Abandonment and Total Loss in Marine Insurance, Historical in Europe

Definition

Abandonment, in the law of marine insurance, is the act of cession, by which, in cases where the loss or destruction of the property, though not absolute, is highly imminent, or its recovery is too expensive to be worth the attempt, the assured, on condition of receiving at once the whole
amount of insurance, relinquishes to the underwriters all his property and interest in the thing insured, as far as it is covered by the policy, with all the claims that may ensue from its ownership, and all profits that may arise from its recovery.

More briefly, it is the cession by the insured of all his interest in the subject insured to the insurer, in cases of constructive total loss, in order to recover the whole amount of the insurance.

This definition applies in Insurance Only. The doctrine of abandonment is confined to cases of insurance.

Reason of the Doctrine

The object of allowing the insured to abandon is to enable him to be promptly reinstated in his capital, and be thereby enabled to engage in some new mercantile adventure. But as the contract of marine insurance is a contract of indemnity, the insured must not retain any part of the subject-matter insured if he calls on the underwriter to settle with him for a total loss.

Total loss and the Divisions of the Subject

Before considering the principles of abandonment it is necessary to examine the doctrine of total loss. A total loss is a loss on account of which the assured is entitled to recover from the
underwriters the total amount of his subscription. It is either actual or constructive. Actual total loss entitles the assured to recover the total amount of his subscription without abandonment; constructive total loss entitles him to recover such total amount only upon condition of making abandonment.

Actual Total Loss

a. Definition.—Actual total loss is when the subject insured is wholly destroyed, or when there is a privation of it and its recovery is hopeless.

b. Destruction of Object Insured:

1. General Principles.—Absolute annihilation is not essential; it is enough that the form and species of thething is destroyed, although the materials of which it consisted still exist.This applies equally to ship and cargo.
2. Vessel Missing.—Where a vessel has been missing for a sufficient time, she is presumed to have been destroyed.

c. Total Loss to Insured:

1. General Principles.—Total loss of value to the insured is equivalent to a total physical loss, and takes place whenever the thing insured is totally gone from the power of the insured, or there is nothing which on abandonment could pass to be of value to the underwriter.
2. Sale by Necessity.—A sale by the master by reason of necessity constitutes a total loss, since the property having passed to another, there is nothing to abandon. This happens in England (Cossman i/.West, L. R. 13 App. Cas. 160; Stringer i/.English.etc, Marine Ins. Co., L. R. 5 Q. B. 599 ; Idle v. Royal Exch. Assur. Co., 8 Taunt. 755 ; Robertson v. Clarke, i Bing. 445; Cambridge v. Anderton, 2 B. & C. 691; Robertson v. Caruthers, 2 Stark. 571; Rouxz/. Salvador, 3 Bing. N. Cas. 266; Doyle V. Dallas, i M. & R. 48; Gardner V. Salvador, i M. & R. 116; Dyson v. Rowcroft, 3 B. & P. 474; Fleming v. Smith, i H. L. Cas. 513), Canada (Anchor Marine Ins. Co. v. Keith, 9 Can. Supreme Ct. Rep. 483) and United States Courts (Williams v. Suffolk Ins. Co., 3 Sumn. (U. S.) 510; Hall v. Ocean Ins. Co., 37 Fed. Rep. 371).
3. Cost of Repairs Exceeding Value.—In estimating an absolute total loss, the test has been laid down that, where the cost of repairs of a vessel exceeds the value when repaired, or, in cargo, when the cost of repairing the damaged condition exceeds the value of the cargo as repaired, or when the cost of transshipping exceeds the worth of the goods shipped, the loss is absolutely total.

d. Total Loss with Benefit of Salvage.—Salvage in marine insurance is the part, or remnant, of the thing insured which survives a total loss; and upon principles of indemnity it becomes the property of the underwriters without abandonment. Where the ship has become a wreck, or where goods
have become a total loss, but something has survived, which, although it has lost its specific character, is yet of some value, this rule applies. Where there has been a sale of the thing insured, and the master has received the money, he must hold it to the use of the underwriters; and if it comes to the hands of the insured it may be deducted from the loss as so much paid.

Particular Cases of Total Loss to Insured

• Memorandum Articles.—Only an actual total loss allows the insured to recover for the loss of memorandum articles. The tests for determining whether a loss is actually total are, in general, the same as those already stated. There is this limitation, however—in the case of memorandum articles there can never be a total loss provided the articles insured reach the port of destination in specie, however great the damage by a peril insured against may be. It results that, no matter how extensive the damage at any intermediate port, it is the duty of the master to forward the goods, if this is possible, and by his failure to do so he cannot throw the loss upon the insurer. But where, though the goods still remain in specie at an intermediate port, the delivery of any portion of them at the port of destination becomes impossible by reason of a peril insured against, the loss becomes absolutely total and the obligation to forward ceases.
• Perishable Articles.—The rules as to memorandum articles apply to other things of a perishable nature, though not enumerated in the memorandum.
• Freight.—An actual total loss of freight arises only where the circumstances are such as to render the ultimate earning of freight absolutely impossible or practically hopeless ; as where the cargo is lost, or there are no means of forwarding it. The loss of the vessel short of the port of destination does not of itself constitute a total loss of freight, but the question in such cases is, whether there was a chance of being able to earn the freight by forwarding the cargo ; and it is always the duty of the insured to repair and complete the voyage, or if this is impossible, to transship by another vessel.
• Total Loss Only.—A constructive total loss is sufficient under a policy against “total loss only.”

