From Port to Court: Developing Marine Insurance Law in Alexander Hamilton’s New York

By Kate Elizabeth Brown


After Alexander Hamilton retired from the Treasury department in January 1795, his New-York based law practice exploded with clients involved in marine insurance disputes. The former Treasury Secretary represented both insureds and insurers from his office on Wall Street in lower Manhattan—a fitting sea-side location for one of America’s premier commercial litigators. From 1795 until his death in 1804, Hamilton was involved in at least 136 lawsuits related to marine-insurance contracts alone—not counting other commercial and admiralty cases on his docket— and, from 1796 to 1798, he also served on retainer as general counsel for the newly established United Insurance Company. Hamilton’s bustling practice exemplified a fundamental truth about marine insurance in American port cities like New York: the persistence of the French Revolutionary and Napoleonic wars made the legalities of insurance contracts, and the extensive maritime commerce they underwrote, particularly pressing and uncertain for the young republic.

Before the Seven Years’ War, English insurers handled most of the commercial underwriting in America. Yet, after the American Revolution, American commerce surged and increased the demand for marine insurance. American merchants began to underwrite commercial voyages on a larger scale, and organized in partnerships as well as in corporations. Not only did corporate (joint-stock) organization begin to limit the liability of its members (which made insurance firms more attractive to investors), but it also pooled larger sums of capital to underwrite riskier ventures for an increasing number of clients.[1]

The law of marine insurance also began to developrapidly in the 1790s, reflecting this increased volume of maritime commerce (and a concomitant rise in the volume of policy disputes). As a maritime hub for American commerce, New York City provided a key laboratory for American lawyers, like Hamilton, to modernize marine insurance law to fit the demands of a young republic struggling to maintain its neutrality during wartime.In New York, a band of close-knit attorneys handled much of the business of marine insurance: Hamilton litigated alongside two of his closest friends and trusted advisors, Richard Harison and Robert Troup, as well as Josiah Ogden Hoffman, Nathaniel Pendleton, George Caines, and, before he assumed his position on the state supreme court, Brockholst Livingston. These seven colleagues constantly paired off in different combinations, working multiple cases at a time, sometimes representing the same client, while simultaneously acting as opposing counsel in other pending lawsuits.[2]

The major challenge for marine insurance litigators was in figuring out how to create legal certainty for insurance providers and insured shippers in a trans-Atlantic world marked by wartime uncertainty. Legal stability ensured that the insurer could be more confident in the risks he underwrote, and the resulting premiums he charged, when he knew how the terms of his insurance policy would be construed in court. Likewise, the shipper purchasing insurance needed to know how his responses to unexpected, mid-voyage encounters might violate the terms of the insurance policy—if his cargo was seized by a belligerent, for example, or if the insured shipper found a foreign port unexpectedly blockaded. Because wartime unleashed a host of uncertainties for insureds venturing out into the Atlantic world, establishing relatively stable, uniform rules forinterpreting marine insurance contracts would help facilitate American maritime commerce.[3]

The neutrality warranty, for example, presented problems for insurers and insureds. This specific, explicit warranty guaranteed that the insured would remain neutral throughout the insured voyage—thus forbidding the insured from engaging in risky business that might lead to the loss of an insured ship or cargo—but created a number of difficulties when interpreted in court. The first problem was of strict versus broad interpretation. Underwriters had an interest in strictly construing the meaning of “neutral”so as to limit their liability, while insureds offered broad, but still reasonable, interpretations of their actions and then argued that they remained neutral throughout the insured voyage, and thus met the terms of the warranty.

