SESSION 18. Risk-spreading and risk-shifting: Insurance and General

18. Risk-spreading and risk-shifting: Insurance and General Average late medieval and early modern Europe.

Guido Rossi (Edinburgh University)


As it is well known, the early modern period saw the rise of insurance (chiefly, maritime one) on a global scale. While several works have been written on the subject, however, our understanding remains significantly patchy. Insurance is often taken as a riskshifting instrument that appeared almost ex nihilo, as if beforehand there was nothing to support maritime trade. Much on the contrary, insurance developed alongside different and pre-existing practices, chiefly that of general average. This panel will focus on their relationship, and the influence of the one on the other, seeking to provide a wider overview on the development of risk-mitigation techniques.

General average is a risk-spreading technique widely attested in medieval Europe before the elaboration of insurance. Its success and importance are both shown by the simple fact that it is still an important part of today’s shipping law. General average redistributes costs across all interested parties (both merchants and shipmaster) for damages and other expenses which can befall ships and cargoes from the time of their loading aboard until their unloading (due to accidents, jettison, and unexpected costs).

While the history of insurance is (at least, in its broad lines) known to scholars, that of general average is not. Moreover, their interaction has never been investigated. This gap is of significant importance, for it prevented a proper assessment of the economic and legal implications of the rise of insurance. Insurance built on a system already in place (that of general average), seeking not to displace it, but rather to extend the protection which general average already provided. This ‘extension’, however, operated on a different level: no longer risk-spreading, but risk-shifting. The shift element (the true novelty of insurance) led to important changes in the position of the parties, both economically and legally. Such changes, however, have never been assessed.

The development of insurance is in many ways a history of the changing approach to the balance of interests between the parties. The same, crucially, can be said of general average: some local variants of a same principle were more favourable to the shipmaster, others to the merchant damaged, others still to the other merchants who would have to contribute towards the damage or the expenses. Since averages developed well before insurance, it is extremely likely that the balance of interests reached on insurance within any market, custom or regulation did take into account the balance of interests resulting from the specific rules on general average in that same market, custom or regulation. At the same time, however, it is far from clear whether the interaction of insurance and general averages just entailed a better cover for the risk or also some overlaps, and even contradiction between them. The co-ordination between averages and insurance in their historical development is a subject virtually unexplored.

The interplay between general averages and insurance may also be appreciated in terms of cross-circulation of ideas. Maritime compilations contained rules on both insurance and general average. Their circulation favoured the progressive refinement of both practices. Did this refinement develop along similar ways and following the same rationale for both average and insurance?

Lastly, and very importantly, another aspect that needs to be addressed concerns economic culture. Averages redistributed risk within the subjects already bearing it. Insurance shifted it to a party that was third in respect to the underlying economic activity. Did this change entail a similar shift in the notion of risk itself?

General average was – and remained – a mutualistic form of protection. Spreading the risk to all parties meant increasing the likelihood of its occurrence for each of them, but greatly reducing the actual cost borne by any single party. Already in its earliest forms, by contrast, insurance was a speculative instrument. One party would increase its total costs by paying a third subject to bear the consequences of a possible but uncertain event. In real life, the two institutions have always been considered as complementing each other. Scholarly work has neglected the one and focused almost exclusively on the other. It is time for a reassessment.


Paper 1

Framing sea risks in the Late middle ages: from General average to marine insurance .

Giovanni Ceccarelli (University of Parma)

This paper aims at improving our understanding of the perception of sea risks and their assessment in the late medieval, and early modern period. A broad array of tools – such as bilateral partnership, sea loan, general average, and insurance –, all aiming at mitigating the uncertainties of maritime trade will be taken into analysis, looking for possible changes in the way risk was framed. To do so, the study of contracts will go along with that of the narratives describing them in different domains, such as commercial mathematics, moral theology and canon law, merchants’ memoires and trade manuals. This should allow to test (and perhaps enrich with complexity) the assumption that with insurance conceptions seeing risk as something that can only be spread among who suffers it are replaced by a vision considering it as a transferable object.


