DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

ASSESSMENT OF LOSS & ABANDONMENT IN MARINE

INSURANCE A CRITIQUE

LAW OF INSURANCE

N. BHAGYA LAKSHMI

G. NAGA LAHARI

ROLL NO: 2013048

VIII SEMESTER

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 ACKNOWLEDGEMENT

I consider myself lucky that I got the chance to do a work on this topic that was to
Assessment of Loss & Abandonment in marine insurance A Critique.

I thank the subject teacher, Ms.N. Bhagya Lakshmi, for letting me choose the topic.

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 TABLE OF CONTENTS

TITLE PAGE NO

1. OBJECTIVES 05

2. INTRODUCTION 05

3. MARINE INSURANCE COVERS & POLICY

EXCLUSIONS 06

4. LOSS & ABANDONMENT 06

5. TYPES OF MARINE LOSS 07

6.NOTICE OF ABANDONMENT 08

7. EFFECT OF ABANDONMENT 10

8. INDEMNITY IN MARINE INSURANCE 11

9. JUDICALDECISIONS 12

CONCLUSION 14

BIBLIOGRAPHY 14

WEBLIOGRAPHY 15

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 LIST OF CASES
1. Hyderabad (Deccan) Co v. Willouggy, (1899) 2 QB 530
2. Captain JA Cates and Wharfage Co. ltd v. Franklin Insurance Co., (1927) 137 LT
709
3. Brotherston v. Barbar, (1816) 5 M & S 418
4. Allgemeine Versicherungs Gessellschaft Helvetia v. Administator of German
Property, (1931) 1 KB 672
5. State of orissa v. United India Insurance Co Ltd, (1997) 5 SCC 512: AIR 1997 SC
2671
6. General insurance society ltd v. Chandumull jain, (1966) 3 SCR 500: AIR 1966 SC
1644
7. United India Insurance Co. Ltd v. Great Eastern Shipping Co. Ltd, (2007) 7 SCC 101

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 1. OBJECTIVES

The paper deals with the Assessment of Loss & Abandonment in the marine insurance of
interpretation and the critical analysis.

2. INTRODUCTION

We all anticipate countless risks in our daily life. Risk is closely connected with loss. Every
risk results in loss of one or other kind. There can be loss due to perils of sea, illness, death,
fire, earthquakes and so on. The risk cannot be eliminated but loss can be. This desrire to
protect a person from uncertain loss, the business of insurance comes in to existence. Marine
insurance covers risk at sea (ocean marine) and on land (inland marine). Marine insurance
indemnifies vessel owners against the loss or damage of ships at sea or on inland waterways.
Marine cargo insurance compensates owners of cargo lost or damaged en route theorugh fire,
theft or shipwreck. Inland marine insurance covers domestic risks connected to transportation
of valuables and deals mostly with mobile property of a personal or commercial nature.

Ocean marine insurance is split into three main categories: hull (for loss or damage to the
vessel); cargo (for lossor damage to goods); and protection and indemnity (for liability of
ship owners to others). Underwriters set rates according to their own experience, the loss
history of the cargo or ship, and current competition in the industry. Important elements for
the vessel include owner management, crew experience, trade routes, ports visited, and age
and maintenance of the ship.1

Now, the strict scope of marine insurance, which was concerned only with the risk incidental
to a sea voyage has been expanded and it covers a wide variety of risks which are of course
incidental to or connected directly or remotely, with a sea voyage. In the modern times, the
normal insurance of goods include a transit clause, which covers the goods from the
warehouse of the manufacturer or wholesale seller to that of the consignee or the buyer.
These types of insurance policies may be compared to the through bills of lading invented
by the modern commerce field of the law relating to carriage of goods by sea. As, the
example in Hyderabad (Deccan) Co v. Willouggy2 bullion was insured at and from Boodim

1
DR. NARESH MAHIPAL, AN INTRODUCTION TO INSURANCE LAWS, 115 (1st ed., Central Law Publications,
Allahabad, 2012)
2
(1899) 2 QB 530

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to London, including all risks of every description, from the mines by escort to the railway
station at Raichur, thence by rail to bombay and thence to London.3

3. MARINE INSURANCE COVERS AND POLICY EXCLUSIONS

The primary objective of a marine insurance policy is to protect your finances and assets
while they are being transported via sea. However, different insurance companies offer
multiple types of marine insurance policies. Due to this reason, there is no standard list of
risks against which each marine insurance will provide the protection. Though most marine
insurance policies do provide cover against damages or losses to expensive cargo, some
policies may while some may not provide extended cover against cross border civil
disturbances or against pirates. Following is a list of some of the common instances or losses
which marine insurance provides cover against: Import or export shipments, Goods which are
being transported via sea, rail, air, road or post, Goods being transported by coastal vessels
which ply between different ports inside the country, Goods which are transported via vessels
plying along rivers.

