Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 1 of 9

Principle of Marine Insurance - 6

LOSS AND ABANDONMENT
Included and excluded losses
Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable
for any loss which is not proximately caused by a peril insured against.
In particular(a)

The insurer is not liable for any loss attributable to the willful misconduct of the assured,
but, unless the policy otherwise provides, he is liable for any loss proximately caused by
a peril insured against, even though the loss would not have happened but for the
misconduct or negligence of the master or crew;

(b)

Unless the policy otherwise provides, the insurer on ship or goods in not liable for any
loss proximately caused by delay, although the delay be caused by a peril insured
against;

(c)

Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear,
ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or
for any loss proximately caused rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.

Partial and total loss

A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a
partial loss.
A total loss may be either an actual total loss, or a constructive total loss.
Unless a different intention appears from the terms of the policy, an insurance against total loss
includes a constructive, as well as an actual, total loss.
Where the assured brings an action for a total loss and the evidence proves only a partial loss, he
may, unless the policy otherwise provides, recover for a partial loss.
Where goods reach their destination in space, but by reason of obliteration of marks, or otherwise,
they are incapable of identification, the loss, if any, is partial, and not total.
Actual total loss
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 thereof, there is an actual total loss.
In the case of an actual total loss no notice of abandonment need be given.
Missing ship
Where the ship concerned in the adventure is missing, and after the lapse of a reasonable time no
news of her has been received, an actual total loss may be presumed.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 2 of 9

Effect of transshipment, etc.

Where, by a peril insured against, the voyage is interrupted at an intermediate port or place, under
such circumstances as apart from any special stipulation in the contract of affreightment, to justify
the Master in landing and re-shipping the goods or other movables or in transshipping them, and
sending them on to their destination, the liability of the insurer continues, notwithstanding the
landing or transshipment.
Constructive total loss defined
Subject to any express provision in the policy, there is a constructive total loss where the subjectmatter insured is reasonably abandoned on account of its actual total loss appearing to be
unavoidable, or because it could not be preserved from actual total loss without expenditure would
exceed its value when the expenditure had been incurred.
In particular there is a constructive total loss(i) Where the assured is deprived of the possession of his ship or goods by a peril insured
against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or
(b) the cost of recovering the ship or goods, as the case may be, would exceed their value
when recovered;
Or
(ii) In the case of damage to a ship, were 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.
In estimating the cost of repairs, no deduction is to be made in respect of general average
contributions to those repairs payable by other interests, but account is to be taken of the expense
of future salvage operations and of any future general average contributions to which the ship
would be liable if repaired.
Or
(iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the
goods to their destination would exceed their value on arrival.
Effect of constructive total loss
Where there is a constructive total loss the assured may either loss as a partial loss, or abandon
the subject-matter insured to the insurer and treat the loss as if it were an actual total loss.
Notice of abandonment
Subject to the provisions of this section, where the assured elects to 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.
Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and
partly by word of mouth, and may be given in terms which indicate the intention of the assured to
abandon his insured interest in the subject-matter insured unconditionally to the insurer.
Notice of abandonment must be given with responsible diligence after the receipt of reliable
information of the loss, but where the information is of a doubtful character the assured is entitled
to a reasonable time to make inquiry.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 3 of 9

Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the
fact that the insurer refuses to accept the abandonment.
The acceptance of abandonment may be either express or implied from the conduct of the insurer.
The mere silence of the insurer after notice is not an acceptance.
Where a notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the
notice conclusively admit liability for the loss and the sufficiency of the notice.
Notice of abandonment is unnecessary where, at the time when the assured receives information
of the loss, there would be no possibility of benefit to the insurer if notice were given to him.
Notice of abandonment may be waived by the insurer.
Where an insurer has re-insured his risk, no notice of abandonment need to given by him.
Effect of abandonment
Where there is a valid abandonment the insurer is entitled to take over the interest of the assured
in whatever may remain of the subject-matter insured, and all proprietary rights incidental thereto.
Upon the abandonment of a ship, the insurer thereof is entitled to any freight in course of being
earned, and which is earned by her subsequent to the causality causing the loss, less the expenses
of earning it incurred after the causality; and, where the ship is carrying the owners goods, the
insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the
casualty causing the loss.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 4 of 9