The second problem was one of novelty. Because neutrality warranties had not been standard in New York insurance contracts before the onset of the French revolutionary wars, they raised untried questions like: since the President and Congress declared American neutrality, what were the responsibilities of insureds and insurers if their contract included a neutrality warranty, and what did it mean if a policy omitted the provision? Alexander Hamilton devoted virtually his entire marine insurance practice to answering this question in one form or another.Because American merchants assumed the legal status of “neutral” from 1793/1794 until the outbreak of the War of 1812, traditional English and Continental legal sources did not adequately address issues concerning neutrality within the common-law contract dispute.[4] The realities of conducting maritime commerce during war constantly forced American jurists to tackle new questions, like how well-intended or unexpected deviations from an insured voyage squared with the requirements of the neutrality warranty.[5]

Hamilton’s efforts were particularly critical to the development of rules regarding the construction of warranties in New York case-law so that insureds and insurers better understood what they could or could not do under the terms of their contract. Hamilton adhered to one main principle throughout—that an underwriter ought to knowhow to calculate his risk—and this standard, articulated in Blagge v. New York Insurance Co. (N.Y., 1804), undergirded most of his arguments before the bench.[6] Hamilton put this principle into action when considering legal questions concerning neutrality warranties and its variant, the so-called “illicit-trade” clause, which arose directly as a consequence of U.S. neutrality.

As they faced an increasing volume of neutrality-related questions, New York courts tended to strictly interpret neutrality warranties so that any activity that even hinted at illicit trade—and thus, fraud—violated the warranty, with little room given for even good-faith divergence by the insured. This rule proved to be harsh, as neutral ships sometimes relied on falsified documentation to protect their insured cargo by avoiding seizure by belligerents; yet, it also provided both insureds and insurers with a hard-and-fast rule regarding how their contracts would be construed in court.

Bowne v. Shaw (N.Y., 1803) exemplifies how neutrality questions affected marine insurance litigation and innovatedon standard maritime contracts. In Bowne, Alexander Hamilton claimed to have written to so-called “illicit-trade” clause to protect insurers, perhaps in reaction to his loss for the insurer in Seton, Maitland, and Co. v. Low (N.Y., 1799). In Seton, the type of cargo was not disclosed in the policy. During the insured voyage, the British seized the ship and confiscated its insured cargo as contraband of war, and at trial, a jury found that the insureds were entitled to recover for a total loss. Both Hamilton and Richard Harison appeared for the defendant insurer—who was now legally obligated to pay for the loss of the contraband cargo—and sought review of the decision. Although their arguments were not recorded by the court reporter, Hamilton and Harison’s line of reasoning may be extrapolated from the court’s opinion: the attorneys focused on the fact that naval stores were considered contraband of war under the Jay Treaty. Thus, they most likely reasoned, the insured acted in violation of national law and in doing so, voided their insurance policy.

The N.Y. Supreme Court upheld the trial court’s decision, however, ruling against Hamilton and Harison’s client, ruling that the contract did not specifically prohibit illicit trade.[7] Then, as a coda to Seton, Hamilton represented the insurer in Juhel v. Rhinelander & Company (N.Y., 1800), a case nearly identical to Seton, and again, Hamilton lost the case for the insurer.[8] In the wake of these decisions, Hamilton ostensibly drafted an “illicit-trade” clause which modified insurance contracts so that insurers would be protected against the risks of carrying contraband during wartime.[9]The clause read: “It is also agreed, [t]hat the property be warranted by the assured free from any charge, damage or loss, which may arise in consequence of a seizure of detention, for or on account of any illicit or prohibited trade, or any trade in articles contraband of war.” Insurers then adopted this language into their contracts to ensure the neutrality of the cargo they underwrote.

By examining the fraught litigation arising from New York City’s busy seaports, we see how the disruptive, but commercially booming, wartime years of the early republic laid important legal groundwork for later developments in commercial law.[10]Neutrality encouraged specific changes to the written provisions included in marine insurance policies, but it also altered the nature of judicial enforcement of commercial contracts in general. While grappling with the effects of neutrality on marine insurance policies, the New York Supreme Court anticipated changesto American contract law that would eventually transform contract adjudication across the nation. New York courts read warranties strictly, and would not excuseinsureds’ actions that violated the warranty, or added extra risk to the policy contracted. And yet, if the insurer failed to include a either a neutrality warranty or Hamilton’s specific provision against illicit trade, then the court assumed that the premium paid by the insurer covered all reasonable actions committed by the insured.[11] Thus, New York courtssought to encourage commerce, but not to coddle underwriters. Instead, the warranty rules adopted in New York encouraged a “caveat insurer” approach to insurance law, and both insurers and insureds benefitted from these more steadfast and certain guidelines for maritime commerce.

