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Wednesday, April 6, 2011

The Ottoman Insurance Companies Act 1905

A Preliminary Study

This is an English version of an unpublished article that I originally wrote in Arabic.  I wrote it to stir interest in the history of insurance in Iraq, which is yet to be properly researched and placed within the political economy of Iraq.

Misbah Kamal

لقراءة المقالة باللغة العربية ، يرجى نقر الرابط التالي :ا

The background of this paper was an exchange of correspondence with a colleague, the lawyer Munther Abbas Al-Aswad, during the month of April 2009.  I quote at length from this correspondence because it includes information directly relating to the subject of this paper.

In my first letter, 1 April 2009, I wrote:

"You know that many of us when we look for the historical roots of insurance in Iraq, refer to the Ottoman Sigorta Law (or Sikorta); we refer to it but without pausing to reflect on it.  This law has not been the subject of a separate study to trace its background, relationship to other laws, its probable sources (perhaps in the Majella) by way of providing a general framework and its most important provisions, etc.  Also, its full text had not been subjected to a critical reading.(1)

I recall that Mr Taleb Al-Masraf, when he worked in the State Insurance Organisation, issued a book in two volumes in the early 1970s that included the most important laws of insurance and insurance-related activity.  He might have included the text of the Ottoman Sigorta Law in the first volume.

I wish, if you have the time and desire, that you write a paper on this law from a
perspective that you deem appropriate.  If this is not possible, could you ask

someone else who is capable of researching the subject and writing about it?  If so, I can then publish what you write in the Iraqi Insurance Review blog or submit it to Al-Tameen Al-Arabi, the quarterly journal of the General Arab Insurance Organisation, and thus fill some of the gap in the history of Iraqi insurance.  This will pave the way for further research by interested historians, although they, as far as I know, have not shown any interest in insurance activity in Iraq.  This lack of interest also applies to Iraqi economists, as their reference to insurance is incidental.  I think that the task of writing a preliminary introduction to the history of insurance activity in Iraq lies initially with the insurance companies and then historians take over its scholarly research.

I look forward to read your response on the proposal to write about the Ottoman Sigorta Law."

As usual, Munther’s response was prompt.  On 2 April 2009, he wrote:

"Writing on the Ottoman Sigorta Law has indeed not been the subject of a separate study to reveal its background, but Mr Badi Al-Saifi commented on it in his Longer Book of Insurance & Reinsurance (vol.I, p 243-244).  I attach his comment hoping that you will find it useful.  I also attach the text of the law as it was published in volume one of Mr Taleb Al-Masraf’s book of 1970.  This law is still in force.  I think that the comment of Mr Al-Saifi is quite sufficient."  [Al-Saifi’s comments are quoted below].

In thanking my colleague Munther on his message, I wrote on 3 April 2009:

"It is true that Al-Saifi did write on the law, a mere one page in his book, but researching the law and writing about it is still required from an academic historical and practical perspective specially as you confirm that the law is still in force. That is to say, its continuing validity to the present time may create some problems when some of its provisions may be at variance and in conflict with the more modern laws.  Moreover, a comparative study of this law with other insurance laws may reveal to us the evolution that took place in the formulation of laws regulating insurance activity in Iraq.

Both of us (and others) are engrossed in daily work, and you in particular, at the moment, carry the pain of illness.  So I hope that others carry out the research.  Perhaps a postgraduate student can pursue it as a research topic."

Following this message, Munther wrote on the same day clarifying:

"... Now I return to the topic of the Ottoman Sigorta Law.  I would like to inform you that the Transport Law of 1983 was enacted and published in the Official Gazette number 2953 on 08/08/1983 ..  The provisions of this law are applicable to all types of transportation regardless of the status of the carrier subject to the provisions of international conventions to which Iraq is a party.  The reason for issuing this law at that time was to set the rules for maritime, land, inland waterway and air transport, because of the importance of these facilities for the economic and social development of Iraq.  This law was promulgated to set an equitable balance between the obligations of the parties to the contract of carriage and to give priority to legal relationship over contractual relationship.

Part III of the 1983 law was dedicated to transport by road vehicles, rail, air, sea and inland waterways.

Since the Ottoman Sigorta Law is concerned with marine insurance/transport insurance and based on that the Sigorta Law was abrogated, in my view, by virtue of article 157 of the Transport Law, which repealed Chapter VI of Part II of the Iraqi Commercial Law No. 149 of 1970: “Any provisions in conflict with the provisions of this law are cancelled.”

Because of our other concerns, we were not able to continue the discussion.  I am raising the subject now only to pick up what we have left out, and in order to entice others to write about the topic.