PARTIAL LOSSES (INCLUDING SALVAGE AND GENERAL AVERAGE AND PARTICULAR

CHARGES)
Particular average loss
A particular average loss is a partial loss of the subject-matter insured, caused by a peril insured
against, and which is not a general average loss.
Expenses incurred by or on behalf of the assured for the safety or prevention of the subjectmatter insured, other than general average and salvage charges, are called particular charges are
not included in particular average.
Salvage charges
Subject to any express provisions in the policy, salvage charge incurred in preventing a loss by
perils insured against may be recovered as a loss by those perils.
Salvage charges means the charges recoverable under maritime law by a salvor independently of
contract. They do not include the expenses of services in the nature of salvage rendered by the
assured or his agents, or any person employed for hire by them, for the purpose of averting a peril
insured against. Such expenses, where properly incurred, may be recovered as particular charges
or as a general average loss, according to the circumstances under which they were incurred.
General average loss
A general average loss is a loss caused by or by directly consequential on a general average act. It
includes a general average expenditure as well as a general average sacrifice.
There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and
reasonably made or incurred in time of peril for the purpose of preserving the property imperiled in
the common adventure.
Where there is a general average loss, the party on whom it falls is entitled, subject to the
conditions imposed by maritime law, to a rateable contribution from the other parties interested,
and such contribution is called a general average contribution.
Subject to any express provision in the policy, where the assured has incurred a general average
expenditure, he may recover from the insurer in respect of the proportion of the loss which falls
upon him; and, in the case of a general average sacrifice, he may recover from the insurer in
respect of the whole loss without having enforced his right of contribution from the other parties
liable to contribute.
Subject to any express provision in the policy, where the assured has paid, or is liable to pay, a
general average contribution in respect of the subject insured, he may recover therefore from the
insurer.
In the absence of express stipulation, the insurer is not liable for any general average loss or
contribution where the loss was not incurred for the purpose of avoiding, or in connexion with the
avoidance of, a peril insured against.
Where ship, freight, and cargo, or any two of those interests, are owned by the same assured, the
liability of the insurer in respect of general average losses or contributions is to be determined as
of those subjects were owned by different persons.
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Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

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SUBROGATION
Where a loss has been settled, the underwriter is entitled to place himself in the position of the
assured, to the extent of acquiring the assureds rights and remedies in respect of the loss. This is
the meaning of subrogation, and its importance is that it is necessary to preserve indemnity as
afforded by an insurance policy. If it were permissible for the assured, after being indemnified by
his underwriter, to recoup his loss either wholly pr partly from some other party as well, or by way
of proceeds of wreck, the principle of indemnity would be contravened.
Subrogation is the last of the four basic principles of marine insurance. (The others are utmost
good faith, insurable interest, and indemnity.) It is a corollary of the principle of indemnity, for it
precludes a person recovering from two sources in respect of the same loss, and thus making a
profit.
The insurer must have paid the claim before the right of subrogation accrues. In certain
branches of insurance, notably fire, the insurer may, by means of a policy condition, be able to
exercise subrogation rights before the claim has been paid; the policy condition modifies the
common law. This is not possible in marine insurance.
He rights and remedies which the assured may possess, and which pass underwriters upon
payment of a loss, relate to compensation or recovery from third parties, such as liabilities for
damage received in collision where the other vessel is at fault, recovery from parties under
contract, such as damage to cargo for which the shipower is responsible, and general average
contributions to property sacrificed.
When an insurance company examines a claim and concludes that all is in order, before paying the
claim, the insureds signature to a letter of subrogation is often asked for. There is nothing sinister
in this request and the principle is quite straight forward. In the event of a short delivery ex ship, it
could well be that a recovery may be obtained from the Ship Owner.
It is quite reasonable therefore for the insurer to expect to gain the benefit of any recovery from
the Ship Owner if he has paid the insureds claim. However, the Ship Owner would not pay the
insurer unless he had some authority to do so. This authority is in the form of a letter of
subrogation signed by the insured. This letter passes the insureds rights against third parties for
loss or damage suffered by the cargo to the insurer, on settlement of the claim. It should be
understood that this form of subrogation does not pass to the insurer any rights to the cargo itself.
However, if the insurer pays a total loss under the policy he is entitled to take over the interest of
the insured in the subject matter insured. It should be noted that the insurer is entitled to take
over the interest of the insured. That does not mean that he has to, and if the circumstances are
such that by taking over title of the cargo he may incur charges in excess of any possible salvage
value the cargo may have, the he is unlikely to take over the insureds interest and will just pay the
claim and be subrogated to rights against third parties.
There is one basic principle that applies to the insured in the cases where he is subrogated to the
insureds rights, and that is that he may not take the benefit of any recovery amount in excess of
the amount he has paid out as a claim.
In the event that a recovery is obtained in excess of the claim paid the insurer must pay the excess
to the insured, unless the excess is as a result of interest being paid, in which case the interest
should be split between the insurer and the insured taking into account the date of the loss and the
insurer settled the claim.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 6 of 9