Kate Elizabeth Brown is Assistant Professor of History and Political Science at Huntington University.

[1] Julius Goebel Jr., “The Business of Marine Insurance in New York,” in Goebel and Joseph H. Smith, eds., The Law Practice of Alexander Hamilton: Documents and Commentary, 5 vols. (New York: Columbia University Press, 1964-81), 2:391-413 [hereafter, LPAH];Christopher Kingston, “Marine Insurance in Britain and America, 1720-1844: A Comparative Institutional Analysis,” Journal of Economic History 67(2007): 379-409; A. Glenn Crothers, “Commercial Risk and Capital Formation in Early America: Virginia Merchants and the Rise of American Marine Insurance, 1750-1815,” Business History Review 78 (2004): 607-633.

[2] Julius Goebel wrote about the New York bar in “The Role of Counsel” (LPAH 2: 1-28) and “The Law and the Judicial Scene” (LPAH 1: 1-35). Also see Daniel J. Hulsebosch, Constituting Empire: New York and the Transformation of Constitutionalism in the Atlantic World, 1664-1830 (Chapel Hill: University of North Carolina Press, 2005) 127-130.

[3] When adjudicating marine insurance litigation, the New York bar had already adopted certain practices that elevated contractual disputes from matters of fact to be determined by juries to matters of law to be determined by the judges and lawyers. Morton Horwitz identified these changes in common-law process as 1) relying on the “case-reserved” method as a staged maneuver in order to bring specific questions of law before the court (both parties agree on a set of facts, the jury enters a general verdict on behalf of the plaintiff, and the case is then brought up to the state supreme court to have the questions of law decided); 2) seeking new trials for verdicts that run “contrary to the weight of the evidence”; and 3) drawing a clear separation of law and fact, and a corresponding, sharp distinction between the functions of judge and jury. (The Transformation of American Law, 1780-1860 (Cambridge, MA: Harvard University Press, 1977) 142-43.)

[4] Washington issued his executive decree—his Neutrality Proclamation—on April 22, 1793 but Congress passed the Neutrality Act in 1794. See “An Act in addition to the act for the punishment of certain crimes against the United States,” 1 Stat. 381 (June 5, 1794). Although the law of nations did provide some guidance for neutrals, Julius Goebel notes that the laws, rights, and obligations of neutrals were underdeveloped because England and the rest of Europe spent so many generations fighting each other; the laws of war were consequently more refined than the law of neutrality (LPAH 2: 584-591).

[5]Silva v. Low (N.Y., 1799; 1 Johns. Cas. 184) and Cruger v. Samuel, Richard, and Ward (N.Y., 1797).

[6]According to the case report, Hamilton declared that “An underwriter ought to know how to calculate his risk: this is never to be done if the assured has it in his power to give any aspect he may think fit to the property insured.” (Blagge v. The New York Insurance Company (N.Y., 1804; 1 Cai. R. 549.)

[7]Seton, Maitland & Co. v. Low (N.Y., 1799; 1 Johns. Cas. 1).

[8]Juhel v. Rhinelander (N.Y., 1800; 2 Johns. Cas. 120) and LPAH 2: 657-658.

[9] As included in a cargo policy written by the United Insurance Co. in October 1799. See LPAH 2: 654-655.

[10] The French revolutionary wars set off a trade-boom in the United States for foodstuffs, shipbuilding, shipping, and lumbering. See Curtis P. Nettels, The Emergence of a National Economy, 1775-1815 (New York: Harper & Row, 1962), 125-26.

[11]Seton, Maitland & Co. v. Low (N.Y., 1799; 1 Johns. Cas. 1).