Mr. Badi Al-Saifi’s Comment on the Sigorta Law

Let us start by quoting the comments written by Mr Badi Al-Saifi.  Under the heading "Our Laws and Insurance," a section of his Longer Book of Insurance & Reinsurance, Al-Saifi refers to “a few laws including the Ottoman 1905 law, the Insurance Companies Law (i.e. Sigorta)”(2)

"This law, issued on 21 Jumada II 1323 AH, 9 August 1321 Latin, 1905 AD, is still in force and has twenty-five articles plus a final article identified as a special article stating that “the specific [relevant] provisions of the Maritime Trade Law shall remain valid for application.”  Therefore, this law [Sigorta Law] has (26) twenty-six articles.

The title of this law is wrong as it is not a law on insurance companies but a law of insurance or guarantee, i.e. sigorta, a distorted term derived from the French expression (Securite).  This law was published as a supplement (appendix) of the Commercial Law.  Its provisions were taken from the Belgian Insurance Law of 1874.  It was promulgated in the Turkish language, of course, and does not have an official correct translation in the Arabic language.  Indeed, the Arabic translation was weak, incorrect and contained numerous of mistakes.

This law is specific to insurance of moveable and immovable property including marine insurance/transportation.  Thus, article (1) stated that “insurance is a pledge to compensate, against a specified charge [premium], the losses and damage to movable and immovable property by risks and perils of any kind.”  The Insurance (Companies) Law stipulated, as did the Maritime Trade Law, that insurance contracts must be in writing as article (2) provided that “insurance pledges should be set in writing and that the guarantee instrument, i.e. the policy, must contain:

(1) Name and family name, business and place of residence of the insured (i.e., the person seeking insurance for his property) as well as the name and family name, business and place of residence of the guarantor (i.e. the person who insures the property of others).  (2) Type and description of the property insured against losses and the type and description of the risks and perils against which the property in question are insured.  (3) Amount of insurance charge [premium] and amount of compensation to be paid for losses and risks.  (4) Commencement and expiry date of the insurance period.  (5) Date of issuing the policy."

Expanding the Commentary and Analysis

Al-Saifi emphasizes, rightly, that the designated title of the law [Law of Insurance Companies (i.e. Sigorta)] is wrong.  As he points out, it is a law of insurance or guarantee and is borrowed from the Belgian Insurance Law of 1874 [Insurance Contract Law, 11th June 1874].  As such, the law includes elements that constitute the core of the contract of insurance and it is not a law to regulate insurance companies.

Al-Saifi writes that this law is still valid (his book was printed in 2006) but Munther Al-Aswad in his correspondence with me (3 April 2009) concluded that this law is invalid:

Since the Ottoman Sigorta Law is concerned with marine insurance/transport insurance and based on that the Sigorta Law was abrogated, in my view, by virtue of article 157 of the Transport Law, which repealed Chapter VI of Part II of the Iraqi Commercial Law No. 149 of 1970: “Any provisions in conflict with the provisions of this law are cancelled.”

We know that the Basic Law of Iraq of 1925 (repealed by the Interim Constitution promulgated in 1958) provided under Article 113 that:

"Ottoman laws that were published before 5th November 1914,

and the laws published on or after that date remain applicable in Iraq until the publication of this law [Basic Law] and continue to be in force as far as circumstances permit, taking into account their latest modification or cancellation relating to statements, orders and laws mentioned in the following article [article 114] until such time when they are replaced or repealed by the legislative authority or until a decision is issued by the Supreme Court that makes them void in accordance with the provisions of Article 86."

“Article 114
All statements, orders and laws issued by the General Commander of the British Forces in Iraq and the Royal Governor-General and the High Commissioner that were issued by the Government of His Majesty King Faisal during the period from 5th November 1914 and the implementation

date of the this Basic Law are valid from the date of implementation and any part that to date are not abrogated continue in force until replaced or revoked by the legislative authority or until a decision by the Supreme Court is issued that makes them void under the provisions of Article 86.”

“Article 86
Each decision of the Supreme Court stating a law or some of its provisions that is incompatible with the provisions of this Basic Law must be made by a two-thirds majority.  If such a decision is issued, the law or the section that is incompatible with this Basic Law shall be void.”