Some of the common exclusions of most marine insurance policies are: Routine wear and
tear or ordinary leakage, Incorrect and inadequate packaging of goods being transported,
Damage caused due to delay, Damage caused willfully or intentionally, Damage caused due
to civil commotion, strikes, war, riot, etc., any damage or loss occurring due to bankruptcy or
financial default of the owner of the transport vessel.

4. LOSS AND ABANDONMENT

In marine insurance, loss means loss incidental to marine adventure. The term includes
damages or detriment as well as the actual loss of the property. An insurer is liable only to
indemnify loss, which is proximately caused by a peril insured against. Broadly speaking all
losses may be classified as either:

(a) Total, or
(b) Partial and any loss other than a total loss is a partial loss.

Section 56(3) of the Marine Insurance Act, provides that unless a different intention appears
from the terms of a policy, an insurance against total loss includes a constructive as well as
actual total loss. In an action for total loss where the evidence proves only a partial loss,

3
DR K V S SARMA, MODERN LAW OF INSURANCE IN INDIA, 193 (5th ed., Lexis Nexis, Gurgaon, 2014)

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unless the policy otherwise provides, recovery for a partial loss may be made. Sub-section 4
and 5 of section 56 state that where goods reach their destination in specie, but any reason of
obliteration of marks or otherwise, they are incapable of identification, the loss, if any, is
partial and not total.

5. TYPES OF MARINE LOSS

There are two types of marine losses. They are: 1) Total loss 2) Partial loss

1) Total Loss: Total loss is further divided into two:

a) Actual total loss:

The subject-matter is completely destroyed.

The goods are so damaged that they cease to be a thing of the kind which were
insured.
The insured is deprived of the subject-matter.
When a ship is sunk or is completely destroyed by fire, it will be a case of actual total loss.
There may be a case when the goods are so damaged that they do not look like goods which
were insured e.g. if crockery is reduced to pieces, it is a case of actual total loss.

b) Constructive Total Loss:

This occurs when the ship is abandoned for certain reasons. It is not commercially viable to
retrieve the ship or cargo. The ship or the cargo is not wholly destroyed but it is not
practicable to get it repaired and restore it to its original position. When a ship is badly
damaged, and the cost of repairs is expected to be more than the value of the ship, it will be
advisable to abandon the ship.

In the same way if the cargo is safe in the abandoned ship but the cost of bringing the cargo
to the coast is more than the cost of cargo, then it will be proper to leave the cargo. In the
case of constructive total loss, the insured gives a notice of abandonment and surrenders its
interest in the subject matter to the insurer. The insured can claim damage for total loss.

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B. Partial Loss: When the subject-matter is partially damaged, it will be a case of partial
loss. It is of two types:
1. Particular Average Loss:
A particular average loss has been defined as, a partial loss of subject-matter insured, caused
by a peril insured against, and which is not general average loss. A particular average loss is
not caused voluntarily. The insured subject-matter should be damaged and this damage
should be caused by marine peril which is insured.

2. General Average Loss:

A general average loss is caused voluntarily to avoid an impending danger. A general
average loss is one which is caused by an extra-ordinary sacrifice or expenditure voluntarily
and reasonably made or incurred under fortuitous circumstances, for the sole purpose of
preserving the common interest from an impending peril.

If a ship is sinking because of overload, some of the cargo may be thrown out of the ship with
a purpose to save the ship and the crew. It will be a case of general average loss. Some
conditions are to be satisfied before deciding about a general average loss:

There must be an extra-ordinary situation.

