(1) Weskett, contribute to general average.(1) And it has been held that art. bottomry, under this provision the lender contributes on the amount of the loan, not on the amount of the marine interest added to the loan.(2) n. 22, 27; 2 Mag. 52. n. 132. The lender is By saying there is no salvage in bottomry, Lord Mansfield entitled to the may mean, that the lender is not liable to contribute to the exsalvage. pense of saving the property in case of shipwreck, &c. or he more probably means that there is no constructive total loss; for as to the part of the property saved, or the proceeds of it, there seems to be no doubt that it continues to be subject to the hypothecation,(3) it is universally so held in all cases and by all writers. (2) Gibson v. Phil. Ins. Co. 1 Bin. 405. Whether the lender must bear partial losses. (3) 1 Mag. 24. s. 24; Appleton v. Crowning shield, 3 Mass. Rep. 443; Wilmer v. The Smi It seems to be implied in the English cases above cited, that the lender only takes the risk of a total loss. Mr. Marshall accordingly says,(4) Nothing short of a total loss will discharge the borrower.' The risk in this contract seems, therefore, to be considered the same that it is in a policy free from average, or against total loss only ;(5) under which, as will appear subsequently, the insurer's liability is very much circumscribed, as he is exonerated from some losses which are considered total under a policy without this exception. But this doctrine is undoubtedly subject to some restrictions and limitations. If ninety per cent of the cargo, on which money is lent, is totally destroyed by the perils of the seas, and ten per cent Val. 12. tit. arrives, the ten per cent belongs to the lender towards repaying des Cont. à the loan. But if what arrives is not equal in value to the Grosse, a. 18; amount of the loan, it has never been held by any judge, or inCod. de Com. timated in any book, that the lender can in this case recover the deficiency from the borrower. That the lender could look only (4) b. 2. c. 5. to the part of the cargo saved is every where taken for granted (5) Thompas a first principle in relation to this contract.(6) son v. Roy. Ex. Ass. Co. lax, Peters's Adm. Rep. 295.n.; 2 1. 2. tit. 9. n. 142. 1 M. & S. 30. (6) 1 Mag. 24. s. 24. (7) Rucker v. Conyng But a distinction appears to be indistinctly implied by different judges and authors, between a bond of hypothecation given by the captain in a foreign port, and one given by the owners in the port of departure for the purpose of raising funds for his adventure. Peters, J. mentions, as one of the essential requisites in bottomry made by the master, that 'there must ham, Peters's not be a personal responsibility.(7) It seems to be admitted, or at least generally implied, that hypothecation by the captain to raise necessary supplies, only binds the property, unless het makes himself personally liable by deviation or misconduct. If this be the construction of such a bond, it does not appear how the lender can be discharged of average, whether general or particular, except in case of the value of the hypothecated property exceeding the amount of the loan by that of the ave Adm. Rep. 295. rage. The borrower is then personally subject to average on hypothecated property to the entire exoneration of the lender, only in case of hypothecation by the owner; and not in this case, except where the average does not arise from the destruction of a part of the property, which reduces its value below the amount of the loan. But it seems by what Lord Mansfield and Lord Kenyon said, (1) 2 Johns. whose opinion has been cited as law by Mr. Justice Kent,(1) Cas. 252. that in case of hypothecation by the owner at least, the lender is entitled to the payment of the whole sum lent, in case of the ship or goods arriving, or being capable of arriving, in specie, however great an average loss, whether general or particular, it may have sustained. This doctrine is explicitly stated in the cases cited above, but upon what course of reasoning, or provision of the contract, or principle of law, it is founded, does (2) tom. 2. not appear. Emerigon says, a general average ought to be Cont. à la paid by the lender, because it is incurred to save the property Grosse, c. 7. from total destruction, and consequently to save his loan.(2) s. 1. Mr. Marshall says, 'The nature and object of bottomry contracts seem, of themselves, to require that the lender shall be liable for general average.'(3) Notwithstanding the antiquity and very general adoption of this contract, its construction is not perfectly settled upon fixed and well defined principles, either in Great Britain or the United States, unless some decisions or treatises have escaped my attention, or I have overlooked some important principles, or fallen into some mistake of the construction of those which I have consulted. If the preceding view of this subject is not essentially imperfect or erroneous, it appears to be of importance that the parties in hypothecation should stipulate expressly what risks the lender is to assume; and how far, and for what losses, he is to be liable. By a contract of hypothecation the lender, it appears, is made an insurer against a part, at least, of the losses for which insurers are liable under the common form of the policy. It also appears that he may be insured on the interest which the contract gives him in the hypothecated property. (3) b. 2. c. 6. But it