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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

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