A BACKGROUND OF THE WAR

Dominion, Volume 34, Issue 39, 9 November 1940, Page 10

A BACKGROUND OF THE WAR

Insurance Claims Fail

SCUTTLING LAW At the beginning of the war Hitler ordered German merchant ships lu foreign ports to break the voyage they had started and make for home. If they succeeded, so much the better, but if they failed then, rather than fall into the hands of the British Navy, they were to scuttle themselves. A few got home, a few were captured, many were scuttled. On board these ships there was a considerable quantity of cargo which belonged to British merchants and was insured against marine and war risks by British underwriters and insurance companies. Indeed, says the “Economist,” owing to the benevolent activity of the Government Cargo Pool, a very large part of British war insurance entered into before the war by British underwriters related to cargo in foreign bottoms; aud whether or not the total value at the risk of the London ami IJ verpool market in these scuttled German ships reached the figure of £10,009,009 mentioned in the daily Press, the aggregate of the market's liability was without doubt very high indeed. On the scuttling of some ships and the arrival of others in Germany, British merchants who had first insured their cargoes against war risks and then lost them, naturally said to themselves: “This is the risk agains. which we covered ourselves. IVe will now present our claims to underwriters and receive from them our indemnity.” To their surprise (and it was probably a genuine surprise) they found that underwriters were not settling those claims. They learnt that the law was ambiguous. Underwriters’ View

They were told by their brokers that the clauses which bad of late years been added to the standard _ form of marine policy did not unmistakably cover an epidemic of scuttling, and that the only way of finding out what the clauses drafted by underwriters and underwriters’ lawyers meant was to take one or more of the eases to Court and discover first what a learned judge thought they meant, secondly what three still more learned judges thought they meant, and thirdly what five impeccable judges knew they -meant. And here several difficulties arose. It was unlikely that any merchant would be ready to spend large sums in litigation for the benefit of his fellow merchants, and it was not at all easy to find any one case so many-sided as to cover all the legal points that were at issue in all the different cases. The problem w'as to find the right claim to fight on and to find someone willing to pull the chestnuts out of the fire. The two problems were solved in a curious way. Three separate cases were chosen, and all three were to be heard together, and the defendant underwriters agreed that, irrespective of the result, they would pay the costs of both sides in the action, so that we have the very peculiar situation of the defendants on an issue of £10,000,000 proving their anxiety to be sued by making an offer to finance the plaintiffs in a decisive suit. It was this suit which recently occupied the time of the Court for a considerable period and produced the judgment given on September 6 by Mr. Justice Hilbery. In this judgment, Mr. Justice Hilbery began by discussing what happened at the neutral port, aud decided that when the German master sailed on Hitlers instructions for Germany, taking tne insured merchandise with him, he was acting as an agent of the German Government and applying to the merchandise in his steamer the familiar pr<> cess known as “restraint of princes. But what was the effect of that restraint? It was, so his Lordship decided, to frustrate the venture. A Famous Precedent

To explain this term “frustration ot the venture” one needs to go back to the last war and the famous case Of Sunday v. The British and Foreign. In that case a cargo bound for a German port at the outbreak of war was intercepted by the British Navy ana diverted to a port in this country. The cargo remained the property of Sauday’s. They were not deprived ot it. All that they were deprived of was an opportunity to get the cargo to the e of the voyage they had insured. On t strength of this loss they claimed that they had a “constructive total loss on the policy and succesfully sued writers for the insured value of the cargo. The venture, said the House-if Lords, had been frustrated, and that was good enough for a claim. Te effect of this judgment on undeiwriters was considerable. .Here ' ■ an assured in full Possession ot tln insured goods recovering the ta uc the goods simply because he as not allowed to get them to thetr dertina tion-and that, said underwriters as not fair. So they drafted a new c.am which they added to their policies, t reeing them from liability’ tor any Ha based- on frustration of the ' eut canted by restraint Of and for more than 20 years practical y evcu marine policy, including "ar ». contained this frustration clause Now the essence of the Sunday cm was that Sunday's still possessed the goods, and the intention of those whe drafted the frustration clause "as to nrevent a merchant from recovering a total lost for goods which were still m his possession. In fact, ™t °f ten marine insurance experts "ouid haw held that the clause did not attect claims for goods of which the assured had been deprived. Mr. Justice Hil berv’s judgment knocks that concepif -i master breaks off bis voya B tlirougb live restraint of princes.and goes off with the cargo on board th frustration clause debars c. rto o"i ers from recovering a coiistruc total loss on the policy, lhe la. t * a gave underwriters an unpleasant . prise. Tliis war gives the assured an equally unpleasant surprise. Loss By Scuttling

2 “ S'rsii'l 1 th TO « ..lal towenough Cor a chum on a "ar poiicy No said Mr. Justice Hilbery, it notThe policy insured these goods tor a .• 1 .-nv-f-e aud tor no other. Wien the Germa’n captain left the shel. w o tie neutral port he abandoned mt ovnge and started an entirely new . 1 u, thn noliev had not. covered. ■l’lid consequently no claims could atXh. It«» '“■T'lM'cE a cargo from Buenos A nos to China iho r'lDtiußt iiistcud of going to ChL nr kes or Hamburg, and. failS”‘to reach Hamburg, scuttles Ins ship—then the loss occurs on a never contemplated and never insured. So the merchant Ca in < this'way r the merchants have lost their case in the first Court and the £10.000.000 or Whatever the amount at stake may have been falls on the assured, not on their underwriters. In the peculiar circumstances, of these actinna. an cegaffi,.