ACTUAL TOTAL LOSS
Notice of Claim and Tenders Clause
All claims for loss, partial or total, are subject to the Notice of Claim and Tenders Clause within the Institute Hulls Clauses (cl 13 of the ITCH(95) and cl 11 of the IVCH(95)). This clause is a new provision which, unlike its predecessor,3 specifies that:
In the event of an accident whereby loss or damage may result in a claim under this insurance, notice must be given to the Underwriters promptly after the date on which the Assured, Owners, or Managers become or should have become aware of the loss or damage and prior to survey so that a surveyor may be appointed if the Underwriters so desire.
Presumably, prompt notice is notice which is given as soon as is reasonably practicable in the circumstances and is, therefore, a question of fact (s 88), but it is emphasised that the prompt notice relates to the time when the ‘Assured, Owners or Managers become or should have become aware of the loss or damage and prior to survey’. As to the effect of prompt notice not being given, Arnould submits that ‘…failure to give notice, under the new cl 13.1, cannot of itself amount to a breach of utmost good faith: but if the assured acts dishonestly in this regard, that may well be a breach of the continuing duty of good faith’.4
Furthermore, the Notice of Claim and Tenders Clause also introduces a time bar, which stipulates:
If notice is not given to the Underwriters within 12 months of that date unless the Underwriters agree to the contrary in writing, the Underwriters will be automatically discharged from liability for any claim under this insurance in respect of or arising out of such accident or the loss or damage.
Automatic discharge from liability
Failure of the assured, who need not necessarily be the shipowner, but may well be a mortgagee, to ensure that notice of loss or damage is given to the underwriter within the prescribed time limit of 12 months would result in the underwriter being automatically discharged from liability. But it should be noted that the failure to provide notice within the time limit only discharges the underwriter from liability for the loss or damage arising out of that specific event or accident. Unlike a warranty, which uses similar language, failure to give notification within the time limit does not absolve the underwriter from other liabilities within the policy. The policy, as a whole, remains intact, and only the liability for the particular loss in question is displaced. Naturally, the underwriter is free to waive the breach if he so wishes, but such a waiver must be confirmed in writing.5
DEFINITION OF ACTUAL TOTAL LOSS
With respect to actual total loss, s 57(1) of the Marine Insurance Act 1906 applies to any subject matter insured within a policy of marine insurance, and this may include, amongst others, ship, goods, freight, profits and commissions, wages and disbursements when it states:
Where the subject matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss.
Furthermore, actual total loss, within the meaning of the definition, may be construed in three distinct ways, namely:
(a) when the subject matter is totally destroyed,
(b) when the subject matter is so damaged as to cease to be a thing of the kind insured, and
(c) when the assured is irretrievably deprived thereof.
Roux v Salvador was an early case which pre-empted and influenced the provisions laid down within s 57(1) of the Act.
Roux v Salvador (1836) 3 Bing NC 266
The plaintiff shipped a cargo of 1,000 salted hides aboard Roxalane from Valparaiso to Bordeaux. The hides were insured with the defendants under a voyage policy of insurance, which covered the usual perils, but was warranted free of particular average unless the ship be stranded. On the voyage from Valparaiso, by way of Cape Horn, Roxalane encountered severe weather and had to put into Rio de Janeiro for repairs. Accordingly, all the cargo was landed, and it was then that the hides were found to have been so wetted by seawater that they could not be taken onwards to Bordeaux because they would, through further putrefaction, have lost their character as hides. They were, therefore, sold in Rio de Janeiro for a quarter of their true value. The plaintiff claimed on his policy of insurance for a total loss brought about by the damage and eventual sale of the hides in Rio de Janeiro.
The court ruled that the plaintiff could recover for a total loss, as the goods were both perishable and out of the control of the assured.
Lord Abinger CB: [p 278] …If the goods are of an imperishable nature, if the assured become possessed or can have control of them, if they still have an opportunity of sending them to their destination, the mere retardation of their arrival at their original port may be of no prejudice to them beyond the expense of re-shipment in another vessel. In such a case, the loss can be but a partial loss, and must be so deemed, even though the assured should, for some real or supposed advantage to themselves, elect to sell the goods where they have been landed, instead of taking measures to transmit them to their original destination. But if the goods once damaged by the perils of the sea, and necessarily landed before the termination of the voyage, are, by reason of that damage, in such a state, though the species not be utterly destroyed, that they cannot with safety be re-shipped into the same or any other vessel; if it be certain that, before the termination of the original voyage, the species itself would disappear, and the goods assume a new form, losing all their original character; if, though imperishable, they are in the hands of strangers not under the control of the assured; if by any circumstance of their existing in specie at that forced termination of the risk, is of no importance. The loss is, in its nature, total to him who has no means of recovering his goods, whether his inability arises from their annihilation or from any other insuperable obstacle.