Total and partial losses distinguished

MIA s. 79 draws a clear distinction between total loss and partial loss. In both kinds of loss,
underwriters are subrogated to all the rights and remedies of the assured, but following a total
loss the underwriters may also take over what remains of the property. In the event of partial
loss, however, they acquire no proprietary interest in the property. This is understandable when the
measure of indemnity for partial (damage) claims is recalled. So far as subrogation is concerned,
however, a total loss includes total loss of an apportionable part of the cargo.
Thus, when the insurer has paid a loss, total or partial, he is subrogated to the rights and
remedies of the assured, but only to those rights and remedies of the assured, but only to those
rights and remedies in so far as the assured has been indemnified by such payment for the loss.
This means that, irrespective of the kind of loss, by right of subrogation the underwriter is entitled
to recover no more than he has paid, that is, he can recover no more than 100p in the $1 on what
he has paid. (Yorkshire Insurance Co, Ltd. v. Nisbet Shipping Co. Ltd. 1961).
It appears from s. 79 that a further distinction is drawn between total and partial losses, in that
sub-s. (2) limits the right of subrogation for partial losses to in so far as the assured has been
indemnified by such payment for the loss. No such limitation appears in sub-s. (1) relating to total
losses, and, therefore, by inference, it does not apply to total losses, but this view has been
rejected by the courts, particularly in Attorney-General v. Glen Line Ltd. (1930).
The following examples should be considered:

A vessel is sunk is collision owing to negligent navigation of another vessel. The insurer is
subrogated to the rights of action of the shipowner against the defaulting ship. The same
applies to the cargo insurers.

Cargo damaged by negligence of carriers servants. The insurer is subrogated to the rights
of action of the cargo owner against the carrier.

In either event the limit is the amount of the claim paid by the insurer.
Abandonment and subrogation
Where, however, the insurer has paid a total loss, he is entitled also to proprietary belongs to him.
Thus, if the insurer has paid a total loss for a missing ship which later arrives, the ship is his
property. He can retain whatever sum he receives by the sale of the vessel, irrespective of insured
value. (MIA s. 79 (1).)
The Act states underwriters are only entitled to take over the interest of the assured only in what
remains of the property. They are not forced to take over the assureds title; there may be
liabilities attaching to the interest and, if these are likely to be onerous, underwriters will not take
over the property.
Where a vessel is captured by the Germans in 1914, and some years later recovered and sold by
insurers for considerably more than the insured value, it was held that the insurers were
entitled to retain the full proceeds. By the acceptance of abandonment they received full
proprietary rights in the vessel. Compensation for the loss of profit by the use of the vessel during
the war years was received by the owners, but it was held that the insurers could not participate in
this recovery as it was not part of the proprietary rights, nor was it a subrogation right, which
accrues only on the amount paid by the insurer. This was a loss of profit to the owners by the use
of their ship. (Attorney-General v. Glen Line Ltd. (supra).)
On acceptance of abandonment, the insurer takes over whatever remains of the property. His
rights of subrogation against third parties, however, apply only after a loss has been paid, and are
limited to the amount paid.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

