Constructive Total Loss Legal Definition:

Insured property that has been abandoned because its actual total loss appears to be unavoidable, or because it could not be preserved or repaired without an expenditure which would exceed its value.

Related Terms: Actual Total Loss

In Blairmore (1896), the British House of Lords (Lord Watson) wrote:

"The test, as I understand it, is simply this: that in order to instruct a total constructive loss, at a date to which the inquiry relates, it must be shewn that a shipowner of ordinary prudence and uninsured would not of gone to the expense of raising and repairing the vessel, but would of left her at the bottom of the sea, because her market value when raised and repaired would probably be less than the cost of restoration and repair."

A constructive total loss is a relative concept. In Sheppard v Henderson, Lord Blackburn wrote:

"... a sixpence dropped into the water which you can see lying at the bottom at a depth of twenty feet in clear water is totally lost because it would cost more than the sixpence to get it up, it would cost more than it was worth. It is called a constructive total loss."

ShipwreckThe Marine Insurance Act of 1906 defines the term as follows, at §60: 

"Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred.

"In particular, there is a constructive total loss 
  • Where 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; or
  • In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired.

"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 on arrival.

"Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss."

 In Chorley and Giles Shipping Law, the authors wrote:

"Where the assured (insured) is dispossessed of his ship or goods, the test of whether or not there has been a constructive total loss does not rely on the simple fact of deprivation but on whether the recovery of the subject matter is unlikely. The test is not satisfied if recovery is merely uncertain...."

In Polurrian SS Co. v Young, a ship carrying coal was captured. The ship owners advised their insurers and claimed a constructive total loss. The matter went to the Court which followed the wording of the 1906 statute in ruling that:

"... whilst I hold that ... the recovery of the Polurrian by her owners was quite uncertain, I do not feel myself justified in holding that the balance of probabilities has been proved to me that such recovery was "unlikely".

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