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A bottomry, or bottomage, is an arrangement in which the Master Mariner of a ship borrows money upon the bottom or keel of it, so as to forfeit the ship itself to the creditor, if the money with interest is not paid at the time appointed at the ship's safe return.Ephraim Chambers (1728). s.v. BOTTOMAGE. (1 ed.). London: James & John Knapton; John Darby; and others. vol. 1, p. 120.
This occurs, for example, where the ship needs urgent repairs during the course of its voyage or some other emergency arises and it is not possible for the master to contact the owner to arrange funds, allowing the master to borrow money on the security of the ship or the cargo by executing a bond. Where the ship is hypothecated, the bond is called a bottomry bond. Where both the ship and its cargo are hypothecated, the relationship is called respondentia.
The Code of Hammurabi describes a form of bottomry which is a risk transferring technique. A bottomry would be taken, but the repayment would be contingent on the ship successfully completing the voyage. This is more like a catastrophe bond than traditional insurance. In traditional insurance, you pay premiums and receive a benefit on the risk event. With bottomry and catastrophe bonds, you receive a loan up front and only pay it back with a premium if the risk event doesn't occur.
By its nature, bottomry was prone to insurance fraud. Two common forms were taking bottomry against a ship and valuable cargo, setting sail with a cheap cargo, and scuttling the ship to keep the loan and the cargo, and pretending that the ship had sunk while it actually hid in a distant port and acquired a new name and crew. Demosthenes's speech Against Zenothemis accuses the titular shipper of the first type of fraud in the fourth century BCE.Demosthenes, Orations, 32 http://www.perseus.tufts.edu/hopper/text?doc=Perseus%3Atext%3A1999.01.0076%3Aspeech%3D32%3Asection%3D1
In his Life of Cato the Elder, Plutarch describes how he would use the process to make money, but calls it "the most disreputable form of money-lending".Cato, c. 21, in Waterfield, Robin. Plutarch, Roman Lives. Kaplan and Kaplan describe it as follows:
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