This means that the Sigorta Law remained in force for a long time before the first piece of legislation on insurance in Iraq was passed (similar to it only in its title) – namely, the Insurance Companies Act No. 74 of 1936, issued on 1st April 1936.  This 1936 law was, as evidenced by its title, the first serious attempt to supervise the work of foreign insurance companies operating in Iraq and the regulation of their financial solvency to protect the rights of the insured.(3)  At that time there were no Iraqi insurance companies as the first Iraqi national insurance company, Rafidain Insurance Company, was founded in 1946.  Even this company was not purely Iraqi since 60% of its capital was foreign owned. (4)

Al-Saifi says that insurance or guarantee, i.e. Sigorta, is a distorted expression derived from the French expression (Securite).  He may be correct in this, but we believe that the origin of the expression is Italian.  Two Turkish writers describe the origin of the word ‘insurance/guarantee’ as follows:

When seeking for the origins of insurance in the Ottoman Empire, we see that it arrived via trade across the Mediterranean.  Following in the tracks of the Turkish word for insurance itself reveals that the borrowed Italian term sicurtà first became siguriye then sikorta, sikurta, sikurita, in turn followed by sigurita and sigurta before finally settling on sigorta. (5) [Emphasis added by MK]

What gives support to preferring an Italian origin for the expression is the vast trade and diplomatic relations between the Ottoman Empire and Venice in the sixteenth century and the early seventeenth century, and the presence of a large community of nobles and citizens of this ‘nation-city’ in Istanbul. (6)

We have no information on the person who has translated the Sigorta Law to Arabic, and when and where the translation was made.  But let us remember that the weak and incorrect translation mentioned by Al-Saifi must be placed in the context of the history of insurance activity in Iraq, on the assumption that the translation was made in Iraq.  This activity was new to the economy of the country and was the closest thing to heresy - as traditional religionists would say later.  This is why we see the poor Arabisation and distortion of foreign terms, as well as the chaotic usage of many insurance terms.  During these times, the word ‘insurance,’ for example, was expressed in Arabic translation as guarantee, insurance as such, alsegurtah, alsekortah and as a pledge evidenced by a written document (policy).  It will take a long time before the usage of some of the terms were set and settled and the foreign words abandoned.

Evidently, linguistic accuracy is required to ensure common understanding of concepts among people as well as ensuring economy in the use of expressions.  However, a common mistake in usage of words in a particular area, made by those using them, is not a barrier to understanding among the users of such mistake.  Not only that but people can also differentiate between different usages of the same term.  The word ‘policy’ (the letter ‘p’ pronounced as ‘b’ and written in Arabic as bolissa and was of foreign origin) is still in use and means the insurance policy document as well as the bill of lading (by sea or air).  The context, however, determines the different meanings in usage.

Al-Saifi explains that this "law is concerned with insurance of moveable and immovable property including marine insurance/insurance of transportation."  The law also mentions insurance against the risk of fire: "a contract of insurance against fire," (Article 19) in addition to insurance of transport risk, without specifying the means of transport (maritime, overland and inland water-ways).  Instead of setting out such details, the Sigorta law is concluded by an article, not numbered, at the end identified as a "Special Article," stating, "The provisions contained in the right of maritime guarantee, mentioned in the [Ottoman] Law of Maritime Trade, remain applicable as prescribed."

Article 1 of the Sigorta Law provides a definition of the insurance contract:

"Guarantee is a pledge to indemnify for a definite fee losses and damage to movable and immovable property from perils and risks of any kind."

This early definition will find a modern comprehensive development in Article 981 - paragraph 1 of the Iraqi Civil Code No. (40) of 1951:

"Insurance is a contract whereby the insurer undertakes to pay to the insured or beneficiary a sum of money or income salary or any other financial indemnity, in case of the accident insured against occurs, in return for a premium or other financial payment by the insured to the insurer."

The reader will notice the difference between the two formulations, and especially the lack of precision in the Sigorta Law and the use of some unqualified words: "perils and risks of any kind" in the Sigorta Law versus "the accident insured" in the Civil Code.  Here, we are not going to engage in comparison, but simply to point out that a comparative study could be a separate topic for academic research.  However, we select a few more articles of the Sigorta Law for brief comments:

The insurance contract must be evidenced by the issuing of an insurance policy (article 2); the sum insured represents the maximum liability of the insurer (article 3); the beneficiary of the insurance contract is the one in whose name the policy was issued unless a third party was expressly named to be the beneficiary (article 4); insurable interest as the basis for insurance (articles 7 and 8); insurance of agricultural crops (article 9 and article 23); (7) double insurance and qualifying the principle of more than one insurer participating in the insurance contract (articles 5 and 10); qualifying the principle of good faith (article 11); the unenforceability of the contract because of the absence of a subject-matter of insurance (article 12); failure to report modifications in the specifications of the risk insured to the insurer (article 13.  This article is an example of drafting weakness mentioned by Al-Saifi); liability of the insured toward its neighbours arising from a fire in the property of the insured and consequential damage caused by fire (article 20).

Thus, we see that the law is not focused on a particular topic; it includes articles on classes of insurance (marine, fire and others), contractual principles and regulations for issuing insurance policies, etc.