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It can therefore be seen that by abandonment insurers can make a profit if they sell the remains
of the subject-matter insured for more than the insured value, but by subrogation they are entitled
to keep only up to the amount to which they have indemnified the assured.
Undervaluation
The rights of subrogation of the insurer apply to the value insured. If property is valued in the
policies at less than its real value, the insurer is subrogated to the rights of the assured against
third parties up to the rights of the assured against third parties up to the insured value. In other
words, the property is undervalued.
Example Total Loss
A ship was insured for and valued at $6000. Through negligence of another vessel, she was sunk
in collision. The insurers paid a total loss - $6000. The assured recovered $5,000 from the
defaulting ship. Although the value of the ship at the time of loss was $9000 the insurers were held
to be entitled to the full recovery of $5000, not merely two-thirds of that sum. (North of England
Iron SS. Ins. Assn. v. Armstrong 1870).
Example - Partial Loss

A ship was insured and valued at $4000. It was damaged in collision. Cost of repairs
$5000. 50% recovery from the other ship $2,500.

The assured contended that underwriters were liable for the full cost of repairs, less the recovery
from the other ship (i.e. $5,000 -$2,500= $2,500.)
The court ruled, however, the underwriters were liable for the cost of repairs up to the insured
value ($4000) and were to be credit with the full recovery ($2500). The assure was fully
indemnified on the value insured, and any recovery passed to the owner. (Goole & Hull Steam
Towing Co. v. Ocean Marine Ins. Co. 1928).
Under-insurance:
It is clear that the underwriters right to subrogation is not affected by reason of the insured value
being less than the value at the time of the loss. Under insurance, however, occurs where the some
insured, or total sums incurred, are less than the stated insured value in a valued policy, or the
insurable value in an unvalued policy. The assured is then deemed to be his own insurer in respect
of the uninsured balance. He will bear the relative proportions of all claims, and retain a similar
proportion of any sums recovered.
Example

Vessel insured for $6,000, part of $9,000 so valued. It was damaged in collision. Cost of
repairs $4,800.

Insurers pay 6000/9000 x 4800/1 = $3,200

Recovery from the other vessel $3,000
Insurers receive as subrogation
6000/9000 x 3000/1 = $2,000
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Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

