PARTICULAR AVERAGE LOSS
The subject of partial loss is, for the purpose of clarity, dealt with in two chapters. This chapter will consider the nature of particular average loss, and Chapter 18 will consider extraordinary expenses, such as salvage charges, general average and particular charges, commonly referred to as sue and labour. Particular average losses are losses which are directly sustained by the subject matter insured caused by an insured peril, generally described as losses which lie where they fall. Salvage charges, general average and particular charges, on the other hand, are extraordinary expenses incurred in an emergency, as a consequence of damage caused by an insured peril. Though salvage charges are, strictly speaking, particular average losses and are recoverable as such 1 —as a loss caused by the peril which has necessitated the expenditure—they are, nonetheless, extraordinary expenses and, therefore, may be more conveniently discussed together with general average and particular charges to which comparisons would have to be made.
Meaning of partial loss
A partial loss is any loss other than a total loss, and, to this effect, s 56(1) of the Marine Insurance Act states:
A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss.
A partial loss may include a particular average loss, a general average loss and particular charges. Thus, there are two distinct types of partial loss:
(a) a particular average loss, where the subject matter insured is injured by a peril insured against and the loss falls directly upon the person who has suffered that loss;
(b) extraordinary expenses arising from the casualty which may include a general average loss, salvage charges and particular charges (sue and labour).
Meaning of particular average loss
Section 56(1) of the Marine Insurance Act 1906 states that: ‘Any loss other than a total loss, as hereinafter defined, is a partial loss.’ Section 64(1) then goes on to affirm that:
A particular average loss is a partial loss of the subject matter insured, caused by a peril insured against, and which is not a general average loss.
It is emphasised that ‘particular average’ is not simply another name for a partial loss. A particular average loss is a form of partial loss, but does not include a general average loss or particular charges.
Particular average is separate from general average
A particular average loss is a loss which falls directly upon the party who has suffered that loss. A general average loss, on the other hand, is one where the loss falls initially upon the party who has incurred the loss, but is, ultimately, borne proportionately by all the parties interested in the adventure who have benefited from the general average expenditure or sacrifice. Those who have stood to gain have to make a contribution known as a general average contribution.
The difference between a particular average loss and a general average loss was summed up in Hingston v Wendt, below.
Kingston v Wendt (1876) 1 QBD 367
The German brigantine Theodor stranded near to Dartmouth in Devon, and the master put the plaintiff, a local shipping agent, in charge of the stranded vessel for the benefit of all concerned. Although Theodor could not be saved, the plaintiff accrued considerable expenses in removing the cargo, and later sought to recover that expenditure from the defendant, who was the bill of lading holder at the time of the casualty.
The court ruled that the plaintiff could recover his expenditure, as his actions had been ‘analogous to general average and salvage, in both of which there was a lien’. The court saw fit to differentiate between general average and particular average.
Blackburn J: [p 371] …In insurance law, the phrase ‘general average’ is commonly used to express what is chargeable on all, ship, cargo, and freight, and ‘particular average’, to express a charge against some one thing.
Section 64(2) of the Act defines ‘particular charges’ thus:
Expenses incurred by or on behalf of the assured for the safety or preservation of the subject matter insured, other than general average and salvage charges, are called particular charges. Particular charges are not included in particular average.
Particular charges are expenses incurred in trying to minimise damage or loss already sustained by the subject matter insured. Whereas particular average is a loss or damage brought about by a peril insured against, a particular charge is the expenditure then incurred in mitigating that loss or damage. Particular charges do not include general average expenditures, because these are recoverable by way of contribution from the other interested parties; nor do they include any salvage charges which are incurred, because such charges are recoverable as part of the particular average loss which necessitated the salvage.
Unlike a particular average loss which may be directly recoverable as a loss caused by a peril insured against, any particular charges incurred, consequent on that loss, are recoverable as ‘sue and labour’ under s 78.
Particular average includes salvage charges
Salvage charges, which are non-contractual in nature and incurred on a ‘no cure, no pay’ basis (s 65(2)), are included within the umbrella of a ‘particular average’ loss. This is because the right to salvage developed independently of contract as part of the ‘law maritimes’, under which salvors offer their services voluntarily, and must be successful in order to be paid. Such salvage charges are then recoverable under s 65(1) as having been incurred in preventing a loss by perils insured against.
