A 1745 British law against wagering on maritime disasters offers the CFTC a precedent for banning wildfire event contracts.
WILLIAMS BAY, WI (JLN) — August 7, 2026: Nine Democratic senators, led by California’s Adam Schiff and Alex Padilla and Oregon’s Jeff Merkley, wrote to CFTC Chairman Michael Selig this week demanding that the commission rein in prediction markets offering event contracts on wildfires. Their letter cites more than $1.2 million in bets on Polymarket’s offshore platform surrounding the Palisades and the Eaton fires that killed 31 people in Los Angeles in January 2025, and it relays a blunt warning from state and local fire officials: contracts that pay out on destruction invite someone to supply the destruction.
The senators have a stronger historical case than they may realize. It is 281 years old, written in the language of King George II, and it concerns ships. This is a story I learned from former SEC and CFTC Chairman Gary Gensler, now an MIT professor, who shares the story in his classes. It is the story of the origins of the economic purpose test that found its way from the beginning of Lloyd’s of London to U.S. commodities law.
The Marine Insurance Act of 1745 (19 Geo. 2. c. 37) was Parliament’s answer to a market that had drifted from risk transfer into pure wagering. At Edward Lloyd’s coffee house on Tower Street and later Lombard Street, the birthplace of Lloyd’s of London, underwriters had made it routine to sell policies on vessels to people who had no cargo aboard, no ownership stake, and no connection to the voyage at all. These were the notorious “interest or no interest” policies: bets on whether a ship would arrive, dressed in the language of insurance. The Act’s preamble is worth quoting, because it could have been drafted last week about wildfire contracts. Such assurances, Parliament found, had “been productive of many pernicious Practices, whereby great Numbers of Ships, with their Cargoes, have either been fraudulently lost and destroyed, or taken by the Enemy in Time of War…” The law condemned “a mischievous kind of Gaming or Wagering, under the Pretense of assuring the Risque on Shipping,” by which “the Institution and laudable Design of making Assurances, hath been perverted.”
Note what alarmed Parliament. It was not merely that people were gambling; Georgian England gambled on everything. It was that the wager had decoupled the payout from any genuine exposure and, in doing so, had created an incentive to cause the loss. A man with no interest in a ship who profits from its sinking is a man with a reason to see it sunk. The preamble says so explicitly: wager policies encouraged ships to be “fraudulently lost and destroyed.” Parliament’s remedy was not to ban insurance. It was to require insurable interest, to demand that anyone collecting on a loss actually stand to suffer one. Risk transfer for those exposed: lawful. Speculation on calamity by the unexposed: null and void.
Now substitute the Palisades for a merchantman off Ushant. A wildfire event contract on an offshore prediction market is an “interest or no interest” policy in modern dress. The bettor holds no home in the fire’s path, no timber, no vineyard, no business interruption to hedge. He profits only if the fire grows, spreads, or burns longer, outcomes that are, as the senators point out and fire officials confirm, partly subject to human agency. Arson is to the wildfire bettor what the deliberately scuttled ship was to the Georgian wager-policy holder: the perverse incentive made flesh. Add the insider-trading dimension – a firefighter, utility worker, or incident commander with non-public knowledge of suppression efforts trading against the crowd – and the parallel to 1745’s fraudulent losses is complete.
There is an even sharper historical irony available to the senators’ argument. The perversion at Lloyd’s did not stop at ships. By the mid-eighteenth century the same coffee-house crowd was writing wager policies on lives, on whether a condemned man would hang, whether a public figure would survive the year. That is precisely why Parliament extended the insurable-interest requirement to life assurance in 1774, and why later statutes, from the Gaming Act 1845 to the Marine Insurance Act 1906 and the Marine Insurance (Gambling Policies) Act 1909, kept tightening the same screw. Every generation of Anglo-American law that has confronted betting divorced from economic exposure has reached the same conclusion: the institution of risk transfer is valuable, and it is corrupted when it becomes a market in other people’s misfortune. American law absorbed this principle wholesale; it is why insurance regulators, not gaming commissions, sit atop the industry, and why the CFTC’s own statute once required an economic purpose test for new futures contracts, a test repealed only in 2000 and now being openly reconsidered in the commission’s event contract rulemaking.
Polymarket’s defense, that wildfire markets produce “timely, market-based information,” is the eighteenth-century wagerer’s defense verbatim. The wager-policy holders of Lloyd’s also produced information; their prices told you what the crowd thought of a ship’s chances. Parliament did not dispute that. It held, correctly, that the informational byproduct did not justify the incentive structure, and that the information would survive, indeed improve, once the market was confined to participants with real exposure. Forecasting about wildfires will not disappear if offshore betting does. It will migrate to meteorologists, fire agencies, and insurance markets where the forecaster’s interest runs toward accuracy, not toward the fire.
Why the CFTC, and why now? Because at present it is the only door that can be closed. Congress is nowhere near passing wildfire-contract legislation, and the pending Prediction Market Act of 2026 would build guardrails rather than draw this particular line. State gambling law, as the industry has demonstrated in court after court, collides with the argument that CFTC-regulated event contracts are federally preempted derivatives. State insurance regulators have no purchase on instruments that call themselves swaps. The offshore platforms are entirely beyond state reach. What remains is the Commodity Exchange Act’s own public-interest authority, Section 5c(c)(5)(C), the provision that lets the commission determine that event contracts involving activity contrary to the public interest may not be listed or traded. The senators’ letter is, in effect, a request that the CFTC do for wildfire contracts what Parliament did for wager policies in 1745: declare that a market paying out on destruction, to participants with no stake in what is destroyed, is not risk transfer but gaming under a pretense, and void it accordingly.
Chairman Selig’s commission does not need to invent a new doctrine. It needs to remember an old one. The principle that financial markets must serve genuine economic exposure, that betting on catastrophe for its own sake corrupts both the market and the public safety, was settled law in English-speaking commerce before the United States existed. The senators asking the CFTC to ban wildfire bets are not reaching for novelty. They are standing on nearly three centuries of precedent, from a coffee house on Tower Street to a rulemaking docket in Washington. The CFTC should act before the next fire season gives the perverse incentive another season to burn.