Constructive Total Loss

A constructive total loss is when the damage, though not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as total by an abandonment, i.e., by giving notice of an abandonment to the underwriters.

Constructive Total Loss Criteria

In General.—The character of a loss as constructively total depends upon the conduct of a prudent uninsured owner as measured, first, by the quantum of damage to the thing insured under the circumstances (English rule), or by an artificial one half loss standard (United States rule); second, by the imminence of actual peril ; or third, by the loss of his adventure, or the lack of means to repair.

Quantum of Damage:

• English Rule.—If the outlay required to repair the damage be greater than the value of the thing when repaired, the loss is constructively total.
• American Rule.—If the vessel or goods insured are damaged to more than half their value, or if more than half the freight is lost, the insured may abandon as for a total loss.

Imminence of Peril.—If the subject of insurance is in such imminent peril that in all probability it cannot be delivered therefrom, or, so far as any reasonable calculations can be made, in the highest degree of probability the expenses for its delivery will exceed the quantum required for a constructive total loss —i.e., the value of the thing in England, the one half value in the United States—so that a prudent owner uninsured upon the spot would decline any further expense in connection therewith, there is a constructive total loss.

Loss of Adventure—Inability to Repair.—When there is not a total loss by reason of the quantum of damage, or immediate imminence of total loss, yet, if the undertaking insured is broken up, or there is a lack of the means of repairing the injury sustained at the port of distress, an abandonment is
justified.

Computation of Constructive Total Loss

Value of Vessel.—The value of a vessel, within the rule as to one half loss, is the half of the general market value of the vessel at the time and place of the disaster, not its value for any particular voyage or purpose.

Expense of Repairs and Transshipment.—The expense of repairs is usually the main element in computing total loss. Costs of repairs are to be estimated at the port of distress. Where there is a total loss of cargo the expenses of transshipment and sale are to be deducted from the gross receipts of sale in computing a total loss. In computing a total loss on freight, no deduction
is to be made for expenses of wages and provisions.

One Third New for Old.—Whether, in estimating the quantum of loss to determine total loss or not, the deduction of one third from the cost of repairs in favor of the insurer for the value of the new materials is to be made, as in cases of partial loss, is a question upon which the decisions are confUcting.”

Salvage and General Average.—The salvage contribution of the party claiming a total loss is to be taken into account in his favor, to determine whether his loss reaches the proportion required for a total loss. It is proper to take into account goods jettisoned to make up a constructive total loss.
Items proper to be included in estimating general average are not so taken into account.

Under Valued Policies in Computation of Constructive Total Loss

In computing a constructive total loss under a valued policy the rule in England, and that which obtains in some of the courts in the United States, is that the actual facts alone are to be considered, as in cases of partial loss. Thus a ship is a constructive total loss in the courts of the United States where this rule prevails, if it costs more than one half the actual value of the ship to repair.

In some of the U.S. states, on the other hand, the valuation in the policy is conclusive—the damage must exceed one half the valuation therein stated.

Under a valued policy on freight for successive voyages the valuation is distributive, and the earnings on one voyage are not to be offset against the loss happening on another, unless circumstances show that the valuation is applicable to the aggregate amount of successive freights.

See Also

• Right or Abandonment in Marine Insurance, Historical
• Admiralty, Historical
• Average, Historical
• Blockade
• Embargo
• Jettison
• Marine Insurance
• Maritime Liens
• Masters of Vessels
• Salvage
• Shipps and Shipping
• Subrogation
• Usages and Customs
• Abandon, Historical

Further Reading

• Encyclopedia of Pleading and Practice, title “Insurance”
• A manual of maritime law : consisting of a treatise on ships and freight and a treatise on insurance : translated from the Latin of Roccus : with notes, by Francesco Rocco; Joseph R Ingersoll, Philadelphia : Hopkins and Earle, 1809.
• An essay on average : and on other subjects connected with the contract of marine insurance por Robert Stevens, of Lloyd’s. London, 1813.
• A treatise on maritime law : including the law of shipping, the law of marine insurance, and the law and practice of admiralty, by Theophilus Parsons, Boston : Little, Brown, 1859.
• A practical treatise on the adjustment of general average in the United States and other countries : including the elements of maritime and insurance law, also, the rights and liabilities of underwriters and ship-owners, and the general duties of ship-masters,by Francis B Dixon, New York : H. Spear, 1867.
• Hand-book of marine insurance and average, by Francis B Dixon, New York : Henry Spear, 1862.
• The law of insurance : as applied to fire, accident, guarantee, and other non-maritime risks, by John Wilder May; Frank Parsons, Boston : Little, Brown, 1891.
• A treatise on the law of marine insurance and average : with references to the American cases and the later continental authorities, by Joseph Arnould, Sir, London : V. & R. Stevens and G.S. Norton, 1857.
• Arnould on the law of marine insurance and average. By Joseph Arnould, Sir; Edward Louis De Hart; Ralph Iliff Simey, London : Stevens & Sons, 1914.
• An essay on maritime loans, by Balthazard-Marie Emerigon; John E Hall, 1811.