Paper 2

Governance Issues of Marine Insurance and General Average in the Early Modern Amsterdam.

Sabine Go (VU University Amsterdam)

Marine insurance emerged mid-sixteenth century in Amsterdam and quickly developed into a profitable industry. However, the intangibility of insurances and the fact that considerable time could pass between the payment of the premium and a possible claim meant that trust was at the core of an efficient and viable insurance market. Parallel to the insurance market, another institution developed that was part of the city’s commercial infrastructure. General Average, the procedure whereby the costs of damage that was intentionally inflicted to prevent more damage to ship and cargo, was allocated among the parties involved, was an important instrument to deal with the risks of long distance trade in early modern Europe. Here too, trust was an important issue: how could parties ensure that their counter parts would honour their contractual obligations? In Amsterdam a new institution was created to ensure contract enforcement and ultimately advance the city’s commercial position.


Paper 3

Exploring Lex mercatoria.

Adrian Leonard (Cambridge University)

Lex mercatoria (the law merchant) is the flexible and typically unwritten set of rules that governed the commercial relations between merchants of various nations during the medieval and early modern periods. The subject of much academic dispute, these rules were real, but changed over time and location, or both. This paper explores the ways the rules – particularly those governing insurance and general average – varied, evolved, and were enforced, by comparing policy language and other contemporary sources, including records of disputes and instructional volumes. The paper looks particularly at the evolution of jurisdictional clauses in London marine insurance policies, which state what body of rules will govern the contract. It looks at specific legal cases where this type of governance was debated, and how various judicial bodies approached them. Finally, it considers the evolution of the rules of general average through compilations of regulations and rules – the written Law Merchant – by reference to contemporary merchant manuals and other records which attempt to fix the specifics of the law merchant for a particular time and place. Ultimately, it shows how the contentious Law Merchant was a living rule set, rather than a more familiar set of regulations which were immutable or fixed by ancient precedent.


Paper 4

Maritime Risk Management Instruments. Hispanic Particular Practices, (14th-16th centuries).

Ana María Rivera Medina (Departamento de Historia Medieval y CC y TT Historiográficas, UNED)

This contribution seeks to analyse how the concept of maritime risk evolved from 1300 to 1550. In the Spanish experience, it developed from practical applications of the marine tradition through the contribution known as Dinero de Dios (‘Money of God’), later to become the Avería Consular (‘Consular Average’) with a mutualistic contributive nature. Such contributions were transacted and controlled by private institutions (mercantile guilds) for the protection of fleets under various denominations: avería, avería de la nación, dinero de dios, avería de la universidad, averías especiales, averías de asiento y seguro, dinero de la nación or repartimiento. In time, the codification of the Avería de disminución de riesgo marítimo en el tráfico indiano (‘Risk Reduction of the Indies trade average’) or the Avería de Indias (‘Average of the Indies’) was established. These contracts were transacted by the Casa de Contratación and the Consulate of Seville, and the Consulate of Burgos where, in 1538, the concepts of Average and maritime insurance were incorporated. Thus, I will examine comparatively the diverse regulations established by private and public institutions in the Atlantic sphere, and bring to light the coincidences and particularities in their application. Further, I will ascertain the interaction between the General Average and maritime insurance to the extent that both practices display a process of mutualisation of trade interests.


Paper 5

The distribution of risks in the event of general average according to the Ordonnance sur la marine (1681) and French legal doctrine of the Ancien Régime.

