THE MARINE INSURANCE ACT 1906: REFLECTIONS ON A CENTENARY
| Citation | (2006) 18 SAcLJ 669 |
| Published date | 01 December 2006 |
| Author | Howard BENNETT LLB (English and French Law) (King’s College London), Maîtrise en Droit (Paris I), LLM (Corporate and Commercial Law) (King’s College London); Barrister (UK); Hind Professor of Commercial Law, University of Nottingham, UK. |
| Date | 01 December 2006 |
In the light of the centennial anniversary of the Marine Insurance Act 1906, this article considers the principal characteristics of the legislation and discusses a number of concerns about more specific provisions in the Act. The strong espousal of commercial certainty as a fundamental principle of marine insurance law is discussed, together with limitations of the degree to which there is and can be adherence to that principle in the modern law. The Act is seen also to be largely facilitative, but, in so far as it has a regulatory function, its focus is questioned.
1 21 December 2006 is the one hundredth birthday of the Marine Insurance Act 1906,1 marking 100 years since the Marine Insurance Bill gained royal assent and became the 1906 Act. Whether the centenary attracts attention or whether the deluge of insurance contract law litigation over the past 30 years has exposed points of controversy, questions are being asked about the suitability of the Act for the future. It is appropriate, therefore, to reflect upon the nature of the law enacted by the 1906 statute and, in the light of such reflection, to look to the future and possible concerns that might influence any process of reform.
2 One may begin by considering the 1906 Act at a certain level of generality, in order to appreciate the nature of the law that it contains. Four key features may be identified.
3 The first key feature of the 1906 Act is its nature as a codifying act. The Act represents the final flowering of the Victorian movement for the codification of English law, of which the other principle results were the Bills of Exchange Act 18822 and the Sale of Goods Act 1979.3 The parliamentary Bills that became these three statutes were, of course, the work of the same draftsman, Sir Mackenzie Chalmers.
4 As is well known, Chalmers’ aim in producing his Bills was, as far as possible, restricted to stating established law, departing from this task of faithful record and systematic organisation only, first, to fill the occasional lacuna by reference to commercial practice, comparative law, or logical extension of existing precedent, and, secondly, to resolve any conflict between decided cases. The function of a codifying bill was to state with clarity the law as it then was, neither to improve the existing law through proposing reform nor to extend it by proposing solutions to questions that had not yet generated reported litigation. Such matters were left to be addressed, if at all, by the Legislature as the Bill worked its way through the two Houses of Parliament.
5 This concept of a draft Bill necessarily influenced the choice of area of law for statutory attention. According to Chalmers, “[w]hen the principles of the law are well settled, and when the decided cases that accumulate are in the main mere illustrations of accepted general rules, then the law is ripe for codification”.4 The impression may thereby be created that the Victorians conceived of those areas chosen for codification as comprised of principles carefully and wisely crafted over the generations by intellectual giants so as to produce, subject perhaps to the very occasional Homeric nod, an impeccable and inviolable mosaic. In short, an area of law was ripe for codification because and only once it had attained a state of accomplished perfection. Any such impression, however, would be fundamentally to misunderstand the codification movement. That movement was driven by a desire to serve the commercial community by eliminating, so far as possible, the need in litigation to determine the relevant legal principles before applying those principles to the facts of the dispute, commensurately reducing costs. Better still, clearly articulated legal principles should in some cases
obviate the need for the expense of litigation altogether. However, the political reality of the day was that proposed legislation that went beyond existing law was unlikely to be passed by Parliament. Attempts to codify the criminal law and the law of partnership had run into difficulty precisely because they sought to amplify and improve the existing law. Consequently, Sir Farrer (later Lord) Herschell, who was responsible for piloting both the Bills of Exchange and Sale of Goods Bills through the House of Commons and who introduced the Marine Insurance Bill into the House of Lords, insisted on restricting any bill to codifying the existing law on the basis that “[a] Bill which merely improves the form, without altering the substance, of the law creates no opposition, and gives very little room for controversy”.5 Consequently, according to Chalmers, Lord Herschell dictated the following approach:6
Let a codifying Bill in the first instance simply reproduce the existing law, however defective. If the defects are patent and glaring it will be easy to get them amended. If an amendment be opposed, it can be dropped without sacrificing the Bill. The form of the law at any rate is improved, and its substance can always be amended by subsequent legislation. If a Bill when introduced proposes to effect changes in the law, every clause is looked at askance, and it is sure to encounter opposition.
