Clause 19: Constructive Total Loss

Comments to ITCH

The clause must be read together with MIA Sections 60-63. Sections 60 and 61 define ctl and its consequences while Sections 62 and 63 deal with notice of abandonment and its effect, that is with the procedure for claiming a ctl. The rules relating to notice of abandonment have a long history in English marine insurance law. They are not dealt with as such in ITCH but apply once the conditions for claiming a ctl as laid down in MIA and ITCH have been satisfied. These conditions can be summarised as follows:

1. The prospective cost of repair and/or recovery must exceed the vessel’s insured value rather than the repaired value of the vessel.

2. The situation must be judged as at the time notice of abandonment is given. This could therefore include cases where the vessel is in the grip of a casualty and salvage is doubtful or unlikely so that future salvage costs must be included in the calculation.

3. In assessing the cost of recovery/and or repair, only the costs relating to a single accident or sequence of damages arising from the same accident may be considered.

4. In estimating cost of repairs, the vessel’s proportion of expenditure related to future GA

5. No account is to be taken of the damaged or break up value of the wreck.

NMIP Comparison

NMIP Cl. 11-3 regulates the assureds right to claim compensation for a total loss.

The assured may claim for a total loss whenever he believes circumstances justify such a claim. Under the NMIP Cl.11-5 the general rule is that a request for condemnation should be given without undue delay after the vessel has been salvaged, see also Cl. 11-6. This request can be withdrawn as long as the request is not accepted, as also under the English conditions, see MIA Section 62 (6).

Unlike the situation under MIA and ITCH the question of whether the vessel is a CTL (condemnable) is assessed once the vessel is in a position of safety and capable of being surveyed, that is after any salvage operation has been completed. The costs of salvage are recoverable in addition to the sum insured for loss of or damage to the vessel. 

The position of the parties during a salvage operation is regulated by Plan clauses 11-2 and 4-21.

According to Cl. 11-3, the vessel is a CTL when the following conditions are satisfied:

1. The cost of repairing the casualty damage will exceed 80 % of the insurable value (in comparison to a 100% under the ITCH) or the market value of the vessel after repair whichever is the higher.

2. In contrast to the ITCH, the relevant costs are all those necessary to complete repairs. This includes the costs of repairing all damage reported in the previous three years.