Page 8 of 9

PARTIAL LOSS, CONSTRUCTIVE TOTAL LOSS AND ABANDONMENT

All too often, in the event of cargo being delivered damaged the insured party at final destination
refuses to take delivery and declares that the insurers can do as they wish the cargo. This attitude
will in no way assist the insured in his claim against the insurer and could lead to the claim not
being paid at all.
The attitude of the insured is, in fact, an abandonment of the cargo to the insurer. However the
circumstances under which an abandonment can be made are quite clear. In the event that the
cargo by reason of the damage is a constructive total loss it may be abandoned to the insurer. In
order for the cargo to be considered a constructive total loss, the damage must be such that the
cost of repairs and forwarding the cargo to the final destination would exceed its value on arrival.
Furthermore it must be clearly understood that even if there is a valid abandonment, the insurer
may not wish to take up ownership of the cargo after he has paid the claim.
Let us examine two typical claims.
A cargo of cement in bags is discharged from the ocean vessel in wet and hardened condition and
the Owner refuses to take delivery from the port declaring that as far as he is concerned the
consignment is of no use to him and insurers can do as they wish with the cargo.
The first thing to consider is that some of the cargo may be sound. The second problem would be
port charges, etc. and any necessary costs of dumping the valueless cargo. In the event that the
Surveyor representing the insurer states that 200 bags ex the total consignment of 2,000 bags are
sound, the insurer would only be liable for the insured value of 1,800 bags at the most. Any port
charges, storage charges and dumping costs would be for the account of the insured. In short, the
insured cannot say I no longer wish to own this cargo and it is now someone elses problem.
A second example could involve a consignment that an insured had purchased for a special project
but unfortunately 10% of the consignment was short delivered. The shortage would render the
remaining cargo of no use for the intended project and hence the insured decided to leave the
cargo in the port area for insurers to do as they pleased. In this case there is a partial loss and the
insurers limits of liability would be 10% of the insured value. The insured still owns the cargo and
his no justification in leaving the cargo in the port.
It is entirely wrong to think that as soon as a cargo is delivered in anything other than perfect
condition it becomes the insurers problem. In the case of some shortage or damage the loss is a
partial loss and it is the duty of the insurer to take all reasonable steps to keep the loss or damage
to a minimum. In the case of a total loss or constructive total loss, the liability of the insurer is for
the insured value of the cargo and the insurer is certainly not liable for shortage or other costs
incurred because the Owner decides not to take delivery of his cargo.
SUE AND LABOUR CHARGES
Strange old fashioned English language which implies quite simply that if the insured spends
money in order to avert or minimise losses that would be recoverable under the policy, the insured
is entitled to claim that money back from the insurer.
It is the duty of the insured to act as if uninsured and take all reasonable measures to avert or
minimise a loss.
It is reasonable therefore that if an insured spends money to avoid a loss which would be
recoverable under the policy he should be paid by the insurer.

Marine Insurance Course Paper 8

Compiled by: Capt. Zillur

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In the event that jute bags of rice were delivered ex ship with some bags torn with contents
spilling, it would be reasonable for the insured or his agents, to slip the damaged bags into
polythene bags prior to their on carriage to inland destination. This act and the costs associated
there would be reasonable sue and labour charges incurred to prevent a further loss of rice from
torn bags during inland transit.
There is one major problem which an insured could face. Sue and labour charges are only
recoverable if incurred to prevent or minimise a loss which would be recoverable under the policy
and in this connection the insurers always have the benefit of hindsight.
Let it be assumed that metal plate in wooden boxes is discharged at a port with clear evidence of
water damage to the boxes. In the event that water had entered the boxes, the metal could
become damaged during the inland transit. Clearly a reasonable insured would open the boxes and
dry the contents, if necessary, before forwarding them to destination. The cost of this exercise
would be recoverable as sue and labour expense. However, if when the boxes were opened it was
noted that the water had not penetrated the boxes and the boxes were duly resealed, the cost of
this operation would not be recoverable. Although the operation was a prudent measure, it
happened that there was not damage or risk of damage to the metal contents and hence no loss or
damage was avoided.
BURDEN OF PROOF
It is the duty of the person making a claim to prove that the loss or damage claimed had arisen as
a result of an insured peril. Today, the cargo clauses are very wide and if the A Clauses or similar
are in use, the mere existence of shortage or damage implies a loss by an insured peril.
However, there are one or two interesting aspects worthy of study.
The Air Cargo Clauses only give cover for 30 days after discharge from the carrying aircraft and
hence, if due the delays the cargo is not delivered to final destination for say 45 days after
discharge there could be a problem.
In the event that damage had been sustained to the cargo which had been attributed by the
Surveyor to heavy handling during transit, then the insured could have a problem with regard to
burden of proof. It would be necessary for the insured to prove that the damage took place before
the expiry of 30 days after discharge and if he was unable to do this he would be unable to
discharge the burden of proof and hence his claim would fail.
There could be circumstances where for example the insurer suspected that the loss had been
deliberate by the insured himself. In the event that the cargo had been lost by fire in suspicious
circumstances, the insured would still have discharged the burden of proof because fire would be
one of the perils covered. It would be down to the suspicious insurer to prove that the loss had
arisen as a result of arson carried out by the insured. The burden of proof would rest with the
insurer.

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