Any charges for salvage incurred on a strictly contractual basis are not recoverable as a particular average loss, and must, thus, be recovered either as a particular charge (under the auspices of sue and labour), or as general average according to the circumstances of the case.
PARTIAL LOSS OF A SHIP
When damage occurs to a ship, the loss sustained by her owner may be total, actual or constructive, or partial. Whilst total loss is self-descriptive and usually easy to establish, there is often a fine dividing line separating a constructive total loss from a partial loss.
When a vessel is so damaged that the cost of repairs is less than the ‘repaired value’ 2 of that ship, any claim would be for a partial loss. On the other hand, if the cost of repairs were to exceed the repaired value of the ship, the ship could be declared a constructive total loss and any claim could be based as such. However, in such an event, even though the shipowner may have the right to claim for a constructive total loss, he has, by virtue of s 61, also the option to claim for a particular loss should he so wish. 3
However, it is emphasised that, even when a partial loss occurs, the insurer is, regardless of whether the policy is warranted free of particular average, still liable for salvage charges, particular charges and other expenses properly incurred under the sue and labour clause. On this point, s 76(2) states:
Where the subject matter insured is warranted free from particular average, either wholly or under a certain percentage, the insurer is nevertheless liable for salvage charges, and for particular charges and other expenses properly incurred pursuant to the provisions of the suing and labouring clause in order to avert a loss insured against.
Measure of indemnity
With any claim for a partial loss, there are always a number of options open to the assured under the law of marine insurance, and, depending upon the option chosen, the amount that may then be claimed under the policy represents ‘the measure of indemnity’.
The options available to an assured in the event of a partial loss and the measure of indemnity applicable were discussed in the pre-statute case of Pitman v Universal Marine Insurance Co (1882) 9 QBD 192, where a vessel was damaged and then sold in her damaged state.4
Brett LJ: [p 208] …The following propositions are all, I think, recognised as true in insurance law. The insured is not under any circumstances bound to sell his ship. The assured may under any circumstances sell his ship. He is entitled under any circumstances to repair his ship. He is not bound under any circumstances to repair his ship. In none of these respects does any question arise as to whether a prudent owner uninsured would act in the like manner. All this is so, because there is nothing in the contract of insurance which takes away from the assured the absolute power and right to do with his own property what he will. The assured, therefore, can always, whatever be the amount of damage done to his ship, repair her. If he does repair and keep the ship, there cannot be a total loss; the loss must then be a partial or average loss leaving open the question of how such loss is to be adjusted.
Cotton LJ: [p 215] …As a general rule, where there is a partial loss in consequence of injury to a vessel by reason of perils insured against, the insured is entitled to recover the sum properly expended in executing the necessary repairs, or, if the work has not been done, the estimated expense of the necessary repairs…
Surprisingly, s 69 of the Act only allows for three methods of computing the measure of indemnity for a partial loss:
(a) a ship which has been wholly repaired;
(b) a ship which has been only partially repaired; and
(c) a ship which has not been repaired and has not been sold in her damaged state during the risk.
The fourth scenario, namely ‘a ship which has not been repaired, but has been sold in her damaged state during the risk’, referred to in the Pitman case, above, is not mentioned in the Act but is, obviously, still relevant.
Thus, when examining the subject of measure of indemnity, all four methods of computation should be taken into account, and the task may be simplified by dividing any such measure of indemnity into two distinct categories: repaired and unrepaired damage.
The Deductible Clause
Clause 12.1 of the ITCH(95) states:5
No claim arising from a peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence (including claims under cll 8, 10 and 11) exceeds the deductible amount agreed in which case this sum shall be deducted. Nevertheless the expense of sighting the bottom after stranding, if reasonably incurred specially for that purpose, shall be paid even if no damage be found. This Clause 12.1 shall not apply to a claim for total or constructive total loss of the Vessel or, in the event of such a claim, to any associated claim under cl 11 arising from the same accident or occurrence.