appears that the lender is not indemnified against the Losses against same losses that the owner of the property would be under a which the similar policy. A bottomried vessel, which was insured by the lender on botlender, had received damage which could not be repaired at an demnified by tomry is inexpense of less than 32001. and when repaired her value would a policy upon have been only 2000l. She was accordingly sold as not worth his interest. repairing. In an action upon a policy on the lender's interest, Lord Ellenborough said, "The question was not whether such a loss had happened as in case of an insurance on the ship might have entitled the assured to abandon; but whether it was an utter loss within the true intent and meaning of a bottomry bond. In the latter case, as nothing short of an actual total loss will discharge the borrower, so nothing less will render the insurer (4) Thompliable. If the ship exists in specie in the hands of the owner, it Ex. Ass. Co. will prevent an utter loss.'(4) The doctrine here assumed, is, that as far as the borrower remains liable to pay the loan, the insurer of the bottomry interest is exonerated. The reasons of this doctrine are not expressed. They may perhaps be derived from the English statute against reinsurance, since to make the insurer liable, while the borrower remained so, would be a guaranty of the borrower's son v. Roy. 1 M. & S. 30. solvency, and accordingly somewhat similar to a reinsurance. But a mortgagee has his claim subsisting against the mortgager, though the whole mortgaged property is lost, whereas the lender in hypothecation may, by the destruction of the property pledged, lose the sum loaned. The lender, therefore, being exposed to greater risks, has a more complete insurable interest than a mortgagee; and yet a mortgagee, as we have seen, has (1) Supr. 41. an insurable interest in the property,(1) and it does not appear by any case or dictum, that he may not be insured against the same risks and losses, in respect to which an absolute owner might be insured. Insurance by a mortgagee is again much more similar to reinsurance. It is not apparent why a lender in hypothecation has not an assurable interest to the amount of the loan, in regard to all the risks and losses against which a mortgagee may be insured. CHAPTER XIV. AMOUNT OF INSURABLE INTEREST. Necessity of fixing the value of the subject insured. Section 1. Valued Policies. INSURANCE being a contract of indemnity, the underwriters are not liable to pay any loss except such as the assured has actually sustained. Where the loss is occasioned by the injury or destruction of a part or the whole of the thing insured, the amount of it cannot be ascertained without determining the value of the subject. In a case of total loss the value of the property necessarily comes in question, for it must be ascertained whether the whole value be equal to the sum insured by the underwriter; since if it be less, the underwriter is obliged only to pay its value, though the amount insured by him is greater. If the sum of a thousand dollars is insured on goods of the value of 800 dollars, which are burnt, sunk, or captured, the underwriter is liable to pay but 800 dollars, this being the whole amount of the assured's loss; if the value of the subject is exactly equal to the sum insured, the whole amount insured is to be paid; if the sum insured is less than the value of the property, the assured stands underwriter for himself on the excess. If the sum of 800 dollars is insured on property worth 1000 dollars, then in any case of loss, whether partial or total, or particular, or general, the underwriter pays four fifths of it, and one fifth falls upon the assured himself, unless he has effected other insurance on this excess. It is therefore necessary to ascertain the value of the subject insured, for the purpose of determining whether the underwriter is liable to pay the whole, or only a part, and what part, of a loss. to the rules by which the value of the interest is de termined. As certain rules are adopted in fixing the value of the pro- In effecting perty insured in cases of loss; the assured must have a regard insurance the to these rules in effecting insurance, to determine the amount to assured must be insured, in order to give him, as nearly as possible, an indem- have regard nity for his loss. If he cause less than the true value to be insured, he is not indemnified in case of loss. If he insure more than the value, he loses a part of the premium; for where a premium is returned for short interest, the underwriter retains one half per cent on the excess insured. In cases of large premiums this is of less importance, but in short voyages and where the premium is at a very low rate, this sum retained by the underwriter makes a considerable proportion of it. And it is in all cases an absolute loss to the assured; though it is justly and fairly due to the underwriter for his trouble in making a contract, which he is ready to fulfil; but for which it is the assured's neglect or choice, not to supply a sufficient subject. The rules, therefore, by which the value of the property is ascertained, are important, as well in making insurance, as in settling losses. In some policies the value of the subject is agreed upon by the parties. A policy in this description is called a valued policy; if the subject is not estimated at any particular amount, or rate, in the contract, it