§ The PRESIDENT of the BOARD of TRADE (Mr. Winston Churchill)
asked leave to introduce, under the ten minutes Rule, a Bill to prohibit gambling on loss by maritime perils. The Bill which I now have to ask the leave of the House to introduce is strictly limited in its scope. But it is not, I think, devoid either of importance, or devoid of a certain element of urgency. Under the existing law, and as it has been for many years, as codified in the Marine Insurance Act, 1906, every contract of marine insurance, being in the nature of a gaming transaction or wager, is void; and a contract is deemed to be by way of gaming or wager within the meaning of the Act. If the insurance is made by a person who has not an insurable interest or no expectations of acquiring such an interest, or if a policy is made "interest or no interest," or "without further proof of interest than the policy itself," or "without benefit of salvage to the insurer" where salvage is possible, or other and similar circumstances, all these classes of insurance controls are embraced in the generic term, "P.P.I. Policy," because the insuring person does not require to prove any interest beyond holding the policy itself. All these contracts of marine insurance are void in law.
§ But if they are void in law, they are not void in fact. They are valid in fact. Marine insurance is declared by the Act to be a contract made in the utmost good faith, and underwriters are so careful of their reputations that P.P.I., or honour policies, though void in law, are in practice never repudiated. Therefore, to-day we find an extensive system of marine insurance, which, though based on no legal 1677 sanction, which, though enforced by no statutory authority, nevertheless enables the insuring persons to gather any advantages which may accrue to them from their policies with a regularity and a practical certainty indistinguishable from that certainty afforded by the operation of the law of the land.
What are the consequences of this? First of all, there are innocent and useful consequences which come from this practice. P.P.I. policies are taken out in some cases by persons who have a real interest, but who avail themselves of these as a convenient method for safeguarding that real interest. For instance, they may have a legitimate and insurable interest covered by valued policies, and this they supplement by a P.P.I. policy to make up the difference between the value already covered and the total value of the ship and cargo; or else these policies are taken out to insure interests which though real are difficult to prove. For instance, if a cargo of grain rises in value in crossing the sea, a P.P.I. policy may be taken out as the most convenient method of insuring the increased value of the venture. Different parties interested sometimes take out these policies to the better secure their respective profits. Lastly, these P.P.I. policies (against total loss only) rank at a lower rate of premium than is the case when damage risks are included. Mixed up with this necessary and legitimate business in policies which are void in law, there is, of course, doubtful and unhealthy business; large contracts in over-insurances and double insurances, for which P.P.I. are largely used. I have considered that part of the subject very carefully with my advisers, and I feel the difficulty of framing words which would discriminate between the different classes to which the P.P.I. policies refer, and that difficulty is too great for me at the present time to undertake. If, by a rough and clumsy hand, we were to prohibit at a stroke all honour policies, or P.P.I.'s, we should, I am advised, deprive the British shipping industry of a highly convenient process, a necessary process, and of what is in the nature of a valuable lubricant which, by custom and general acceptance in shipping circles, is used in the general transactions of business. But there is another set of consequences which are dangerous and harmful in the last degree. All these kind of honour policies to which I have referred are based upon some bonâfide interest on the
part of the assured person in the ship or cargo, and are in harmony with the general assumption that marine contracts, marine insurances, should be based on the principle of indemnity, and that the party insured in such contracts stands to benefit by the safe arrival of the ship and cargo. Now, I ask the House to consider the P.P.I. policies which are effected by persons entirely unconnected with the ship or cargo, who can gain nothing by their safe arrival—who, in fact, only gain by their loss. Such insurances are gaming in the full and true sense of the term, and I would remind the House that this is gambling, not only with property, but gambling in human lives; gambling also in the reputation of the British mercantile marine. Take the case of the steamship "Firth of Forth," on which an inquiry was held in 1903. It was ascertained that a solicitor in Ireland, who was a cousin of the master, had speculative honour policies of £6,000, and that other speculative insurances had been effected, one by a Newcastle-on-Tyne gentleman—who, however, acquired shares in the company after the loss of the vessel—for £2,000, and other insurances for some thousands for an undisclosed principal. The case was a mysterious one, and the Court found that there was no evidence to show how the damages were caused. The case created considerable interest at the time, and the "Shipping Gazette" in commenting on the matter said:
It must be obvious to all that to stand to make a large sum by the wreck of a ship or the loss of her cargo is not a contingency which makes for the greater safety of ships or the lives on board them.