The intention of the Deductible Clause is to exclude small claims below a certain value from the policy. This effectively means that the assured is self-insured up to the agreed value in return for which his premium is adjusted. It is stressed that the Deductible Clause is an ‘excess’ clause, whereby the insurer has no liability until the threshold set by the policy is surpassed. It is also emphasised that the Deductible Clause is applicable to all types of partial loss, including third party damage (3/4ths collision liability), general average, salvage and sue and labour which are connected with such a loss.
When an insured vessel is damaged, the owner may elect to repair all, or just part of the damage sustained.
Should he decide to repair all of the damage, the measure of indemnity applicable is covered by s 69(1), which states that:
Where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any express provision in the policy, is as follows:
(1) where the ship has been repaired, the assured is entitled to the reasonable cost of the repairs, less the customary deductions, but not exceeding the sum insured in respect of any one casualty.
On the other hand, should the owner decide to repair only part of the damage sustained, the relevant measure of indemnity falls under s 69(2), which affirms that:
(2) where the ship has been only partially repaired, the assured is entitled to the reasonable cost of such repairs, computed as above, and also to be indemnified for the reasonable depreciation, if any, arising from the unrepaired damage, provided that the aggregate shall not exceed the cost of repairing the whole damage, computed as above.
Thus, the measure of indemnity for repaired damage is computed in the same way, regardless of whether the vessel is wholly repaired or partly repaired.
Reasonable cost of repairs
It is well established in insurance law that the owner of a ship is entitled to recover the reasonable cost of repairs. Furthermore, case law has clarified what may now be included in those costs of repairs.
Expenses of docking
The expense of dry-docking can be considerable, and it is now established that, when determining the extent of the loss, such expenditure may be added to the costs of repair. Such was the issue in the Vancouver case, below, where the question before the court was whether dry-docking expenses could be apportioned between the shipowner and the insurers when both routine maintenance and repairs to insured damage were carried out at the same time.
Marine Insurance Co v China Transpacific SS Co, ‘Vancouver’ (1886) 11 App Cas 573, HL
On a voyage from Hong Kong to San Francisco, the steamship Vancouver encountered severe weather, as a result of which she sustained slight damage, including a leak, the source of which could not be identified. Whilst in San Francisco, Vancouver was dry-docked to have her hull scraped and painted, and it was only during this dry-docking that it was found that the cause of the leak was a fractured stern-post. The owners claimed on their policy of insurance for the whole of the cost for dry-docking, or a proportion of the cost. As the policy was warranted ‘free from average under 3%’, the inclusion of the dry-dock charges was vital to the claim.
The House of Lords, affirming the decision of the Court of Appeal, decided that the dry-dock charges should be apportioned between the routine maintenance carried out by the owners and the repair costs for which the insurers were liable. The additional cost of the apportioned dry-docking charges then ensured that the underwriters were liable for a particular average loss, as the total amount of repair costs then amounted to more than 3% of the insured value.
Lord Esher MR: [p 576] …If you find that the loss to the assured would have been less than 3% as compared with the value in the policy, the underwriter is not liable at all. If you find that the loss exceeds 3%, then the condition is fulfilled, and the underwriter has to pay the whole of the average loss. Therefore the question here must be, what was the loss to the assured in respect of the sea damage, considering it as if the 3% clause was not in the policy; that is, we must arrive at what was the real loss first…The difficulty in this case arises thus: in order to repair the damage to the stern-post, it was in fact necessary that the ship should go into dry-dock. The ship had a foul bottom, which had not been caused by perils of the sea. It was equally necessary that she should go into dock for the purpose of curing that defect, if it was to be cured, and she did in fact go into the same dry-dock for that purpose.