Perhaps the background of this law dates back to the emergence and growth of insurance activity and the need for its regulation to prevent chaos in making insurance contracts and to protect policyholders from actual or potential malpractice by foreign insurance companies or insurance agencies operating in the Ottoman Empire.  Or perhaps there was really a legal vacuum in the area of insurance activity that necessitated state intervention.  Such a measure (instituting regulatory measures) is associated with the history of the insurance industry in many countries of the world.  In other words, these laws are a response to immediate or temporary problems that constitute, with the passage of time, a base for the development of new laws in the future and refining existing ones.

It can be argued that the passage of the Sigorta Law was a means to codify existing good practices and getting rid of bad once.  Perhaps instituting this law was necessary as the legal system of the Ottoman Empire was not based on case law, i.e. law in the making, pronounced by courts as is the case in the countries following a system of common law, where judges play a larger role in making law through their rulings, which become, with the passage of time, precedents that may be relied on for judging new cases.  Furthermore, there were no books by eminent jurists or judges to be used as reference in regulating the making of insurance contracts and guiding the activities of insurance companies, as was the case in England for example.  These remarks are mere speculations and are intended to encourage historical research, the best approach to providing an interpretation of the legislation of such laws and description of insurance activity.

Sigorta Law: A Pointer to Insurance Activity in Iraq

Foreign insurance companies and agencies were operating in Iraq, directly or indirectly, at the time when this law was issued.  This assertion is based on the fact that the first insurance company (foreign) was established in Istanbul in 1848 and the fact that the number of foreign insurance firms operating in 1914 within the Ottoman Empire reached 170 companies with 1971 agencies, as stated in the book What Hurts the Purse, Hurts the Soul: Insurance in the Ottoman Empire. (8)

The authors of this study stated that the first legislation to regulate the insurance industry in the Ottoman Empire was passed in the nineteenth century; article 29 of the Commercial Code, issued on 28th July 1850, referred to marine insurance, while the Maritime Commercial Law, issued on 21st August 1863, dealt with marine insurance.(9)  The Insurance Companies Act 1905 (i.e. Sigorta) was therefore part of this body of insurance legislation in the Ottoman era.

This highly interesting illustrated book did not mention Iraq, but we assume that insurance companies or agencies may have had a presence in Iraq insuring goods heading to and from Iraq (trading in dates and grain, for example) or insuring certain foreign assets in parts of Iraq.

Obviously, intuition in this area is not enough as a substitute for historical research of insurance activity in Iraq, which we are unable to carry out.  A study of the history of the British imperialist penetration of Iraq teaches us a great deal about the legacy left behind.  Suffice it to say that the British East India Company (founded by a British Royal Decree in 1600) monopolised British trade in Asia (India and China) for a long time, and it is well known that Iraq's trade with India had firm historical roots.  Later, the popularly termed English company Lynch House was founded by Henry Blosse Lynch who surveyed the rivers of Iraq before turning to incorporating an inland waterway transport company.  The company had a fleet of steam boats for river transport through the port of Basra, the Tigris and the Euphrates for the transport of British goods to Turkey (through the Tigris) and Syria (through the Euphrates).  It is worth mentioning in this context that British steam boats were used in Iraq for the first time in 1836.(10)  We assume that some of this economic activity was the subject of insurance protection against the risks of transport and fire at least through agents of foreign insurance compnaies.

Ottoman Legislation, Part of the History of Legislation in Iraq

Ottoman legislation, including insurance laws, constitutes part of the history of legislation in Iraq, as in other Arab countries that were under the Ottoman Empire.  Thus, Majallet Al-Ahkam Al-Adliya (11) remained in force in Iraq until the early fifties of the last century, as did the Insurance Companies Act 1905 (i.e. Sigorta).  Ottoman legislation (promulgating "laws" to be distinguished from "rulings" of Islamic Shariah) was predominantly focused on those areas that were not subject to Islamic Shariah, or the Shariah did not come close to them in detail as they represent modern developments of which insurance activity is a case in point.

We note that insurance activity entered the Ottoman Empire in its Western business form as a commercial venture based on profit.  It stayed in this form until the present time.  External influence can be seen in the wording of insurance policies that replicated the Western model.  The explanation of this dependency is that insurance, as a distinct economic activity, was not known in the Empire and the countries under its control, including Iraq until the nineteenth century.(12)  That is one of the reasons why the simulation of the Western business model remained prevalent as there was no indigenous model to follow.  As for Iraq, insurance, especially corporate, spread through trade and colonisation.

Practical Applications of the Sigorta Law

We remain eager to see concrete examples of the application of the Sigorta Law in Iraqi courts in adjudicating disputes between the insured and insurance companies.  This is a task for archivists and historians.

We hope that insurance practitioners in Iraq will evaluate this preliminary study, correct errors and complement shortcomings in the narrative with regard to the historical and legal analysis of insurance activity in Iraq.

London, July-October 2010