§ Other disclosures arose out of the inquiry into the loss of the "Albion" in 1908. It was found that insurances had been effected by people who had no bonâfide interest, and these insurances amounted to no less than £12,000. This sum was made up of items ranging from £100 to between £3,000 and £4,000. A clerk at Cardiff had a policy for £3,200, and a Cardiff stevedore had a speculative policy for £2,000. He admitted that he had been in the habit of doing this class of business, and once before had succeeded in "spotting the winner." There is reason to believe that speculative insurance of this kind was common at Cardiff. The court expressed its strong disapprobation of these insurances. A more recent case is that of the "Oxus," into the loss of which an inquiry was held in October and November of last year. In the course of that inquiry it 1679 was found that a retired ship-master living in Cardiff had speculated in a policy of insurance for £1,000. He admitted that he had speculated in the same manner on four vessels previously, and made money on two of them. His insurances were against total loss only, and he said he selected his ships upon his own judgment, but the court remained unconvinced by the story of his wonderful intuition. The vessel foundered under circumstances of which no adequate explanation was given, and the court called attention to the fact that the impression evidently did exist in shipping and insurance circles that the "Oxus" was a "spotted ship"—i.e., that she was not unlikely some day to become a loss. The court also commented on the amount of talk that took place on board the "Oxus" during her last voyage as to the likelihood of her being lost.
§ This is the class of evil at which this Bill, which I ask the leave of the House to introduce, is directly and specifically aimed. We see a vessel heavily mortgaged and over-insured trading, perhaps, at a loss in a bad state of repair; she leaves port overloaded and undermanned, she carries a dangerous cargo, and we find that such a vessel, just in the same way as a wounded animal attracts the attention of the vultures, becomes the subject of insurance taken out by people who live far away from the sea, have nothing whatever to do with the adventure, who have no insurable or bonâ fide interest in the vessel, but who think that the ship is likely to be lost, and hope to win by its being lost. The consequence of this to ship owners is very injurious, because in many cases ships acquire a reputation of being "spotted ships," and become the subject of this gamble, and insurance premiums are raised against the ship owners. Humours are circulated which are very injurious to the masters of ships, because they arouse very often the foulest suspicion, sometimes without cause, against those responsible for the vessel. They are injurious to the seamen, because they increase the grave dangers of their perils by sea. Such are the evils which the Bill seeks to check. I am sure the House will be in full agreement with its objects. But in showing up the evil I also see the difficulty of dealing with it, and it is about the method of dealing with it that the opinion of the House must be carefully consulted. I have done my best to explore this subject, with the view of dealing effectively with the specific 1680 point to which this Bill refers. I held conferences during the last five months, not only with the legal experts, but with the great interests represented by the ship owners and the underwriters. Practically all the most important representative bodies in the shipping and insurance world have sent representatives to me to meet in conference with the Board of Trade, and I recognise with gratitude the assistance they rendered. We have considered the various drafts of this Bill before it reached the form in which I shall present it to the House, and I can say that we have come to a complete agreement not only upon the principles and object of the measure, but upon the general method of enforcement which has been selected.
§ The Bill proposes to make it a criminal offence for a person to effect a contract of marine insurance without having some bonâ fide interest or expectation of interest direct or indirect in the safety of the vessel or subject matter insured. Brokers and underwriters who are concerned in any such contract are also liable under this Bill to penalties if they had guilty knowledge. Proceedings are not to be instituted without the consent of the Attorney-General nor until the person alleged to have committed the offence has had an opportunity of clearing himself. If proceedings are instituted and the contract was made subject to the P.P.I. or any similar clause it will be necessary for the person who effected the contract to prove that he had a bonâfide interest in the safety of the subject matter insured. The reason for this provision (which is a vital one) is that otherwise it would be necessary for the prosecution to prove a negative—namely, that the accused person had no interest. That being so, I shall ask that this small Bill may have the generous consideration of the House. It is just the sort of measure which runs great risk of being jostled out of the way in the crush of any Parliamentary Session unless it has a few friends in every quarter of the House, and unless the House is disposed, in view of the element of urgency which unquestionably exists, to see that it is passed. I beg to move.
§ Motion made and Question put: "That leave be given to bring in a Bill "To prohibit gambling on loss by marine perils."—Agreed to.1681
§ Bill presented accordingly, and read the first time; to be read a second time upon Monday next.