[p 578] …Supposing the ship had gone in and had only cleaned her bottom, for every day she was in the dock for that purpose she would have had to pay the whole sum. If the ship had gone into the dock for the purpose of repairing the stern-post only, she would, for every day she was in, have to pay the whole of the dock dues. The use of the dock whilst both these transactions were going on board the ship at the same time, was not increased or diminished in the least by the increase of the work done on the ship during the same time…The dock dues were certainly part of the cost of the repairs if nothing else happens; the cost of the repairs is the cost of the workmen upon the ship, and the materials, and the payments for the use of the dock, which is a necessary preliminary to being able to do the other work. Therefore, if half of these dock expenses during the common days is paid by the shipowner in respect of the repairs to the stern-post, that half is part of the cost of repairing the stern-post, in other words, is part of the cost of repairing the loss which was occasioned by the sea peril; and if that half is to be so attributed, then what this shipowner paid for repairs was larger than 3% of the value of the ship in the policy. The condition is satisfied, and the underwriter is liable to pay the amount of the average loss.
The question of apportionment of dry-docking expenses was again raised in Ruabon Steamship Co Ltd v London Assurance, below.
During a voyage, Ruabon, which was owned by the appellants, suffered damage for which the respondent underwriters were liable. In order to undertake the necessary repairs, Ruabon was placed in dry-dock, and the owners then added the costs of the dry-docking and a Lloyd’s survey to the cost of repairs claimed under the policy. The underwriters rejected the costs, and contended that the cost of the dry-docking should be apportioned between themselves and the assured.
The court ruled that the survey fees could not be charged to the underwriters, as no classification survey was necessary. However, the cost of the dry-docking could be added to the cost of repairs for which the underwriters were liable. The insurers were held liable for dry-docking fees as part of the cost of repairs. But the owners, who had other work, additional to the repair work, done on the ship, were held liable for their proportion of the dry-docking fees.
Lord Brampton: [p 17] …Ruabon was dry-docked solely to enable the underwriters to effect the repairs for which they were liable and with no other object, and no other repair was, in fact, done or required to be done on the ship; the survey of Lloyd’s surveyor was in no way necessary for any purpose connected with the work performed on the vessel, and was only made to entitle the owners to reclassification at Lloyd’s and need not have been made at that moment, or at any particular time, so long as it was made within the time limited by Lloyd’s rules, which had then nine months to run…Assuming, however, that the expense of another dry-docking was in this way saved, and to that extent the owners were benefited, I think that circumstance is immaterial, and does not warrant a claim for contribution towards the dock dues imperatively incurred on the underwriters’ account in the discharge of their obligations. I think that such contribution can only be insisted upon in those cases where work is done to the vessel itself, by two or more persons, each separately and simultaneously engaged under different obligations in doing portions of it, dry-docking being necessary for each.
Clause 15 of the ITCH(95)6 is inserted to ensure that a claim for repairs does not, in general, cover treatment of the ship’s bottom unless the treatment is preparatory to the repairs or as a result of those repairs. Clause 15 is careful to specify the type of bottom treatment covered by the policy:
In no case shall a claim be allowed in respect of scraping, gritblasting and/or other surface preparation or painting of the Vessel’s bottom except that:
gritblasting and/or other surface preparation of new bottom plates shore and supplying and applying any ‘shop’ primer thereto;
gritblasting and/or other surface preparation of: the butts or area of plating immediately adjacent to any renewed or refitted plating damaged during the course of welding and/or repairs; areas of plating damaged during the course of fairing, either in place or ashore;
supplying and applying the first coat of primer/anti-corrosive to those particular areas mentioned in 15.1 and 15.2 above,
shall be allowed as part of the reasonable cost of repairs in respect of bottom plating damaged by an insured peril.
These provisions are in keeping with the precept of reasonable cost, whereby the insurer is only liable for the cost of repairs pursuant to the damage caused by a peril insured against.
To this effect, in Field Steamship Co Ltd v Burr  1 QB 579, CA, where, after a collision, a shipowner tried to claim from a hull underwriter for expenses incurred in dealing with damaged cargo, AL Smith LJ remarked: [p 586] ‘…All he [the insurer] has to do under his contract is to make good to the insured shipowner the deterioration occasioned to the hull and machinery of his ship by a sea peril, and nothing more.’
Crew’s wages and provisions
Clause 16 of the ITCH(95) states that:7
No claim shall be allowed, other than in general average, for wages and maintenance of the Master, Officers and Crew or any member thereof, except when incurred solely for the necessary removal of the Vessel from one port to another for the repair of damage covered by the Underwriters, or for trial trips for such repairs, and then only for such wages and maintenance as are incurred whilst the Vessel is underway.