The peril must be real and not imaginary.
The loss must be voluntary and deliberate.
The sacrifice must be made prudently.
The purpose should be to save the whole adventure.
The act should be successful at least partially.4
6. NOTICE OF ABANDONMENT
If he elects to treat the loss as an actual total loss he must give notice of abandonment to the
insurer. If he fails to do so the loss can only be treated as a partial loss. Notice may be in any
written, oral form or partly written and partly oral. All that is necessary is that is should
indicate to the insurer the intention to surrender unconditionally the subject matter of
insurance.
The vexed question is about the time when the notice of abandonment should be given, if the
assured elects to abandon the subject matter. If he simply comes to know that some damage

4 RC Agarwal, Types of marine losses, ARTICLE LIBRARY, available at

http://www.yourarticlelibrary.com/insurance/2-types-of-marine-losses-total-loss-and-partial-loss/42118/ (last
visited on Feb. 19, 2017)

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was caused, he cannot give the notice. He must have knowledge of all the details necessary to
exercise his option. But once he receives the full information he must not delay. It must be
given with reasonable diligence after the receipt of reasonable information of the loss, but
where the information is of doubtful character the assured is entitled to a reasonable time, to
make inquiry.5 Reasonable diligence, again like reasonable time, is a question of fact. If the
insured fails to abandon at a proper time, the right to abandon may cease, unless the right to
give such notice may revive by a change of circumstances. Though notice of abandonment is
necessary on treating the loss as constructive total loss, the mere giving of notice does not
entitle the assured to recover the full amount unless the damage to the property is to be
legally regarded as a constructive total loss. That means, in spite of receiving a notice of
abandonment, the insurer may reject the notice, as damage to property cannot be legally
regarded as a constructive total loss. But if he accepts the abandonment, the extent of
damage, its sufficiency and the other circumstances need not be gone into. In such cases the
insurer pays a total loss and realizes what he can, with the property, which has been or left
abandoned to him.
The acceptance of abandonment may be either express or implied from the conduct of the
insurer and it is further provided that mere silence of the insurer after notice is not an
acceptance.6Where notice of abandonment is accepted the abandonment is irrevocable. The
acceptance of the notice conclusively admits liability for the loss and the sufficiency of the
notice.
In cases where the notice abandonment is declined, a difficult situation may arise in the
matter of taking measures to prevent further loss and preserving the property. The assured is
afraid to take steps as it may lead to an inference of waiver of abandonment and if the
underwriter takes steps he may be presumed to have made an acceptance of the notice and so
both may not take steps. To avoid this situation the waiver clause is introduced into the
policy, which reads:
It is expressly declared and agreed that no acts of the insurer or insured in recovering,
saving or preserving the property insured shall be considered as a waiver or acceptance of
abandonment.
Where proper notice has been given but the insurer refuses to accept it that will not prejudice
the rights of the assured. Notice of abandonment was given to the insurer, and he, after
having the ship salvaged and brought ashore, finally refused to accept the notice. The salvors

5
Section 62(3), Marine Insurance Act, 1963
6 Section 62(5), Marine Insurance Act, 1963

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then made an offer to the insurer to buy the ship, which offer, before it could be accepted,
was withdrawn. The assured contended that this act of entering into negotiation for the sale
was an implied acceptance of the abandonment. However, the Privy Council refused to
countenance this contention.7 Their Lordships said that in this tentative negotiation they did
not act as owners of the tug or exercise dominion over it, and they didnt purport to sell and
convey or to make a title for that purpose. An agreement to sell, had it been concluded, would
only have been an executor contract, which they would have been able to perform if and
when they chose to accept the abandonment, but in itself it could not be an act of ownership.
The assured can withdraw an unaccepted notice of abandonment. By a notice of
abandonment the assured merely makes an offer, which remains executor unless and until it
is accepted. Until it is accepted the assured has the right to look to intervening events, which
may restore in whole or in part his former situation and may limit his claim accordingly if it
suits him better to claim as for a partial loss.8
Once the notice is accepted, the abandonment becomes irrevocable. The acceptance of the
notice is a conclusive admission of the liability for the loss and of the sufficiency of the
notice.
When the notice is not necessary: No notice is necessary in the following cases:
1. 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.
2. The insurer may waive notice of abandonment.
3. Where an insurer has re-insured his risk; he need give no notice of abandonment.
7. EFFECT OF ABANDONMENT
When a valid abandonment has taken place, the insurer is entitled to take over the whole of
the interest of the assured in the subject matter of insurance including proprietary rights over
it.9
Where a ship is abandoned, the insurer will be entitled to freight which is in the course of
being earned and which is earned subsequent to the casualty causing the loss, less the
expenses incurred in earning it after the casualty. If the ship is carrying the owners goods,
the insurer will be entitled to reasonable remuneration for the carriage of them subsequent to
the casualty causing the loss.