6 The restriction of codification to the reproducing of existing law was, therefore, far from a reflection of a perception of legal perfection but a result of political reality. Subsequent amending legislation to improve the codifying statutes was actively contemplated by the codes’ leading proponents.
7 A second feature of the 1906 Act is the scope of the rules it codifies. Officially, of course, the Act is concerned with those principles of law that apply to contracts of marine insurance. The Act is not, however, designed to isolate marine insurance contract law from the general law of contract or the wider common law, which is stated to apply to marine insurance contracts subject only to incompatibility with the provisions of the Act.7 Moreover, many of the principles applicable to marine insurance contracts are not confined thereto but apply equally to all types of insurance contract, marine or non-marine, direct cover or reinsurance,
commercial or consumer. With respect to such principles, it is more accurate to say that the Act codifies for the purposes of marine insurance contracts principles of general insurance contract law. Non-marine litigation on such principles often takes the formulation of the 1906 Act as authoritative. In practice, therefore, the 1906 Act operates for many important doctrines as a codification of general insurance contract law, and, indeed, much of the post-1906 case law that develops our understanding of the provisions of the Act involves non-marine contracts.
8 A unitary system of insurance contract law, namely one that applies without distinction to all forms of insurance contract, possesses the advantage that the technically correct classification of a contract has no relevance and, therefore, does not consume costs. In English law, however, while it is true to say that the system is largely unitary, it is not entirely so. First, consumer insurance is separated increasingly from commercial insurance. Industry self-regulation has now been supplanted by statutory consumer protection in the form of the Unfair Terms in Consumer Contracts Regulations 19998 and the more recent Insurance Conduct of Business Code promulgated by the Financial Services Authority. Secondly, a distinction has to be drawn between direct cover and reinsurance for the purposes, for example, of the Third Party (Rights against Insurers) Act 1930,9 which applies to the former but not to the latter. Thirdly, certain rules of marine insurance law do not apply to non-marine insurance law.
9 The third general feature of the Act is its predominantly non-mandatory nature. Aside from a small number of provisions reflecting public policy, the Act comprises default rules, applicable only in the absence of contrary intention. Many provisions of the Act expressly so provide, but it is clear that the parties are free to derogate even from those provisions that do not so provide and even in respect of doctrines of such centrality to insurance contract law as utmost good faith.10
10 The largely non-mandatory nature of the Act reflects its purpose of assisting the commercial community. According to Chalmers:11
A man of business, in effect, says to the lawyers, ‘Leave me free to make my own contracts, but tell me plainly beforehand what you are going to do if I don’t make a contract, or if I fail to express it intelligibly. If I know beforehand exactly what you lawyers are going to do in a given case, I can regulate my conduct accordingly. All I want to know is exactly where I am.’
11 As a result, provisions that relate to outdated methods of doing business can simply fall into desuetude while others that prove inconvenient can be overridden by express terms. That is not to say that provisions that reflect outmoded business practices cannot cause difficulty today,12 but the Act has not, as yet, presented any barrier to innovation and evolution by the insurance markets.
12 A final general feature of the 1906 Act meriting attention is alluded to also in the words Chalmers places in the businessperson’s mouth, namely an unequivocal espousal of commercial certainty. The Act attempts to state clear rules and to provide for clear consequences in the event of transgression. Thus, parties have the right retrospectively to avoid the contract for failure to comply with the doctrine of utmost good faith, and liability is automatically prospectively discharged in the event of any alteration of risk, irrespective of the merits of individual cases. On introducing the Marine Insurance Bill into the House of Lords, Lord Herschell quoted Willes J (as he then was) in...
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