The provision, therefore, is again based upon the underwriters accepting liability for any reasonable expenditure incurred in crew’s wages for the ‘specific’ purpose of moving a vessel to a place where the insured damage may be repaired. From past authorities, it is clear that it is not possible to recover crew’s wages or expenditure on provisions as part of the cost of repairs.
Robertson v Ewer (1786) 1 Term Rep 127
The plaintiff insured his ship Dumfries with the defendants under a voyage policy of insurance from London to the coast of Africa and thence to the West Indies. The policy included a clause which stated that cover was included for ‘…detainments of kings, princes, and people of what nation soever’. When Dumfries arrived at Barbados with a cargo of slaves, she was prevented from sailing to Jamaica by an embargo on all shipping. The master of Dumfries ignored the embargo and sailed, but was chased down and brought back by the naval sloop Salamander. The crew were taken off the ship and dispersed amongst his Majesty’s ships of war, and the slaves had to be taken ashore because of an outbreak of smallpox. For all these reasons, Dumfries was detained in Barbados for over two months, and the owners claimed on their policy of insurance for crew’s wages and provisions.
The court ruled that crew’s wages and provisions were not part of the insurance cover. Buller J also referred specifically to the instance where a ship may be detained whilst undergoing repairs to insured damage.
Lord Mansfield CJ: [p 132] There is no authority to show that, on this policy, the insured can recover for such a loss; but it is contrary to the constant practice. On a policy on a ship, sailors’ wages or provisions are never allowed in settling the damages. The insurance is on the body of the ship, tackle, and furniture; not on the voyage or crew.
Buller J: [p 132] I take it to be perfectly well settled that the insured cannot recover seamen’s wages or provisions on a policy on the body of the ship; those are not the subject of the insurance. The case put by the plaintiffs counsel proves the rule. For, if the ship had been detained in consequence of any injury which she had received in a storm, though the underwriter must have made good that damage, yet the insured could not have come upon him for the amount of wages or provisions during the time that she was so repairing.
In De Vaux v Salvador (1836) 4 Ad&E 420, where a vessel suffered collision damage and was detained in Calcutta awaiting arbitration, the court again ruled out crew’s wages and provisions as part of the shipowner’s claim.
Lord Denman CJ: [p 430] …We think it clear, on authority, that the former item [the claim for crew’s wages and provisions] ought not to be allowed. As long ago as 1769, in Fletcher v Poole (1 Park, Ins Ch Ii, 7th edn, p 89), the point was decided by Lord Mansfield at Nisi Prius. The doctrine has been cited in the textbooks ever since that period, and is expressly recognised by Buller J, in Robertson v Ewer (1 TR 132).
In Helmville Ltd v Yorkshire Insurance Co Ltd, ‘Medina Princess’  1 Lloyd’s Rep 361, where the owners of a vessel claimed for both a partial and constructive total loss when they alleged that her engines had been badly damaged by negligence, Roskill J affirmed that the leading cases precluded recovery of crew’s wages as part of the cost of repairs when he declared:
Roskill J: [p 523] …the decisions in Robinson v Ewer (1786) 1 TR 182; (1786) 99 ER 1111, and de Vaux v Salvador (1836) 4 A&E 420; (1836) 111 ER 845, place insuperable difficulties in the way of the plaintiffs’ recovering crew’s wages during repairs as part of the cost of repairs. Moreover, there is nothing to show that such crew would have done any work the cost of which would have been recoverable from hull underwriters. This part of the claim has been wholly disallowed.
It is well established that surveyor’s fees, provided that they are reasonable, may be included in the cost of repairs. But, in Agenoria Steamship Co Ltd v Merchants’ Marine Insurance Co Ltd, below, the cost of sending a surveyor from England to Australia for relatively minor repairs was considered unreasonable, and the claim was adjusted accordingly.
