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Unit 9: Marine Insurance

The total losses again can be subdivided into Actual Total Loss and Constructive Total Loss. Notes
Partial Loss may be further divided into Particular Average Loss and General Average Loss as
shown in the figure below:
Figure 9.3: Types of Marine Losses

Marine Losses

Total Loss Partial Loss

Actual Constructive Particular General Average
Total Loss Total Loss Average Loss Total Loss

9.5.1 Total Loss and its Types

Let’s find out what exactly is meant by total loss. When the subject matter of insurance (the ship,
cargo, or freight) is totally lost, it is called total loss. A total loss may be further categorized into
actual total loss, or constructive total loss.

Actual Total Loss

It is said that actual total loss has arisen:
When the subject matter insured is destroyed or is so damaged such that it ceases to be a
thing of a kind insured (or).
When the assured is irretrievably deprived of the subject-matter.
When the ship concerned in the adventure is missing, and after the lapse of a reasonable
time, no news of it is received.
In the case of an Actual Total Loss, the insurer has to pay either the insured amount or the actual
loss whichever is less. But the cause of loss must be one of the perils insured against.
Constructive Total Loss

Generally speaking, there is a Constructive total loss where the subject matter insured is
reasonably abandoned on account of its actual loss appearing to be unavoidable, or because it
could not be preserved from actual total loss without an expenditure, which would even exceed
its value. In other words, constructive total loss is said to have occurred:
When the assured is deprived of the possession of his ship or goods by a peril insured
against and it is unlikely that he can recover the ship or goods, as the case may be (or) the
cost of recovering the ship or goods, as the case may be, would exceed their value when
recovered
In the case of damage to goods, where the cost of repairing the damage and forwarding the
goods to their destination would exceed their value

In the case of damage to the ship, where it is so damaged by the peril insured against that
the cost of repairing the damage would exceed the value of the ship.

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