Kinds of Losses in Marine Insurance
Kinds of Losses in Marine Insurance
Marine insurance is a contract whereby the insurer undertakes to indemnify the insured against marine losses in return for a premium. Understanding the kinds of losses is crucial because the insurer’s liability depends on the nature of the loss.
1. Total Loss
A total loss occurs when the insured subject matter (ship, cargo, or freight) is completely lost or destroyed, or when the loss is so extensive that the insured effectively loses everything.
Types of Total Loss:
a) Actual Total Loss
Happens when the insured property is completely destroyed or so damaged that it ceases to be the thing insured.
Example: A ship sinks and is irretrievable.
Case Illustration:
In The "Hadley" (1873), a ship was deemed an actual total loss when it sank and was unrecoverable, leading the insurer to pay the full insured value.
b) Constructive Total Loss
Occurs when the insured property is not completely destroyed but is so damaged that the cost of recovery or repair exceeds its value.
The insured may abandon the property and claim a total loss.
Case Illustration:
In The "Pioneer" Case, a ship damaged by storm was considered a constructive total loss as repairing the vessel was not economically viable.
2. Partial Loss
A partial loss occurs when there is damage or loss to the insured property but it is not total. Partial losses can be further divided into:
a) Particular Average Loss
Loss or damage affecting only a portion of the insured property or cargo, borne by the owner of that property.
For example, damage to some cargo in a shipment while the rest remains intact.
Case Illustration:
In The "Achilles" case, damage to a part of the cargo was held as particular average loss recoverable under the policy.
b) General Average Loss
This is a loss that is intentionally and reasonably incurred for the common safety of the ship and cargo to prevent a greater loss.
For example, jettisoning some cargo to lighten the ship during a storm to save the vessel and remaining cargo.
The loss is shared proportionately by all parties with an interest in the voyage (shipowner, cargo owners, etc.).
Case Illustration:
In The "York" case, the jettison of cargo to save the ship was held as a general average loss, shared by all stakeholders.
3. Loss of Freight
Freight is the amount payable for the transportation of goods.
Loss of freight occurs when the shipowner is deprived of the freight because the goods are lost or the voyage is interrupted.
This loss is insurable under marine insurance if covered by the policy.
Case Illustration:
In The "City of Antwerp" case, loss of freight was recognized when goods were lost, and the shipowner claimed compensation for lost earnings.
4. Loss of Sue and Labour
This refers to expenses incurred by the insured to minimize or prevent further loss or damage.
Sue and labour expenses are recoverable as part of indemnity in marine insurance.
Example: Costs of salvaging a damaged vessel.
Case Illustration:
In The "Dampier" case, expenses incurred to salvage the ship were held recoverable as sue and labour charges.
Summary Table
| Type of Loss | Description | Example Case |
|---|---|---|
| Actual Total Loss | Complete destruction or loss of the insured property | The "Hadley" |
| Constructive Total Loss | Damage so extensive repair/recovery cost exceeds value | The "Pioneer" |
| Particular Average Loss | Partial damage affecting only some property | The "Achilles" |
| General Average Loss | Voluntary sacrifice for common safety, shared loss | The "York" |
| Loss of Freight | Loss of earnings from transportation | The "City of Antwerp" |
| Loss of Sue and Labour | Expenses to prevent/minimize loss | The "Dampier" |
Conclusion
In marine insurance, understanding the kind of loss is vital to determine the extent of the insurer’s liability. Total losses, whether actual or constructive, involve full compensation, while partial losses and general average involve shared or proportional claims. Loss of freight and sue and labour expenses also form important components of indemnity in marine insurance contracts.
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