Agenoria Steamship Co Ltd v Merchants’ Marine Insurance Co Ltd (1903) 8 Com Cas 212
On a voyage from Australia to New Zealand, the steamship Elmville was damaged by both bad weather and striking a reef and, after being temporarily repaired in Auckland, she was dispatched to Melbourne, where she was repaired permanently. When the owners claimed on their policy of insurance, they included in their claim the cost of sending a surveyor from England to represent them. The underwriters contended, inter alia, that the repairs could have been done in an equally efficient manner without the additional cost.
The court decided that the owners were entitled to the cost of a surveyor, but that a local one would have sufficed in the circumstances. Thus, the owners could only claim £100, and not the £756 claimed for sending a surveyor from England.
Kennedy J: [p 214] …The effect of the evidence upon my mind is that the question of the chargeability to the underwriters of the cost of a surveyor sent out from this country by the owners in connection with the damage repairs of an insured vessel at a foreign port as their representative is rightly held in practice to depend in each case upon the particular circumstances.
[p 215] …It seems to me in these circumstances I cannot properly saddle the underwriters, after their clear protest against the adoption of such a course, with the expense of £756 for a superintendent of £4,000 of work…
Similarly, in Helmville Ltd v Yorkshire Insurance Co Ltd, ‘Medina Princess’  1 Lloyd’s Rep 361, where the owners of a vessel claimed for both a partial and constructive total loss when they alleged that her engines had been badly damaged by negligence, the surveyors’ fees were held to be part of the reasonable cost of repairs.
Roskill J: [p 523] …Mr Brandon [for the insurers] accepted, on the authority of Agenoria Steamship Co Ltd v Merchants’ Marine Insurance Co Ltd, that reasonable fees for classification surveyors and other surveyors were properly allowable as part of the cost of repairs. Those surveyors’ fees which I have allowed have been allowed on the strength of that authority.
Temporary repairs and costs incurred for towage to a suitable port for repairs
Again, in Helmville Ltd v Yorkshire Insurance Co Ltd, ‘Medina Princess’  1 Lloyd’s Rep 361, where the vessel was incapacitated due to machinery damage at Djibouti in the Gulf of Aden, the court ruled that the cost of repairs did not include the crew’s wages or expenses incurred in discharging cargo, but they did include the damage to the machinery, drydocking charges, surveyors’ fees and the cost of a tow to Karachi where the necessary repairs could be carried out. Reference was also made to temporary repairs.
Roskill J: [p 520] …Devlin J [in Irvin v Hine] had to consider both constructive total loss (which he rejected) and partial loss (which he accepted). The learned judge quite clearly and specifically admitted the cost of temporary repairs and of towage as part of the cost of repairs for the purposes of s 69(3) …I have arrived at my conclusion without further reference to Armar, above [an American case  2 Lloyd’s Rep 95] to which I have already referred. I ought, however, to observe that the learned judge in that case included the cost of both towage and temporary repairs for partial loss purposes. It follows that, on my findings of fact, towage from Djibouti to Karachi would have been necessary in order to repair the ship.
Expenses consequential on or arising out of the damage sustained
Both the Act and the Institute Hull Clauses are silent on the matter of consequential losses, but it appears unlikely that an underwriter would be liable for losses or expenditure arising out of particular average damage, unless that additional loss or expenditure could be reasonably considered as part of the cost of repairs.
Thus, in Field v Burr  1 QB 571, where a shipowner tried to claim from a hull underwriter for expenses incurred, after a collision, in dealing with damaged cargo, AL Smith LJ remarked:
AL Smith LJ: [p 585] …Whether the cargo be sound, or partially damaged, or putrid, it has to be discharged at the port of destination by the shipowner, if it is to be got out of the ship at all. With this, the underwriter of hull and machinery has nothing to do. Whether the cargo be such that the consignee was bound to receive it or not is, in my opinion, as regards the liability of an underwriter upon hull and machinery, wholly immaterial. What has he to do with it? …All he has to do under his contract is to make good to the insured shipowner the deterioration occasioned to the hull and machinery of his ship by a sea peril, and nothing more.
But, in Agenoria Steamship Co Ltd v Merchants’ Marine Insurance Co Ltd (1903) 8 Com Cas 212, where the shipowners accrued bank charges for an overdraft which they had to obtain in order to send money overseas to pay for repairs, the court decided that such bank charges could be considered as part of the reasonable cost of repairs.