is an open policy; the value in such case being open to inquiry and proof; whereas, in the case of a valued policy, the valuation, if made without any fraud, or illegal intention, is binding on the parties. What are valued, and what are open policies. The effect of a valuation intended to cover a wa n. 39. The same policy may however be a valued and an open one; (1) Riley v. as where the ship is insured at a certain value, and the freight Hartford Ins. is insured in the same policy without a valuation ;(1) or where Co. 2 Conn. a part only of the goods insured in the same policy are valued. Rep. 368. If the valuation be intended to cover an illegal purpose it will be void itself, at least, if it does not make the whole contract so, as appears from the general principles already stated in relation to illegal contracts.(2) We have seen that wager policies are ger. prohibited by statute in Great Britain,(3) and that in Massachu- (2) Supr. 29. setts wagering contracts in general are not considered as impos- (3) 19 Geo. II. ing any obligation on the parties.(4) Where a law exists, or a c. 37. doctrine prevails to this effect, a valuation of goods for the pur- (4) Supr. 2. pose of evading it will not be sustained by courts, but is considered as absolutely void. It was even insisted by the counsel in one case that every valued policy was a wagering contract, under the statute above mentioned, but the court did not seem to regard this objection to valued policies in general as of much weight. Lord Mansfield said, however, If it should come out in proof, that a man had insured 2,000l. and had an interest on board to the value of a cable only, there never has been, and I believe there never will be, a determination, that by such an evasion the act of Parliament may be defeated. Where valued policies are used merely, as a cover to a wager, they would (5) Lewis v. be considered as an evasion. (5) Where wagering policies are Burr. 1171. Rucker, 2 (1) Haigh v. De La Cour, 3 Camp. 319. Fraudulent over-valuation. (2) Marshall v. Parker, 2 Camp. 69. See 12 Mass. Rep. 75. where Mr. Marshall's prohibited by positive statutes, an over-valuing with the intention of both parties to violate the law would no doubt make the whole contract void; but where they are not so prohibited, but are held, as in Massachusetts, to impose no legal obligation, it does not appear that an over-valuing for the purpose, in both parties, of combining a wager with an insurance, would make the insurance void, and prevent its covering the interest actually at risk. If the goods have been fraudulently over-valued, the valuation is not binding. Where an over-valuation is fraudulently made, with the intention, on the part of the assured, of destroying the property, for the purpose of recovering of the insurers the amount at which it is valued, such a fraudulent purpose will make the whole contract void. Goods worth 1,4007. being valued at 5,000l. the ship was run away with, and the goods actually on board were disposed of by the supercargo. The loss statement of was adjusted on the production by the assured of bills of lading, this doctrine showing that they had shipped property to the amount of 5,000l. is recognised But it appeared that these bills of lading were fictitious, and also 1 Emer. the adjustment made upon the strength of them, was according264. c. 9. s. 2. ly not binding. The assignees of the assured, who had become 3 Caines, 16. bankrupts, claimed for the 1,400l.; Sir J. Mansfield said, ' If the (3) See the bankrupts intended from the beginning to cheat the underwriters, the assignees can recover nothing. The fraud entirely vitiates the contract."(1) as law. See cases and au thorities cited above, as to the effect of It appears from other cases that a fraudulent valuation will be set aside, (2) and this is no more than the application to this agreement of a principle that is applicable to all contracts. But if the valuation be neither intended as a cover for a wager, by both parties, nor fraudulently made by the assured, it is binding on the parties, in case it can be carried into effect; and will, as between them, determine the value of the property.(3) And the circumstance of the property being valued very high Brown's P. has not in itself been held to be a sufficient proof of a wager, C. 450; Millar, 255. or of a fraudulent intention on the part of the assured. The Marine ordi- ordinances of some countries have prohibited the over-valuing nances forbid of property insured, and either made the valuation void, on this account, or the whole contract.(4) over-valua tion. A valuation fairly made, though high, is valid. (4) Weskett, An over-valuation is said by Lord Mansfield to be contrary to the general policy of the marine law, and to the spirit of the act against gambling policies; a temptation to fraud, and a source of abuse.(a) But it sufficiently appears from numerous cases that if the parties, without intending to wager, fairly agree to estimate the property at a high rate, their agreement will be valid. The amount will not be inquired into in such case, says Mr. Justice Yeates, unless the valuation is grossly n. 2; 1 Emer. enormous.'(b) Some value must be proved, it is said,(c) since if 264. c. 9. s. 2; no goods are at risk the policy never attaches. But it is uni art. valuation, n. 7. art. double insurance, Cod. de Com. (a) Hamilton v. Mendes, 2 Burr. 1198. (6) Miner v. Tagert, 3 Bin. 205. (c) Marsh. 97. |