Consideration for insurance
A marine insurance is essentially a bilateral agreement under which each party makes a promise supported by consideration in the form of the other party’s counter-promise. Accordingly, the Marine Insurance Act 1906 opens by defining a contract of marine insurance with reference to the nature of the promise/consideration provided by the insurer. 1 Thus, it acknowledges that, under a contract of insurance, the insurer agrees to indemnify the assured in accordance with the terms of the insurance in return for consideration provided by the assured. However, the statute does not stipulate explicitly whether the contract should be supported by any particular form of consideration, though it assumes the consideration normally provided by an assured is payment of a sum of money, called the premium. 2 Even so, the Act recognises that the financial arrangements usually differ. In particular, “The provisions of this Act relating to the premium do not apply to mutual insurance, but a guarantee, or such other arrangement as may be agreed upon, may be substituted for the premium”. 3 Conventionally, 4 the consideration provided by a member of a P&I Club is his liability to contribute to the club in response to calls made by it for contributions to the payment of losses suffered by its members and to the expenses of management of the club. 5 Nevertheless, even in the case of P&I Clubs, practices may vary. 6 It needs to be borne in mind, therefore, that parties to a marine insurance contract are generally free to determine the precise nature of the insured’s consideration but that, traditionally at least, it is a form of liability to pay money. This chapter considers the most familiar form of such consideration, the premium.
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