Kennedy J: [p 216] …There are two other questions involving principle. The first of these is £64 17s 6d for ‘Bankers’ charges on amounts remitted to New Zealand and overdrafts’. I have, on the whole, decided to allow this to the owners. It appears to me to be right in reason, and as far as I can find any authority, in accordance with the English usage to treat as part of the cost of repairs of damage in a foreign port expenses reasonably and properly incurred in providing for payment there, as well as the mere cost of transmitting the funds to the foreign port.
Less customary deductions
It is now accepted that when a claim is made for particular average damage, the assured is entitled to replace the damaged subject matter with new materials or equipment. This concept of ‘new for old’ is reflected in cl 14 of the ITCH(95) which states: ‘Claims payable without deduction new for old.’8
However, this has not always been the case, and the phrase ‘less customary deductions’, which is included in s 69(1) of the Act, was originally included to accommodate the old two-thirds rule. Under that rule, the indemnity amounted to two-thirds of the actual cost of replacement materials and equipment, thereby reflecting the benefit gained by the assured in replacing old with new.
Not exceeding the sum insured
When claiming for the costs incurred in repairing a vessel which has suffered particular average damage, there is nothing in the Act or the Institute Hull Clauses to prevent an assured, even upon a claim for a partial loss, from recovering an indemnity amounting to the full value insured under the policy, and it is for this reason, and others, that he may elect to repair rather than abandon a vessel as a constructive total loss.
In Goole and Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd  29 LlL Rep 242, the court ruled that the assured could claim up to the full insured value of the ship from his insurers, and any liability then owed by the third party by way of collision damage was then subrogated to the insurers. The assured could not, as he wished to do, recover part of the loss from the third party and then claim the outstanding balance (up to the full insured value) from his hull insurers.
MacKinnon J: [p 245] …accordingly, as is laid down in s 69, he [the assured] is entitled in respect of such particular average to the reasonable cost of repairs not exceeding the sum insured in respect of any one casualty. When the underwriters, in respect of a particular average loss, have paid the assured the indemnity agreed under this provision, when in particular they have paid a sum not exceeding the insured amount, in this case £4,000, I think the underwriters are entitled to say: ‘we have paid the agreed indemnity for the whole of the particular average loss you have sustained, and not merely for a part of it’, they are therefore entitled to be subrogated, or to take credit, for the whole sum which the assured may recover from a third party in respect of that particular average damage.
When a claim is pursued for a partial loss, the measure of indemnity for unrepaired damage is covered in the Act by ss 69(2) and 69(3).
Unrepaired damage and ship not sold
The first part of s 69(2) is concerned with a vessel which has only been partially repaired, whilst the latter part of the provision, dealing specifically with that portion of the damage which has not been repaired, states that the assured is:
…also to be indemnified for the reasonable depreciation, if any, arising from the unrepaired damage, provided that the aggregate amount shall not exceed the cost of repairing the whole damage, computed as above.
Thus, although the assured may have chosen not to repair the whole of the damage, he is still entitled to recover under the policy for any unrepaired damage. However, the claim for the unrepaired damage, when added to the cost of the repaired damage, must not exceed the amount that it would have cost, had the vessel been totally repaired.
Section 69(3) then goes on to make provision for the situation where a ship has not been repaired at all, nor sold during the period of the attachment of the risk, when it states:
Where the ship has not been repaired, and has not been sold in her damaged state during the risk, the assured is entitled to be indemnified for the reasonable depreciation arising from the unrepaired damage, but not exceeding the reasonable cost of repairing such damage, computed as above.
The Act refers to ‘reasonable depreciation’ in both s 69(2) and s 69(3), and this is clarified to some extent by cl 18.1 of the ITCH(95), which states:9
The measure of indemnity in respect of claims for unrepaired damage shall be the reasonable depreciation in the market value of the Vessel at the time this insurance terminates arising from such unrepaired damage, but not exceeding the reasonable cost of repairs.
As a general principle, the concept of depreciation for unrepaired damage, as provided for in s 69(2) and (3) of the Act, was well illustrated in Goole and Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd (1927) 29 LlL Rep 242, where the steamship Goole suffered damage after a collision on the Thames.