David Deroussin, Université J Moulin-Lyon 3

Title VII of the Ordonnance sur marine (1681), dealing with special and general average, immediately follows Title VI on insurance (Des assurances). With regard to general average, it provides that the losses shall be borne by all the goods carried, in accordance with the rules which apply in the case of goods thrown of the ship by necessity. This title is quite long and precedes the title VIII devoted to things thrown from a ship (Du jet et de la 4 contribution), with which it must obviously be studied, since title VIII exposes the way in which the contribution to general average is to be made. According to Valin’s assertion (Nouveau commentaire sur l’ordonnance de la marine, Paris, 1766, t. 2, p. 158), the French rules and jurisprudence on general average are the nothing but the best – everyone will have recognized the taste of French jurists for modesty!-, because they are the most consistent with equity and the droite raison! Yet, the authors of the Ordonnance sur la marine have found their inspiration in several ancient sources, from the Roman law to the Guidon de la mer (from which they have drawn the distinction between particular and general average – a distinction informing all specific solutions, and that the 1807 Commercial Code would also adopt). In order to take the exact measure of the originality of the rules contained in the ordinance (which, curiously, was not undertaken by French legal historians), it is therefore necessary to renew the thread of tradition, to compare these rules with those of Roman law, and to analyze how French scholars have, through their comments on this text, contributed to rooting these rules, so that the Napoleonic legislator will have no more to do than to collect them.


Paper 6

General Average in Scotland during the Sixteenth Century.

John Ford (Aberdeen University)

Although the expression ‘general average’ was not commonly used in Scotland during the sixteenth century, a significant amount of evidence survives of losses sustained in ventures at sea being distributed among those involved in the ventures. There are two main types of evidence. First, there are many records of cases raised before courts sitting locally in port towns. Secondly, there are several treatises in which lawyers in Edinburgh discuss the law applicable to such cases. Bringing these two types of evidence together is not entirely straightforward, since they represent the rather different perspectives of mariners and merchants on the one hand, recognised experts in maritime practice and professional lawyers on the other hand, more expert in the legal theory of the universities. The challenge will be to see how clear an image of general average appears when viewed from both these perspectives.


Paper 7

Beyond Colbert: Insurance, General Average and the French State, 1686-c. 1700.

Lewis Wade (Exeter University)

The Ordonnance de la marine of 1681 marked a pivotal step forward in enshrining the unfettered maritime authority of the French state. Spearheaded by Jean-Baptiste Colbert, Louis XIV’s famous minister, the wide-reaching Ordonnance assimilated a rich genealogy of customary maritime law into a single proclamation of positive law. However, little attention has been given to the Ordonnance’s impact on insurance and averages within France, despite the detailed discussion of these commercial and legal institutions within the Ordonnance. Using the registers of Seignelay’s Compagnie générale des assurances et grosses aventures, established in 1686, this paper evaluates the influence of the Ordonnance on French insurance and averages by comparing the Compagnie’s activities to the Ordonnance’s provisions. The Compagnie often followed the Ordonnance closely in procedural matters in order to legitimate its activities and signal its status as a crown company. Yet the benefits for the Compagnie of this self-aggrandisement paled in comparison to the costs inflicted upon it by the Ordonnance’s articles on insurance coverage and averages. Moreover, the Ordonnance’s articles on averages were unevenly applied in the Compagnie’s registers. 5 These difficulties and inconsistencies underline the ambiguous legacy of Colbert’s quest for state control in maritime and commercial affairs.


Paper 8

Risky business: Structure and Functioning of the General Averages in the Genoese Maritime Republic (XVII century).

Antonio Iodice (University of Exeter)

This paper focuses on the analysis of investments and risk management in international maritime trade through the study of one of the oldest legal instruments still in use today: the general average (GA). General average is a risk-spreading technique: it redistributes the expenses that can befall ships and cargoes from the time of loading until their unloading (due to accidents, jettison, capture and unexpected expenses) among all the parties involved in the business cycle. For this reason, it can be defined a mutualistic form of protection. Thanks to the development of seaborne trade, the early modern times are often considered as the first era of globalisation. In this period, GA procedures were governed by rules shared across most European ports, even though their practical application knew substantial differences. The documents regarding GA procedures (reports, calculations and attached documents – bills of lading, charter contracts, etc.) are extremely rich in quantitative data, especially when a legal conflict occurred. Despite the wealth of archival records, the subject remains considerably under-researched. This paper will focus on general average in the Republic of Genoa, whose State Archive contains more than 3.000 general average cases spanning from the end of the sixteenth century to the end of the eighteenth.