Chapter 16: Constructive Total Loss

Although s 60(2) appears to qualify the general provisions laid down in s 60(1), this is not the case. In Robertson v Petros M Nomikos Ltd, below, the House of Lords confirmed that the two sub-sections within s 60 contained two separate definitions, which may be applied to different conditions of fact.

The plaintiffs (respondents) were the owners of a tanker which was chartered to carry crude oil from the Caribbean to Europe; the chartered freight being insured with the defendant (appellant) underwriters. Prior to proceeding to her port of loading under the charterparty, the tanker suffered an explosion and fire whilst undergoing boiler repairs in Rotterdam. Because of the conditions laid down in the hull policy, the owners did not claim for a constructive total loss, although they could have done so. Instead, they chose to claim for a partial loss on that policy and did not abandon. They then claimed on their policy covering the chartered freight for a total loss, but the underwriters refused payment, on the basis that, under a term in the freight policy, such a claim was invalid unless the vessel was, in fact, a constructive total loss.

The House of Lords, in affirming the decision of the Court of Appeal, ruled that the vessel had been a constructive total loss, and that a notice of abandonment, with respect to a hull policy, was not intended to show that there was a constructive total loss, but rather that the assured intended to claim for such. Furthermore, no such notice of abandonment was required to claim for a total loss of freight, and, therefore, the plaintiffs could recover under their policy on chartered freight.

A German vessel was scuttled by the master and crew off the Faroe Islands in order to avoid capture by a British warship. The cargo-owners successfully claimed for a constructive total loss caused by the actions of the German Government in taking over control of all German shipping.

But, in Irvin v Hine, below, a claim for constructive total loss was based on the proposition that the complete definition contained in s 60 did not preclude other claims which were valid under common law.

A trawler was severely damaged after stranding on a rock and the owner gave notice of abandonment to the insurers, which was refused. The owner's claim that the trawler was a constructive total loss was based on the fact that, due to the wartime restrictions then in place, he could not obtain a licence in a reasonable time in order to repair the vessel. The owner accepted that the claim was not tenable under any of the heads specified in s 60, but contended that the claim was justified under the common law, and that the claim was not inconsistent with the provisions of s 60, and was also valid under s 91(2), which preserved the application of the rules of the common law provided they were consistent with the express provisions of the Act.

The court ruled that the loss was a partial loss, and, in so ruling, clarified the interpretation of s 60, which was held to be a complete definition.

Although it is established that, within the Act, s 60 is a complete definition of constructive total loss, it was shown, first in Rodocanachi v Elliott (1874) LR 9 CP 518, and later in British and Foreign Marine Insurance Co v Samuel Sunday and Co [1916] 1 AC 650, HL (hereinafter referred to as the Sanday case), that there was another form of constructive total loss which existed under common law before the Act. Unlike insurance on a ship, it has long been established by the law merchant that, when hostilities exist, goods may be lost to an assured not just by physical damage, but also by the very existence of the hostile conditions themselves, which may lead to the voyage or adventure being terminated prematurely.

The Marine Insurance Act 1906 makes no express reference to this type of loss whereby an owner of goods might suffer loss or damage because of the termination of the whole venture or voyage caused by an insured peril. Since the Sanday case, cited below, which is the leading authority on this subject, it is now firmly established that a claim for constructive total loss of goods may be brought when the voyage or adventure is abandoned or frustrated. The House of Lords in that case was in agreement that this form of constructive total loss must remain valid, as it is not in conflict with the provisions of the Act and is also admissible under s 91(2).

However, as mentioned earlier, it was the case of Rodocanachi v Elliot, below, which first raised the issue, some years...