liable to contribute to general average and salvage expenses. The S.S. "Balmoral" was valued in the policy at 33,0007., but her real value for the purpose of contribution was ascertained to be 40,0007., and on this latter figure contribution was accordingly paid by her owners. It was held, in an action by the owners against the underwriters to recover the whole amount of such contribution, that the valuation in the policy was binding and that the owners were only entitled to recover 33ths of the ship's contribution (g). Valuation applies in cases of par tial, as well as total, loss. Erroneous 340. It is now established that the rule whereby the valuation in the contract is conclusive between the parties is the same, whether the loss be total or only partial (h). There was an opinion at one time entertained by writers of eminence that though conclusive in cases of total loss, yet it was not so in cases of average loss, but that in such cases the policy was to be opened. By this was meant that the agreed valuation was to be set aside as the standard and the basis of the underwriter's liability and the actual amount of interest at risk proved, just as in the case of an open policy. For instance, supposing a particular average loss to take "opening the place on a valued policy on goods, insured to the full amount policy." of their valuation, and the damage ascertained to amount to one-fourth; according to the doctrine in question, it would be necessary for the assured, instead of at once calling upon the underwriters for a fourth part of the amount insured, to prove the insurable value of the goods, i.e., their prime cost, together with the premiums of insurance, &c., just as though the policy were an open one, and the underwriters would, in case the agreed valuation proved to be greater than such insurable value, only be liable to pay a fourth of the latter. doctrine as to This doctrine, wholly repugnant to the true construction of the valuation clause, appears to have arisen out of a (g) The S.S. Balmoral Co. v. Marten, [1900] 2 Q. B. 748; (under appeal). (h) Irving v. Manning (1848), 1 H. of L. Cas. 287; 6 C. B. 391; 1 C. B. 168; 2 C. B. 784. Phillips (vol. ii. s. 1203) discusses the point, dictum of Lord Mansfield, in the case of Erasmus r. Banks, Sect. 340. where that great Judge is reported to have said, "an average loss opens the policy "(). The phrase is unhappy, and suggestive of error, in consequence of the meaning attached to the words "open the policy." It is quite clear, however, True meaning of opening that the meaning of the expression is simply that in case of the policy. an average loss the parties must necessarily go out of the policy to ascertain the extent of the damage done to the goods. Of course, in the case of the goods being partially damaged, the policy alone can never show what the underwriter ought to pay; for the amount due from him is the same percentage on the sum he has agreed to insure, as the damage which the goods have suffered is upon their value: in other words, the proportion of the whole sum insured which the underwriter has to pay in case of loss, must depend upon the proportion in which the goods are damaged : as the one sum cannot be ascertained without fixing the other, and as the damage the goods have sustained can never be made out except by calculations wholly extrinsic to the policy, every policy, whether open or valued, must in this sense be opened in every case of average loss. Opening the policy, then, in this sense, means nothing more than resorting to extrinsic evidence, in order to ascertain the amount of damage sustained by the subject insured, so as to fix one element in calculating the amount of indemnification to which the assured is entitled; it is, in fact, merely ascertaining the percentage of damage sustained by the thing insured. It is clear also, from Lord Mansfield's observations in Lewis v. Rucker (k) that a valuation has precisely the same effect in cases of particular average as it has in cases of total loss, viz., to relieve the assured from proving the prime cost, or insurable value. There is moreover another sense in which the use of the (i) Cited in Shawe v. Felton (1801), 2 East, 113. (k) (1761), 2 Burr. 1167. See, too, Forbes v. Aspinall (1811), 13 East, 326; Usher v. Noble (1810), 12 East, |