Bottomry

What Does Bottomry Mean?

Bottomry is a credit arrangement, rarely used today, in which the owner of a ship or its captain secures a loan with the ship as collateral. After the ship’s voyage, the borrower must repay the loan; otherwise, the lender becomes the owner of the ship. If the ship is lost during the voyage, the borrower is not required to repay the loan.

Insuranceopedia Explains Bottomry

The name of this type of credit contract derives from the keel, a fin-like structure at the bottom of the ship that is considered the most crucial part of the vessel. It is named this way because only the ship serves as collateral, not the cargo. The credit relies on the assumption that the successful delivery of goods will enable the borrower—whether the ship’s owner or the captain—to repay the loan.

From the creditor’s perspective, the risk is that if the ship is lost at sea or destroyed and cannot return to port, the loan will not need to be repaid. This risk is a significant reason why this type of contract is no longer popular in maritime insurance.