7
Captain JA Cates Tug and Wharfage Co. Ltd v. Franklin Insurance Co., (1927) 137 LT 709
8 Brotherston v. Barbar, (1816) 5 M & S 418
9 Section 63, Marine Insurance Act, 1963

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The effect of abandonment is explained in Allgemeine Versicherungs Gessellschaft Helvetia
v. Administator of German Property,10 Scrutton LJ Proceeded as follows:
what is the effect of abandonment under English or German law, which are assumed to be
the same? When the total loss of a thing insured is not actual, but constructive, that is, where
the thing insured is in specie, but the cost of preserving and repairing it would be more than
its value when preserved or repaired, the assured must give a notice of abandonment. This, in
itself, does not pass any property or rights in the thing insured to the underwriter. If the
underwriter then pays the assured a total loss it used to be thought that the payment passed
the property and the rights incident to it to the underwriter, as benefit of salvage.
Now, the section 63 of the Act, clearly provides that 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, thus apparently leaving it
open to the underwriter not to take over the interest of the assured, though entitled to take it
over.

8. INDEMNITY IN MARINE INSURANCE

The principle of indemnity means that the insured will be compensated only to the extent of
loss suffered. He will not be allowed to earn profit from marine insurance. The underwriter
provides to compensate the insured in cash and not to replace the cargo or the ship. The
money value of the subject-matter is decided at the time of taking up the policy. Sometimes
the value is calculated at the time of loss also.11

A contract of indemnity is a contract by which one party promises to save the other from loss
caused to him by the conduct of any other person as contemplated in section 124 of the
Indian Contract Act. But indemnity, as applicable to marine insurance, must not be an
indemnity as contemplated by the Indian Contract Act, as the loss need not necessarily be
caused to the assured by the conduct of the insurer or by the conduct of any other person. 12
As, the case before the Supreme Court:13
The contract was for supply of bulldozers from a port in Yugoslavia to the port in
Calcutta. The insurance company for any mishap provided the insurance cover during the

10
(1931) 1 KB 672
11
Marine Insurance, available at http://niilmuniversity.in/coursepack/Insurance/Marine_Insurance.pdf (last
visited on Feb. 19, 2017)
12
State of orissa v. United India Insurance Co Ltd, (1997) 5 SCC 512: AIR 1997 SC 2671
13 Ibid

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transit resulting in non-supply. But before any claim could materialize, the insurer cancelled
its commitment as permitted by a term in the contract. But the branch manager of the insurer
had underwritten in the policy the guarantee for non-supply of bulldozers.
It was held that the contract of insurance was validly terminated. The branch manager
exceeded his authority as an agent in undertaking such liability by subsequently incorporating
it into the policy. The insurer was not bound by such undertaking by virtue of the principle
incorporated in section 237 of the contract Act. The court said that in view of the fact that the
branch manager was not authorized to cover the risk of the loss on account of non-supply, the
principal, namely, the insurance company was not liable for any damages. Since the contract
had been duly terminated under the policy of insurance it, the declaration sought, viz., for that
the contract was duly cancelled, was clearly within the power and legal competence.14

9. JUDICIAL DECISIONS
In United India Insurance Co. Ltd v. Great Eastern Shipping Co. Ltd 15 the respondent
claimant was engaged in the import of sugar and other items. In connection with the import
of 12,000 metric tons of sugar from china to Calcutta the respondent had taken an insurance
policy for which the cover note dated 09-06-1994 and policy was valid from 23-09-1994 and
policy was valid from 23-09-1994 i.e. from the date of issue. The policy was further extended
by endorsement dated 28-09-1994 for up-country destinations in India. Extension of
insurance coverage was granted on 28-09-1994 and read as under.

As the request of the insured it is hereby declared and agreed to extend the cover
under the within mentioned policy no. 01/534/94 from Calcutta port to any place of Indian
Republic. All other terms and conditions of the policy remain unaltered.
Relevant provisions of Institute Cargo clause, which was one of the terms of the
insurance policy by incorporation inter alia provided that the policy cover extended to the
point of the delivery to the consignees or other final warehouse, or place of storage at the
destination named therein. It further laid down that the cover would expire on expiry of 60
days after completion of discharge overside of the goods insured from the overseas vessels at
the final port of discharge, whichever occurred first. The claimant alleged that after taking
delivery of sugar, the bags could not be transported from the dock area because of Durga

