#4928 - Insured Losses - Insurance Law

Insured Losses

‘Insured Loss’: The pecuniary disadvantage proximately caused by an insured risk to the insured’s interest in the subject matter insured. This loss falls within the terms of the policy.

‘Total Loss’: Where the SM insured is totally lost to the insured due to an insured peril.

• S.57(1) Actual Total Loss: Codification. Where SM 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.

• S.57(2): No notice of abandonment need be given.

• S.58: Where a ship is lost and no news after a reasonable time, then deemed on actual total loss. This is only applicable for marine insurance.

Pay Out: In the event of a total loss insurers are obliged to pay full value of the insured interest, calculated either by:

1. Insurable value in case of an unvalued interest – market value (s.28 MIA).

2. Insured/agreed value in case of valued interest – insurers pay notional sum agreed (s.27).

= Where UW pays out for total loss it is entitled to have what remains of the SM. There is effectively an automatic transfer of proprietary rights to what remains of the SM as UW paid out indemnity.

NB. Policy limits / deductibles apply – limits UWs’ exposure – doesn’t give a deemed value to SM (Kyzuna Investments Ltd).

-------------------------------------------------------------------------------------------------------------------------------------

Partial Loss

‘Partial Loss’: Any other loss to the insured’s interest in the SM insured which does not amount to total loss suffered by reason of an insured peril (s.56(1) MIA).

Pay Out: Insurers are obliged to indemnify the insured in respect of the diminution in value of the thing, by reference to:

1. Insurable value in case of an unvalued interest.

2. Insured / agreed value in case of a valued interest. Reduce agreed value by proportion of damage incurred.

For both a) and b) – Not insured for repair value, just a proportion of the loss in value suffered.

E.g. Laptop worth 500 insured against ‘loss in value’ by an insured risk. Damage caused, leading to repair costs of 250. Insured, by way of partial loss, could recover either:

1. Unvalued policy – Look at market value. Diminution is 250 (i.e. 50% of the insurable value). Here the extent of partial loss equals repair costs.

2. Agreed value of 250 and laptop suffered 50% damage (i.e. 125 = 50% of agreed value).

= Here the laptop owner has a choice. They can either go to the insurer and claim total loss (250) and abandon the laptop to the insurer. Or they can claim for partial loss and receive 125, but that is insufficient for repair. Needs another 125. Would have done better if covered for repair costs. This is in contrast to the principle of average.

• Scott v. Copenhagen Reinsurance Ltd; Adopt a ‘wait and see approach’. Maybe recovered later or suffer total loss.

-------------------------------------------------------------------------------------------------------------------------------------

Constructive Total Loss (CTL)

Concept is unique to marine insurance. Example situations: Car worth 100 but costs 120 to repair. Or car worth 100, repair costs 90, but the car’s value once repaired would only be 80.

• S.60(1) MIA: CTL where the subject matter insured is reasonably abandoned because either:

• Total loss appears unavoidable or inevitable; or

• Cost of saving SM insured (i.e. averting total loss) exceeds the SM’s value after repair or salvage.

Calculation made by reference to the real value of the vessel, not the notional / agreed value.

• S.61 MIA: Election – Where there is a CTL the insured has the choice either to make a case for total loss (significantly damaged and recover full value), or claim partial loss and not abandon and use that money to pay for repair.

• S.62(1) MIA: Where the insured elects to claim a CTL it must give a notice of abandonment to the insurer, or the loss can only be treated as a partial loss.

= UWs have a choice whether to accept abandonment. They may claim the ship is not a CTL or may be content to pay out for the indemnity / total loss without wanting legal entitlement to the subject matter passed to them.

-------------------------------------------------------------------------------------------------------------------------------------

Issue of Under and Over Valuations

Overvaluation: Under s.27(3) MIA the agreed notional value is conclusive between the insurer and the insured of the insurable value. It is ok to overvalue something as their as there is no fraudulent intent on the insured’s part because the overvaluation is not material as the UWs receive extra premium as the insured value is higher than the actual value.

Undervaluation: If property worth far more, but given a lower agreed value, the undervalue could be material as it increases the moral hazard affecting the goods; i.e. more likely to be stolen.

Principle of Average: Applies where you have an amount insured (agreed value) which is less than the real value of the property at the time of the loss. The insurance policy itself will specifically state ‘subject to average’.

Consequence – Insured is treated as their own insurer for the balance of the value (difference between actual value and notional agreed value). Pick up that proportion of the loss themselves.

Implied: Only relevant for marine policies (s.81 MIA) and mercantile goods perhaps (Careers).

Express: Applies to other types of goods if express provision made in the insurance contract.

E.g. Laptop insured for repair costs. Even if the laptop is undervalued the owner would recover 250 repair costs (if the bike is valued at 250 but actual value was 500). However, if policy insured against diminution in value as was subject to average, owner could only recover 50% of the 250 – insured treated as own insurer for the amount of value over and above the insured value.

-------------------------------------------------------------------------------------------------------------------------------------

Duties of Insured to Mitigate their Loss

General rule - Mitigation: Insured has no obligation to mitigate its loss after an insured event. Simply entitled to claim against UWs.

Marine rule: Duty on the insured to mitigate its loss implied under s.78(4) MIA for marine insurance. They ‘must take measures as may be reasonable for the purpose of averting or minimising a loss’.

Important to distinguish from actions taken by the insured which become the proximate cause of a further loss (novus actus interveniens – breaking the chain of causation – is it a further loss?)

General Rule - Sue and Labour: Insured has the burden of sue and labour to mitigate – no right to be paid for expenses unless expressly stated in contract. This right is not generally implied into insurance contracts.

Marine rule: Standard right for marine insurance under s.9 Hull Marine Clauses that the insured can recover the expenses it incurs in trying to mitigate its loss.

• S.9 Hull Marine Clauses: Makes a collateral contract to stand alongside the insurance contract (s.78(1) MIA), but not subject to limitations in the insurance contract – UWs must pay out full value if the insured tries to recover a sunken ship but fails and the sue and labour costs of doing so. Other than for s.9(5) UWs could pay out more than indemnity.

-------------------------------------------------------------------------------------------------------------------------------------

Double Insurance Concept

Rationale: Arises from the fact that under the indemnity principle an insured should never recover more than the loss they have suffered. Cannot recover twice if obtained insurance from more than one insurers for the same interest.

When? S.32(1): Occurs when there is insurance over precisely – 1) same loss; 2) in same property or subject matter.

Descriptions of perils/risks in different policies don’t have to worded exactly same but must cover the same event.

E.g. Two people jointly own a house. Each have the same interest in the house. If they had each obtained insurance separately in respect of their joint interest there would be double insurance.

E.g. Owner’s interest and bailee’s notional interest. Does not have to be the same insured.

...