[p 285] …The underwriter engages, that the object of the assurance shall arrive in safety at its destined termination. If, in the progress of the voyage, it becomes totally destroyed or annihilated, or if it be placed, by reason of the perils against which he insures, in such a position, that it is wholly out of the power of the assured or the underwriter to procure its arrival, he is bound by the very letter of his contract to pay the sum insured.
TYPES OF ACTUAL TOTAL LOSS
Where the subject matter is totally destroyed
In any claim for total loss, the question must arise as to the condition of the subject matter insured or how severely it must be damaged before it may be considered as totally destroyed and, therefore, recoverable as an actual total loss. It should be noted that, in many of the early cases, prior to the introduction of the Marine Insurance Act 1906, there was often little effort made to differentiate between actual and constructive total loss. The courts were mainly concerned with distinguishing a total loss from a partial loss.
Actual total loss of a ship—a total wreck
In Cambridge v Anderton (1824) 2 B&C 691, where a vessel was badly damaged in the St Lawrence and later sold, Abbott CJ introduced a colourful, but apt, phrase, the principle of which is no less appropriate now, in order to differentiate between a partial and a total loss.
Abbott CJ: [p 692] …If the subject matter of insurance remained a ship, it was not a total loss, but if it were reduced to a mere congeries of planks, the vessel was a mere wreck, the name which you may think fit to apply to it cannot alter the nature of the thing.
In Bell v Nixon, below, which was also concerned with the loss of a ship, the court again had to consider the degree of damage required to determine whether the vessel was a total loss. The significance of a notice of abandonment was also raised.
Bell v Nixon (1816) Holt NP 423
Dorset was insured by the plaintiffs, with the defendants, under a voyage policy of insurance from Hull to Quebec. After running into severe weather, Dorset put into Limerick, a port in Ireland which had few facilities, in order to gain shelter and effect repairs. A survey, carried out at Limerick, showed Dorset to be considerably damaged and, as it was impossible to carry out the necessary repairs where she was or move her to a more suitable port, she was condemned and broken up. The plaintiffs claimed for a total loss under their policy of insurance, but the insurers contested the claim, on the basis that the ship still existed in specie and, furthermore, they had not received a notice of abandonment.
The court ruled that, on the ‘slight evidence’ given, the plaintiffs had given notice of abandonment and, therefore, they could recover for a total loss. However, the court discussed the issue of notice of abandonment and the actual condition of the vessel when she was abandoned.
Dallas J: [p 424] …The assured has a right to abandon under certain circumstances; and, in some cases, he may claim a total loss without abandonment. But, if the case be doubtful, the assured ought not to take upon himself to determine for the underwriters; to break up the ship; and to call upon them for a total loss. I think that he should, in this instance, have communicated to the underwriter the state of the vessel. The ship is proved to have been in that condition that it was necessary to have a survey. Examination and judgment were therefore applied to determine what it was expedient to do. The arguments by which this ship is represented to be a wreck proceed upon a fallacy. She was not a wreck. Her timbers were together; she existed as a ship specifically, both when she was surveyed, and when she was sold; and it is not because there was no dock at Limerick to receive her, and because she is found to contain rotten timber upon breaking up, that she is to be represented as a wreck. If her planks and apparel had been scattered in the sea it would have been another question…but the plaintiffs ultimately had a verdict on two points: (1) that a notice of abandonment had been given to the underwriters, of which fact the plaintiffs gave some slight evidence; (2) that the vessel was not unseaworthy.
