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Losses may be broadly divided into two classes-Partial and Total. The former refers to cases where the subject-matter of the insurance is only partly damaged, or where a contribution to general average is obligatory; the latter, which may be subdivided into actual and constructive total loss, refers to cases where the subject-matter of the insurance is either wholly lost, irretrievably damaged, or necessarily abandoned-i.e., where a prudent owner, if uninsured, would abandon. General Average has been defined as including "all loss which arises in consequence of extraordinary sacrifices made, or expenses incurred, for the preservation of the ship, freight, and cargo, which must be borne proportionately by all who are interested." Particular Average relates only to cases where damage is done to the property of an individual, whether by peril of the sea or otherwise, but which is not, however, suffered for the benefit of all. As an illustration of the difference between general and particular average, the following instance is taken: A fire broke out on board the s.s. "X.," cause being unknown, resulting in damage to a portion of the cargo both by fire and by water. The damage effected by the water used for extinguishing the fire, having been incurred for the benefit of all, will come under general average, while the damage caused by the direct action. of the fire will come under particular average.
This is the term employed when one underwriter desires to re-insure any risk he has undertaken with another underwriter. In such cases the underwriter acts through the medium of a broker, and himself assumes the position of a merchant for the time being.
Under what is known as the "Sue and Labour" clause of a Lloyd's policy (a pro formâ copy of which will be found in the Appendix), an underwriter, in the event of a mishap or catastrophe, is entitled to exercise all the rights of an owner for the preservation of the property insured, without himself incurring thereby liability to pay a total loss; and, per contra, the owner is entitled to exercise full right of ownership, and to incur all necessary expenses for the purpose of preserving the property at the charge of the underwriter, and without losing thereby his power to claim subsequently in respect of total loss. Consequently, therefore, both the underwriter and the owner can act in the capacity of salvor, but it is usual for the work to be carried out by certain associations formed for the purpose of protecting and realising abandoned property for the benefit of those underwriters who have been obliged to pay claims in respect thereof. The net proceeds are distributed among those underwriters who may have elected to incur the additional expenses attending on the salvage, in proportion to their share of the risk, and such recoveries by them are termed salvage. The remaining underwriters (if any), although they will have been called upon to pay claims, are not entitled to participate in any such recovery.
It sometimes happens that, before the payment of a claim by the underwriters to the broker who acts as agent for the merchant, the latter has received a salvage on account of the subject-matter of the claim, in which case the underwriter will only pay over the net difference due, such an amount being termed by him a salvage loss.
These chiefly refer to recoveries in connection with claims made under general average. It is custoinary in these cases, owing to the prolonged delay that frequently occurs before the average can be adjusted, to pay an estimated amount, pending the final settlement. This estimate is often substantially in excess of the actual damage incurred, being calculated on the invoice value of the goods by the shipowner, who, possessing a lien thereon, is in a position to demand ample margin. The deposits are generally placed in the hands of trustees until the adjustment can be completed. If, after the expenses of the average adjusters" have been paid, it is then found that a balance is returnable to the underwriter, such amount will be received by him and designated a Refund.
Mode of Settlement.
Forty years ago underwriters wrote risks and signed policies, and, speaking generally, waited for their money. At the 1st of January in each year the brokers paid them their balances, deducting 12 per cent. discount. The position per se stamped the old underwriter as a man of some substance, with a large balance of money owing to him from brokers during the greater part of the year. He had to find money for his losses, less premiums, on the particular account, and received a considerable balance at the turn of the year, the broker of those days being glad to pay as promptly as possible, as he could only get the 12 per cent. discount. on the profitable balance of the account at the first of the new year, and, until the account was settled, was in a position to have his discount upset by a loss intervening. Premiums are ostensibly due to the underwriter on the signing of the policy, in accordance with the following clause contained in the policy itself: "Confessing ourselves paid the consideration due unto us for this assurance by the
assured at and after the rate of &c." But this clause was never adhered to in practice, and under the present system, known as the "Cash System," all premiums are considered as due and payable on the eighth of the month following the signing of the policy. Thus, a policy signed on the 31st of August entitles by custom the underwriter to receive the premium on the 8th of September, less 10 per cent. discount. This custom is, however, like many others, much ignored, and many brokers pay every three months, some less frequently, some when they are asked, and some when they are worried. There appears to be no absolute rule, and if it were not that losses or claims bring both sides into settlement with one another at various intervals, and so exercise a regulating influence of some general kind, a clean settlement might be postponed indefinitely.
Brokerage.—It has already been seen that premiums are subject to a deduction by the broker of 5 per cent., termed "brokerage." This rate is invariable, with one trifling exceptionthat, in cases where the premium is quoted in guineas and their proportions, the brokerage takes the form of the odd shillings, and the net premium is consequently represented by the pounds. For example, in the case of a premium quoted at 20s., the brokerage will be is., leaving the premium, less 5 per cent., at 19s.; whereas if the quotation was 21s., the brokerage will still be Is., and the premium, less brokerage, will be 20s.
Discount. The premium, less 5 per cent., is still further reduced by a discount of 10 per cent. allowed to the broker, who himself has already allowed it to his principal. Formerly this discount was strictly a cash discount, broker provided he settled
and was only allowed to the promptly on the due date, and, although in theory it still remains a cash discount, in practice it has become an almost universal custom to allow it, no matter when
the account is settled. This 10 per cent. is not calculated on the gross, but on the premium, less 5 per cent., and, working on the example above given, the result shows as follows:-Gross premium, 20s.; brokerage, 1s.; premium, less 5 per cent., 19s.; discount, Is. IId.; net premium, 17s. Id. In some cases, however, this deduction of discount is not made, the underwriter quoting a "rate net," which implies no discount will be allowed. There are several disputable matters connected with the treatment of discount in the books which cannot be touched upon here, but which will be found fully dealt with in a subsequent chapter.
Claims. From a strictly legal point of view, which is recognised at Lloyd's, losses and claims are payable by the underwriter direct direct to the assured, whereas premiums are payable to the underwriter by the broker, and not by the assured. However, it has become customary for losses to be paid through the medium of the broker as agent for his principal, the assured. To establish the fact of this agency, it appears to be necessary for the underwriter to pay over to the broker a separate cheque for the actual amount of the claim, for it has been held that when the claim is treated as a matter of account as between the underwriter and the broker the fact of agency is not established, and in the event of the broker failing to hand over the amount to the assured, the underwriter remains liable to the latter for the claim. This principle of separate cheques is usually adhered to in respect to claims on total losses, though in some cases, when the amount of the account exceeds the amount of the
claim, and also frequently in cases of partial loss, the opportunity for a settlement between broker and underwriter being obvious, it is customary for a balance to be struck, and the net difference on the account to be paid by the one or the