Marine Insurance Claims

There may be a claim under a marine insurance policy when, by operation of a peril a loss occurs. A loss on a marine insurance policy is defined on section 56 of the MIA as either a total or partial loss

Total loss

A total loss may either be actual total loss or a constructive total loss and an insurance against total loss includes both. Where a total loss is claimed, then if the evidence proves partial loss only, that may be recovered although the total claims fails (this does not apply if the policy excludes partial loss)

Actual Total Loss

An actual total loss can occur in one of the following ways;

Where the subject matter is destroyed, e.g. vessel sunk deep in the sea water where the vessel and cargo are destroyed

 Where the subject matter is so damaged as to cease to be a thing of the kind insured. This is known as loss of specie for example, cement is so damaged by sea water as to have become concrete

Where the assured is irretrievably deprived of subject matter. Thus, destruction is not essential to a claim for actual total loss. the assured has suffered an actual total loss where for example cargo belong to the insured, is in sunken ship deep down the sea, just as much as the owner of the ship itself in which rests the cargo.

Constructive Total Loss

This is the commercial total loss in the sense that the subject matter is not destroyed, it is not in fact   totally lost, but commercially, a total loss has occurred. The MIA defines constructive total loss thus: “there is a constructive total loss, where the subject matter insured is reasonably abandoned    on account of its actual total loss without an expenditure which would exceed its value when the expenditure had been incurred.

Examples

• A shop runs ashore, remains in specie but the cost of refloating her would exceed her value when refloated
• Cargo in a vessel which has gone underground remains intact but the cost of recovering it would exceed the value when recovered;
• Part of a satellite is dropped during loading but the cost of repair exceeds its actual value.

When in all probability the insured considers a total loss exists, the loss may be treated as partial, or they may abandon their interest in the subject matter to the insurer and claim a total loss.

It is a condition precedent to a claim for constructive total loss that the assured must tender notice of abandonment to the insurer the interest in the subject matter of insurance. This requirement is reasonable, for if one believes one has a valid constructive total loss claim, one will expect full indemnity and cannot seek to retain the subject matter insured. It enables the marine underwriter to take steps to protect their interests.

Salvage loss

This form of loss has the same result as constructive total loss except that no notice of abandonment is required. The term salvage loss results from the practice of a forced sale at port of distress of badly damaged cargo in order to prevent cargo from becoming a total loss. marine underwriters pay for such losses by deducting the net set sale proceeds from the insured value, treating the claim as a total loss less salvage, or a salvage loss.

Sue and Labor Charges

These are charges incurred but the ship owner and their agents to preserve or attempt to preserve the ship from the consequences of an insured peril or to minimize its effects. These charges are reimbursed by the insurance, in addition to any loss recoverable under the insurance- whether total or partial.

Particular Average

This means partial loss.’ thus. Free from particular average’(FPA) means free from partial loss, while with Average (WA) means the partial losses are covered subject to the terms of the policy. Hence, partial loss of the subject matter insured cause by a peril insured against is particular average. E.g. weather damage to ship, damage from stranding, collision or fire. For cargo, there could be damage by sea water following heavy weather or stranding.

Particular average to freight usually follows loss of part of the cargo by the insured peril in consequence of which the ship owner is unable to collect the full freight that is due on delivery of the cargo at destination

General Average

General average is a partial loss which relates to a sacrifice or expenditure made or incurred by one of the parties to the marinetime adventure for the purpose of saving all the property involved in such marine time expenditure. A good example is jettison of cargo to prevent the vessel sinking.  In case a ship is in difficulties because heavy sea and throwing of some cargo in the sea will render the voyage safe, then the general average act as sacrifice of the cargo…

The loss is made good by contributions from all concerned when the adventure is saved. The contributors would include the ships owner’s and the owners of the cargo on board.