Report No. 21
Floating Policy".-This deals with the topic of floating policy. A floating policy is sometimes also called an "open" policy. It is usually employed by large shippers of small parcels of goods. The inconvenience felt in taking out a policy on each shipment is avoided by this policy, under which all shipments during a certain period are insured. The policy is for a round sum, and every shipment reduces the underwriter's liability under the policy. Usually, the insured is supplied with a book of "declaration forms" on which he can "declare" the shipments as and when they are made.
The declarations are "taken out" in the office of the insurer after being endorsed on the policy. One more advantage of a floating policy is, that the merchant is "automatically covered immediately each shipment becomes at his risk", that is, even if an accident (of which he is unaware) has happened, he is covered, because it is not necessary that the declaration should precede the loss.1
A disadvantage of the floating policy is the necessity of stamping and the payment of the basic premium at the outset.
Some practical questions.-It is a question whether a breach of the duty of the assured to declare the destination simply discharges the insurer from liability in respect of the shipment in question, or whether it avoids the whole policy.
Another question is whether the name of the ship by which the cargo will be carried must be disclosed. An opinion has been expressed2 that there is no such duty, as the insurer must be taken to agree to shipment on any seaworthy ship. The case is different where the owner of the goods knew, for example, that the ship was to be cast away.
Declaration.-The declaration must be made within the agreed time. The policy, however, attaches immediately on loading,3 so that if the goods are destroyed by fire before sailing (i.e., before the time fixed for declaration) the insurers are liable.
Open cover.-There is a distinction between "open cover" and "floating policy", though the two apparently resemble each other. An open cover is an agreement binding the parties in honour only. It is not a policy and does not express the sum or sums insured. It is really an intimation by the broker to the owner of the goods that an open cover has been effected. It would appear that the usual practice is to effect a 12 month open cover and take out floating policies as required.4-5
"To follow and succeed".-Floating policies are often issued one after the other in succession. The necessity for this can be illustrated thus:-
Supposing a floating policy for £ 10,000 is issued, and the "declarations" made thereunder are for goods of the value of £ 3,000 and £ 5,000 respectively, then, by the time a third shipment of goods of the value of, say, £ 5,000 is to be made, the amount covered-i.e., the balance of 2,000 (sum insured minus value of the two shipments) would be inadequate. Therefore, as regards the third shipment (of £ 5,000) 2,000 would be covered by the first floating policy and a second floating policy will be obtained to cover (i) a part of the third shipment and (ii) also future shipments. This second policy, thus, "follows and succeeds" the first policy. That fact is usually mentioned in the second policy.
1. Keate, p. 19, second para.
2. Lord Chorley Shipping Law, 3rd Edn., p. 302.
3. Union Insurance Society of Canton v. Wills, (1916) 1 AC 281 (287).
4. Dover, Handbook, p. 342.
5. See also notes under section 21, English Act-clause 18.