Although the Blairmore case, below, is concerned with constructive total loss, the issue of what constituted an actual total loss was also raised. The opinion voiced by Lord Halsbury that, for a vessel to be a total loss, she need only be sunk, has since been clarified in the case of Captain JA Cates Tug and Wharfage Co Ltd v Franklin Insurance Co, also cited below.6
Sailing Ship Blairmore Co Ltd v Macredie  AC 593, HL
The sailing ship Blairmore was moored in San Francisco Bay, awaiting employment, when she was struck by a squall and sank; the owners gave notice of abandonment to the insurers, and claimed that the ship was a constructive total loss in that her repaired value would be less than the cost to raise and right her. At their own expense, the underwriters then had Blairmore raised and righted, and then contended that their expenditure, when determining a constructive total loss, need not be taken into consideration. The owners continued to pursue their claim for a total loss, but the underwriters refused payment. The question before the court was whether the underwriters, in taking action themselves, could change a total loss into a partial loss.
The House of Lords allowed the appeal by the shipowners, and ruled that the underwriters could not take it upon themselves to change their liability from a total loss to a partial loss.
Earl of Halsbury LC: [p 598] …I myself should say a ship was totally lost when she goes to the bottom of the sea, though modern mechanical skill may bring her up again; and I think, in construing a contract now for many years a common contract, no one could doubt that that contract was intended by the parties to contemplate the loss of a ship as comprehending the case of her being sunk.
Lord Watson: [p 603] …In the admitted circumstances of this case, I do not think it is a matter of necessary inference that Blairmore, when she went to the bottom of the sea on 9 April 1896, became immediately an actual total loss. She did not become, in the strict sense of the term, a total wreck, seeing that she was not reduced to the condition of a mere congeries of wooden planks or of pieces of iron which could not without reconstruction be restored to the form of a ship, and that she had sunk in a depth of water which admitted of her being raised to the surface and repaired.
In the case of Captain JA Cates Tug and Wharfage Co Ltd v Franklin Insurance Co, below, the issue raised in the Blairmore case by Lord Halsbury, that ‘a ship was totally lost when she goes to the bottom of the sea’, was clarified.
Captain JA Cates Tug and Wharfage Co Ltd v Franklin Insurance Co  AC 698, PC
The tug Radius, which was insured by the defendants, was sunk after a collision at Vancouver and the owners, who were the appellants, gave notice of abandonment which was not accepted by the insurers. Salvors were then employed by the insurers and the tug was raised at a moderate cost. Most estimates for repair were below the tug’s insured value, but the owners had not considered this fact when they abandoned. Another issue for consideration was that the salvors had tentatively made an offer to buy the tug from the insurers, and it was alleged that this showed that the insurers had accepted the abandonment.
The Privy Council ruled that there was no actual or constructive total loss, and the insurers were not precluded from denying the acceptance of the abandonment. Viscount Sumner, however, took the opportunity to clarify Lord Halsbury’s remarks, made previously in the Blairmore case.
Viscount Sumner: [p 704] …What Lord Halsbury said [in the Blairmore case] was not necessary to the decision, nor was it part of the reasoning on which the decision of the House was based, and it expresses only his opinion at that time on the particular fact which the case presented— namely, that this ship had been sunk in a squall in 60 fathoms, while laid up in ballast in San Francisco Bay in the year 1896. The physical possibility of raising a sunken ship depends not only on the place where she lies, her size and injuries, and the available facilities for salvage work, but also on the existing state of the salvors’ art, which, since 1896, has made very considerable advances. Lord Halsbury’s remark must not be taken as meaning that any ship is an actual total loss whenever she is under water, nor even when she is submerged in such circumstances as to present to salvors a problem of some difficulty.
Barker v Janson, below, raised another issue, that of whether a policy of insurance can attach when there is already a claim in place for total loss. In this instance, after an accident, the notice of abandonment was not given in time for there to be a constructive total loss, and the loss, therefore, was adjudged to be a partial loss. Thus, when another policy of insurance, a valued time policy, was effected in ignorance of the previous casualty, it was held to have attached, because the ship still existed as a ship and there was no intended fraud.
The plaintiffs were the owners of the vessel Sir William Eyre, which was insured for a voyage from England to New Zealand but, on her arrival at New Zealand, she was driven ashore and severely damaged. Because there were no facilities in New Zealand to repair her, she sailed for Calcutta and, after a survey, the underwriters settled for a partial loss. But, before they knew of the first accident, the plaintiffs had effected another policy of insurance on Sir William Eyre and, during the currency of this second policy, a time policy, the vessel was wholly destroyed by a cyclone whilst moored in the river at Calcutta. The plaintiffs claimed on their second policy of insurance also, but the underwriters refused payment, contending that, inter alia, at the time that the new policy was issued, Sir William Eyre was no longer a ship.