14 the court followed general insurance society ltd v. Chandumull jain, (1966)3 SCR 500: AIR 1966 SC 1644:
(1966)36 Cas 468 and relied on Banerji: Marine Insurance
15 (2007) 7 SCC 101

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Puja celebrations as a result of which all activities including transportation facilities virtually
came to a standstill from 10-10-1994 therefore in all 82,237 bags of sugar were temporarily
stored in T-sheds in the Calcutta port area en route to up-country destinations. On 21-10-1994
a fire broke out in the godown and destroyed the entire stock of sugar bags Hence, an Fir was
lodged and the appellant Insurance company was also informed by the respondent. The
appellant appointed two firms of surveyors.
Since the claim was not settled by the appellant Insurance company, the responded
filed a complaint before the national consumer commission. Sometime after that the appellant
insurer repudiated the claim of the respondent. The ground taken by the appellant Insurance
company for repudiating the claim was that the goods were destroyed in general storage other
than in the ordinary course of transit and it was also observed that what was covered was
transit risk and not storage risk. Therefore, it was held that the claim was not maintainable.
The commission examined the relevant provision and took the view that as per the Institute
cargo clause and extended coverage to the policy on payment of additional amount, the
insurance coverage was valid till the goods were delivered to the consigns warehouse or
other final warehouse or the place of storage at the destination. Ultimately. The commission
decreed the claim of the respondent. Hence the present appeal.Substantially dismissing the
appeal, the supreme court held that while interpreting the insurance policy the courts should
keep in view the intention of the parties as well as the words used in the policy. If the
intention of the parties subseries the expression used therein then the expression used in that
context should be given its full and extended meaning. Hence, this appeal fails and is
dismissed. There would be no order as to costs.

CONCLUSION

Marine insurance has evolved from restrictive coverage terms based up on named perils, to
broad coverage terms based upon all risks. The duration of risk has continually expanded
from ship loading to ship discharge, then from ware house to warehouse, and now, well
beyond. Brokers to expand coverage continually draft custom clauses. From the brokers
standpoint, warranties are generally disfavored. From the under writers standpoint, however
warranties remain an effective tool for controlling exposure to risk.

There has always been and continues to be a very strong connection between marine
insurance and maritime liability laws. While the absence of marine insurance in the past led t
some special maritime liability rules, today the presence of widespread marine insurance

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brings with it some new policy implications for maritime liability laws. One such policy
implication seems to be the gradual adoption of compulsory insurance in various marine
liability laws. The availability of insurance and especially the requirement of compulsory
insurance have contributed to better safety and precaution. With the use of various insurance
mechanisms insurers are able to keep their insured are able to keep their insured motivated
towards optimal care and consequently to reduce social losses caused by the negligence of
the insured.

BIBLIOGRAPHY

1. Singh, Bridge Anand, New Insurance Law (2000) Union Bool Publishers, Allahabad.
2. John Birds, Modern Insurance (2008) universal law publishing G. Pvt. Ltd.
3. Murthy & Sarma, Modern law of Insurance (Fourth Edition), Lexis nexis,
Butterworth Wadhwa, Nagpur.
4. Srinivasan, M.N. Principles of Insurance Law (2006) Wadhwa & company, Nagpur.
5. Mishra, M.N. law of Insurance (2006), Central law Agency, Allahabad.
6. Jaiswal, J.V.N., Law of Insurance (2008), Eastern Book Company, Lucknow.
7. Singh, Aotar, Law of Insurance (2008), Eastern Book Company, Luchknow
8. Mathew, M.J. Insurance: Principles & practice (2005), RBSA Publishers, Jaipur.
WEBLIOGRAPHY
1. http://niilmuniversity.in/coursepack/Insurance/Marine_Insurance.pdf
2.http://www.yourarticlelibrary.com/insurance/2-types-of-marine-losses-total-loss-and-
partial-loss/42118/
3. https://link.springer.com/chapter/10.1007%2F978-3-319-03488-1_8
4.https://books.google.co.in/books?id=3ZY3AAAAQBAJ&pg=PA443&lpg=PA443&dq=co
nclusion+of+loss+under+marine+insurance&source=bl&ots=LQQw2eJeUM&sig=vJSKKD
wjUdnwEDTWOi6gnAL22Lo&hl=en&sa=X&ved=0ahUKEwizqYPPp6jTAhWGH5QKHbi
TA8A4ChDoAQgnMAA#v=onepage&q=conclusion%20of%20loss%20under%20marine%2
0insurance&f=false

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