Constructive Total Loss - Definition - Law Dictionary Home Dictionary Definition constructive-total-loss

Definition :

Constructive total loss, a term used in the law of marine insurance to denote a loss which entitles the assured to claim the whole amount of his insurance, on giving to the assurers notice of abandonment. Generally there is a constructive total loss when the subject-matter assured has not actually perished or lost its form or species, but has, by one of the perils insured against, been reduced to such a state or placed in such a position as to make its total destruction, though not inevitable, yet highly imminent, or its ultimate arrival under the terms of the policy, though not utterly hopeless, yet exceedingly doubtful. In such a case the assured, by giving notice within a reasonable time to the assurers of abandonment, i.e., the relinquishment of all his right to whatever may be saved, is entitled to recover against them as for a total loss.

If notice is not given, the loss is treated as a partial loss unless the ship in fact has become a total loss or if there would be no possibility of benefit to the insurer if notice were given to him. See (English) Marine Insurance Act,1906 (6 Edw. 7, c. 41), ss. 55-263.

One test is that a wrecked ship has become a constructive total loss if the cost of repairing her would exceed her value when repaired. The other is that she will become so when a prudent uninsured owner would not repair her having regard to all the circumstances: in the case of a wreck the owner is entitled to take into account the break-up value, as well as the estimated cost of repairs, in reckoning whether there has been a constructive total loss, Macbeth v. Maritime Insce. Co., 1908 AC 144. As to a total loss by capture, see Andersen v. Marten, 1908 AC 334. See Arnould on Marine Insurance.

Constructive total loss, subject to any express provision in the policy, 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, there is a constructive total loss, Roux v. Salvador, (1836) 3 Bing NC 266 (UK).