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History of
Insurance
History of Insurance
The earliest
authenticated insurance contract (i.e. That which displays the
characteristics of insurance in the sense of a transfer of risk of loss
due to a fortuitous uncertain event in lieu of payment of consideration
/ premium), is a marine insurance contract on a ship “The Santa Clara”
dated 1347 in Genoa. The policy is in the Italian language and appears
in the form a maritime loan to avoid the canon (church) prohibition
against usury.
The earliest insurance
contracts did not appear in the form of a modern insurance contract, but
rather was drafted in the form of either a fictional sale or loan, until
the insurance contract proper was recognized and accepted.
The earliest insurers
were merchants underwriting risks for fellow merchants, on a part time
basis.
Until the 1800-1900’s
premiums were not determined by statistics kept etc. as in the modern
sense, but was often arrived at as a result of haggling.
The contract of
insurance was not created as a result of judicial or legislative
innovation, but by the merchants themselves as a result of commercial
expediency and need (Necessity being the mother of invention).
Early legislation was
passed to counteract fraud or malpractices.
It is evident from the
implementation of the earliest legislative measures enacted that there
was a distinct divergence between the legal position and what occurred
in practice.
Very few reported cases
exist, or legal principles were established by the judiciary on the
Continent, until Lord Mansfield C.J. took office in the Highest Court in
England. During his tenure in office a large number of cases and
principles were established by the eminent judge , many of which today
exist unaltered( examples of which would be that insurances contracts
are contracts of good faith , the duty of disclosure , the effect of
misrepresentation and non-disclosure on the insurance contract , the
effect of fraud on the insurance contract , warranties , etc , to name a
few ).
Due to the fact that
insurers were in fact fellow merchants who underwrote risks on a part
time basis, with no accurate data or statistics or experience to
determine premiums, such “insurers” were clearly in an unequal or weaker
bargaining position than the insured’s at the time. For this reason a
large number of decisions handed down, and principles enunciated were to
a large extent for the protection of the insurer.
However despite the
establishment of corporate insurers and the advancements made in the
determination of risk, statistics, data sharing and collection,
experience, and expertise in underwriting risks, many of the early
principles have not been adapted to suit modern times or take into
account insurers greater bargaining power. This is particularly evident
in the instance of the duty of disclosure where Lord Mansfield CJ
in the seminal case of
Carter V Boehm explained the duty
of disclosure on the part of the Insured as being a duty to disclose
facts which were within the own peculiar knowledge of the Insured, and
which could not have been reasonably discovered by the insurer by
reasonable inquiry or facts which were common knowledge to both the
parties to the insurance contract.
Those policy wordings
have to a large extent, remained unaltered and follow the example of the
Lloyds policy wordings which had been created more than 200 years ago.
This is particularly evident in the field of marine insurance. Personal
lines insurance policy wordings however have been greatly improved and
simplified in recent times.
Despite insurance being
a “contract”, the general principles in contract law are not applied, or
followed in the insurance context. This is particularly evident when one
has regard to the principles relating to misrepresentation,
non-disclosure, breach of contract, and the remedies available to the
parties. The clearest example of this would be that the remedies
available to a party in the law of contract would extend to damages,
whereas in the case of the insurance contract the parties would not have
the remedy of damages available to them.
Very often one finds
that sight is lost of the above when dealing with the insurance
contract, and more often than not, a large number of parties who are
exposed / involved in dealings / interpreting the insurance contract do
not take account of the remarkable background of this contract.
Source: Ombudsman for Short-term Insurance (www.osti.co.za)
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