The court ruled that the policy had attached, and the underwriters were liable for the second claim. During the course of the trial, Willes J deliberated on what constituted an actual total loss.
Willes J: [p 305] …If a ship is so injured that it cannot sail without repairs, and cannot be taken to a port at which the necessary repairs can be executed, there is an actual total loss, for that has ceased to be a ship which never can be used for the purposes of a ship; but if it can be taken to port and repaired, though at an expense far exceeding its value, it has not ceased to be a ship, and unless there is a notice of abandonment, there is not even a constructive total loss.
The issue of what constituted an actual total loss was raised in the recent case of Fraser Shipping Ltd v Colton, below.
Fraser Shipping Ltd v Colton and Others  1 Lloyd’s Rep 586
The semi-submersible heavy lift vessel Shakir III was insured for actual total loss only for a voyage under tow, from Jebil Ali to either Shanghai or Huang Pu. In the event, the vessel was towed to Huang Pu, where a typhoon was encountered and Shakir III was driven aground and stranded. The plaintiff owners of the vessel claimed under their policy, on the basis that the vessel was an actual total loss in that it was a wreck, and, as s 57(1) states, had ‘ceased to be a thing of the kind insured’. The insurers refused to indemnify the owners, contending, inter alia, that Shakir III was not in fact an actual total loss.7
Potter LJ: [p 591] …In asserting that the vessel became an actual total loss, Mr Milligan [for the owners] made submissions under both limbs of the definitions in s 57(1).
First, he submitted that, by reason of the state into which the vessel was rendered upon grounding, it ceased to be ‘a thing of the kind insured’. In short, he said that it ceased to be a ‘vessel’ and became a wreck. That is, it seems to me, an unduly simplistic approach. It is true that ‘a thing of the kind insured’ involves consideration of a broad generic description of the subject matter of the insurance in each case. However, it seems clear from the authorities that the particular characteristics of that subject matter must be elucidated to some extent for the purpose of the doctrine: cf George Cohen Sons and Co v Standard Marine Insurance Co Ltd (1925) 21 LlL Rep 30, p 31, per Roche J:
The thing insured was an obsolete battleship called Prince George which had been acquired by the plaintiffs for the purpose of being broken up in Germany.
Taking a similar approach to this case, the vessel was a semi-submersible heavy lift carrier which had been decommissioned and was being towed, as a dead ship, for break-up in a Chinese port.
…The highest evidence goes as a result of the distant and incomplete examination which occurred is that the vessel was ‘almost in two’, but the photographs and weight of the evidence before me show that it was not, in fact, in two and still retained its original appearance and character as a single vessel, so that it seems to me that the possibility (or indeed the probability) that, in the course of salvage, it would have to be separated into two halves for towage goes more to the economics of salvage than to the question of whether the vessel had lost its essential character.
As to the definition of actual total loss, whether the plaintiff were ‘irretrievably deprived’ of the vessel prima facie depends upon whether, by reason of the vessel’s situation, it was wholly out of the power of the plaintiffs or the underwriters to procure its arrival. It seems to me that this, in turn, depends upon whether the vessel could have been physically salved or not. The undisputed evidence in this respect was to the effect that it was feasible to salvage the vessel subject to accessibility and cost.
The aspect of accessibility and cost are again by no means certain, for the reason that, in the period following the stranding, neither the plaintiffs nor the defendant underwriters progressed beyond a preliminary assessment of the position in the light of the limited value of the vessel and the uncertain attitude of the Chinese authorities. However, there was no reason, nor was there evidence before me to suppose, that salvage would not have been permitted; rather the position was that, as a result of previous experience, all concerned feared that the cost of salvage were likely to prove prohibitive by reason of penal charges and/or Chinese insistence that the salvage be carried out by a local salvage company.
[p 593] …In the light of the commercial realities, as well as the defendants’ willingness…to entertain the claim as one for actual total loss, Mr Milligan’s submissions under this head have been attractive in may respects. Nonetheless, I feel obliged to find that the vessel was not an actual total loss within the period of the policy.
Presumption of an actual total loss of a ship: missing ship