MARINE LOSSES Prepared by Ms Norazimah Mazlan TYPES
MARINE LOSSES Prepared by: Ms. Norazimah Mazlan
TYPES OF MARINE INSURANCE LOSS TOTAL LOSS Actual Total Loss Constructive Total Loss PARTIAL LOSS
ACTUAL TOTAL LOSS • S. 57 (1) MIA 1906: “Where the subject matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss. ”
Definition of Actual Total Loss under Section 57(1) • Actual total loss may be construed in 3 ways: 1. When the subject matter is totally destroyed 2. When the subject matter cease to be a thing of the kind insured 3. When the assured is irretrievably deprived of the subject matter (it is impossible to recover or get back the subject matter)
1. When the subject matter is totally destroyed • In the context of hull insurance, the question to be asked is whether the insured vessel remained a ship or had been reduced to a mere collection of planks and become a mere wreck. • There is no total loss if the ship still bears the character of a ship.
2. When the subject matter cease to be a thing of the kind insured • The question to be asked is whether the insured property has undergone a change of commercial identity. • E. g. cement bag turns into concrete due to sea -water contact.
Asfar & co v Blundell • The vessel carrying dates sank. When it was subsequently raised and docked, the dates were so impregnated with sewage and found to be unfit for human consumption. • Held: There was a total loss of the dates. The dates were biologically remained but commercially lost. Freight was not payable on delivery.
3. When the assured is irretrievably deprived of the subject matter • This involves a situation where the possibility of recovery is low. e. g. vessel is at the bottom of the ocean
CONSTRUCTIVE TOTAL LOSS. (s. 60(1)&(2) MIA 1906) 1. where the subject matter is reasonably abandoned on account of its actual loss to be inevitable. e. g. abandoning a ship which is taking in water excessively) 2. where the subject matter insured could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. (e. g. a vessel is grounded and requires salvage services and hull repair to survive)
3. where the assured is deprived of the possession of his ship or goods by a peril insured against and is unlikely that he can recover the ship or goods as the case may be - especially at the time of war- e. g. during Iran-Iraq war, the Iraqi port authorities denied a vessel permission to leave. All movement of the vessel was prohibited and it was forced to remain as idle as a painted ship.
where the assured is deprived of the possession of his ship or goods by a peril insured against and the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered. (Cost of recovery vs insured value )
5. in case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired (Cost of repair vs insured value) 6. in case of damage to the goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value. (Cost of repair + forwarding charges (if any) vs insured value
• In short, constructive total loss incurred when 1. The vessel is unlikely to be saved or recovered or 2. The cost of saving, recovering, repairing or reconditioning of the goods is more than the value of the goods.
EFFECTS OF CONSTRUCTIVE TOTAL LOSS (S. 61 MIA) • Where there is a constructive total loss, the assured may either treat the loss as a partial loss, or abandon the subject matter insured to the insurer, he must give notice of abandonment. If he fails to do so, the loss can only be treated as a partial loss.
Options available to the assured when a constructive total loss situation arises (s. 62 MIA 1906): Treating the loss as partial loss Treating the loss as actual total loss A notice of abandonment must be given to the insurer
Notice of abandonment • The concept of notice of abandonment is unique to marine insurance. • It is the mean by which the assured may inform his insurer his intention to renounce his rights in the property insured. • Notice of abandonment is a precondition to a claim for constructive total loss. • If the notice of abandonment is not given, the assured may only claim for partial loss.
• A ship owner may choose not to give notice of abandonment and sue for a partial loss. • Under a notice of abandonment, the assured must abandon the ship or goods to the insurer. The assured will then pay the full indemnity. • This notice prevents the assured from having payment in full of the sum insured and a thing of value in his hand at the same time. • The purpose of this notice is to give an early notice to the underwriter to make the most they can out of the property which will belong to him at the end of the proceedings.
• Kaltenbach v Mac. Kenzie Ø After a survey was done, the vessel was condemned to be a constructive total loss because the repair cost was higher than the repaired value. Ø The underwriters refused payment on the basis that they had received no notice of abandonment. Held: Ø Even though the underwriters had received a notice of abandonment, it was too late to be accepted. Ø The assured must give the notice as soon as he has reliable information that there is imminent danger that the subject matter is becoming total loss.
King v. Walker (1864) H & C 209 - The word “abandonment” need not be used in the notice. Effects of the notice (s. 62(6)): • On the assured- the assured cannot anymore revoke his abandonment. • On the underwriter- the underwriter conclusively admits liability for the loss.
Exception to the requirement of notice of abandonment • When the subject matters are of no benefit to the insurer. (e. g. the underwriters could not salvage the wreck because the hostilities were still taking place) • Insurer waives the requirement of notice of abandonment. • It is not required in contracts of reinsurance.
PARTIAL LOSS • Any loss that does not satisfy the criteria for a total loss is partial.
TYPES OF PARTIAL LOSS Ø Particular average loss. Losses which are directly sustained by the subject matter insured caused by insured peril. (damage of the insured subject matter) Ø Extraordinary expenses arising from the casualty q General average loss - incurred through a deliberate act performed with the intention of protecting all the interests involved in a voyage from the danger which threatens them all. q Salvage charges The expenses incurred to remunerate services rendered to a ship and cargo, which have prevented its being a total loss q Particular charges (sue and labour i. e. steps taken to mitigate loss
References • Hodges, S. (1999). Cases and Materials on Marine Insurance Law. UK: Cavendish Publishing. (pp 643 -664) • Bennett, H. (2010). The Law of Marine Insurance. UK: Oxford University Press.
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