MacKinnon J: [p 245] …Now, as regards partial loss of ship by particular average loss, the convention is that you are to estimate the depreciation not in the way that depreciation is estimated in the case of goods, because it is impracticable, but you are to estimate the depreciation in terms of the cost of repairs. The assured need not actually do the repairs; if he does not do them, then you are to estimate the cost, instead of taking what he spent upon them; and accordingly, as is laid down in s 69, he is entitled in respect of such particular average to the reasonable cost of repairs not exceeding the sum insured in respect of any one casualty.
When during the risk is the measure of indemnity computed?
The time at which the measure of indemnity is calculated was considered in Helmville Ltd v Yorkshire Insurance Co Ltd, ‘Medina Princess’  1 Lloyd’s Rep 361, the full details of which are cited later in the chapter, 10 where Roskill J was of the opinion that the relevant time could only be at the termination of the risk.
Roskill J: [p 516] …The first matter in dispute under s 69(3) is as to the point of time at which the plaintiffs’ measure of indemnity falls to be determined… Sub-section (3) is silent as to the point of time at which the measure of indemnity is to be ascertained and quantified. But, I think that help is to be derived from the opening words of the sub-section, namely: Where the ship has not been repaired, and has not been sold in her damaged state during the risk… [Emphasis added.]
The ship may be repaired at any time after the casualty and during the risk. If she is then wholly repaired, sub-s (1) operates. If she is then partly repaired, sub-s (2) operates. But if ‘during the risk’, which I construe as meaning ‘during the period between the casualty and the expiry of the policy whether by effluxion of time or otherwise’ she is neither repaired nor sold, then sub-s (3) comes into operation. Until the moment when the risk expires, the ship might be repaired, or indeed might be sold. The section is silent as to the position if the ship is sold unrepaired, and I need not trouble with that contingency. But, it is only when the risk is ended that it can be predicted for certain that neither repair nor sale will take place during the risk. That, in my judgment, is the moment at which sub-s (3) operates and requires that the measure of indemnity shall be ascertained and quantified.
The issue was also raised recently in Kusel v Atkin, ‘Catariba’  2 Lloyd’s Rep 749, where a large catamaran suffered successive unrepaired particular average losses.
Colman J: [p 756] …That leaves the question: when should the depreciation be calculated? There are only two possible times: the time of the casualty and the termination of cover. However, the structure of s 69 leads conclusively to the latter point of time. On its proper construction, sub-s (1) must relate to damage repaired during the currency of the cover. Conversely, sub-ss (2) and (3) must refer to damage unrepaired during the currency of the cover. One can therefore only determine into which sub-section a given case falls by looking at the position at the moment when cover ceases. It must, therefore, be that the exercise of quantification of indemnity is taken to be carried out at that time. Hence, the depreciation must be calculated at that point of time, for the Act could not have been intended to introduce a dislocation between the time of categorisation and the time at which depreciation is to be assessed. That conclusion would be consistent with the operation of s 77(2) of the MIA, under which the claim for unrepaired damage merges with a subsequent total loss. The time for ascertainment of depreciation under s 69(3) was considered by Roskill J in the Medina Princess case…He, too, concluded that as a matter of construction, the time for calculation of depreciation was the time of termination of cover.
The computation of reasonable depreciation
In a valued policy, the measure of indemnity is governed by the depreciation value, the market or true value before and after the damage, the insured value of the ship, and the reasonable cost of repairs.
Whilst the task of estimating the cost of repairs is an exercise in costing, the exact method of computing depreciation was often raised in the courts. The method now generally used is, first, to determine the depreciation in terms of a percentage. This figure is arrived at by taking the market value of the ship before and after the damage. The measure of indemnity is then calculated by multiplying the percentage of depreciation with the insured value of the ship. The ultimate sum, however, for which the insurer is liable must not exceed the reasonable cost of repairs or the insured value of the ship, whichever is the lower.
The problems encountered in computing depreciation were well illustrated in Irvin v Hine, below, where, after various methods of computation were put forward, the court decided that only two were possibly relevant, one of which was the percentage method now most favoured.