Report No. 21
General.-This deals with the topic of valued and unvalued policies.
Valued policies are invariably used on insurance of ships because, after destruction, it is difficult to prove the value of the ships. In the case of goods or freight, both valued and unvalued policies are used.1
Statement of valuation to be conclusive.-Sub-section (3) provides that "subject to the provisions of the Act" and in the absence of fraud, the value fixed by the policies as between the insurer and the assured is conclusive. Reference may be made to section 27(4), section 29(4) and similar provisions which have a bearing on the subject.
Arbitrary valuation.-The assured is at liberty to fix his values as he chooses, if they are acceptable to the underwriter. Once the value is fixed, it governs the measure of indemnity.2 Even if there is a decline in the actual value after the policy is effected and before the risk arises, the assured can claim on the basis of the value. Conversely even if there is a use in the actual value, the assured cannot claim any thing more than the value. In this respect, the strict doctrine of indemnity has been departed from, to meet practical necessities.
Estoppel.-The assured is estopped from saying that the value is more than that stated in the policy. Thus, in an English case,3 where a ship worth £ 9,000 was valued at £ 6,000 and after £ 6,000 had been paid for a total loss, the ship-owner recovered £ 5,000 from the guilty vessel (which had caused the collision that led to the loss), it was held that the ship-owner could claim no part of this £ 5,000 and the whole sum should go to the insurer.4 The reason was, that the owner was by his under-valuation estopped from denying the real value.
Increased value policies-Re-opening clause.-"Increased value policies", that is to say, policies taken out to cover an increase in the market value of the subject-matter insured,5 sometimes present difficulties, particularly when the original amount is insured, with one insurer and only the increased value is insured with another insurer. The difficulties arise when both the insurers claim "subrogation".6
Very often, in such cases a clause is inserted in the original policies to the effect that the agreed value of the subject-matter is to be re-opened, if policies are effected on the increased value. In other words, if the assured places an additional insurance on the cargo insured, the value of the cargo shall (in the event of loss or claim) be deemed to be increased to the total amount insured at the time of loss or accident. It is unnecessary to consider the effect of such clauses.7-8
Determination of constructive total loss.-In determining whether there has been a constructive total loss or not,9 section 27(4) of the English Act provides that the value fixed by the policy is not conclusive. As was observed in an English case,9 the question of total loss is to be determined just as if there was no policy at all. It is section 60(1) of the English Act which section 27(4) has in mind. Taking the facts in Irving v; Manning, (1847) 1 HLC 287, if a ship is valued at £ 17,500 and insured for £ 3,000, and if the ship is damaged and repairs are estimated to cost £ 10,500 but the value of the ship when repaired would be only E 9,000, the question is, whether the expenditure is such as would "exceed its value" within the meaning of section 60(1) of the English Act if the expenditure is incurred.
In this case, the expenditure-£ 10,500-would not exceed its "value"-if the value of £ 17,500 stated in the policy is taken as the real value. But if the value of the ship when repaired-£ 9,000-is to be taken into account, the expenditure would obviously exceed the value and the case is one of constructive total loss. The effect of section 27(4) is that in such case the value stated in the policy-£ 17,500-is not taken as conclusive, and the case can be regarded as one of constructive total loss.
Several polices.-Where the ship is insured under more than one policy, some difficulties arise as follows:-
(i) If the values in all the policies tally, it is obvious that the assured cannot recover more than the agreed value, because the contract is one of indemnity.
(ii) Where the values do not tally, but the total of the sums assured under each policy does not exceed the agreed value, there are no serious difficulties because the case is not one of over-insurance.10 The only point to be noted in such cases is, that it would be in the interest of the assured to claim first under that policy in which a lower value has been agreed. If, for example, a ship is insured for £ 500 and valued at £ 700 under one policy and insured for £ 600 and valued at £ 1,200 on another policy, and the insured chooses to recover first under the £ 1,200 policy, and recovers £ 600, if again the claims from the insurer for the policy of £ 700, all that he can recover is £ 100 (700 minus 600) on the principle that insurance is indemnity only. In other words, the assured is entitled upto the difference between the amount already obtained and the value inserted in the policy.11
(iii) Where, however, the assured takes out several policies and their combined value exceeds the value of the subject-matter insured, it is a clear case of over-insurance by double-insurance.12 In such case (provided the policies are claimed in the correct order), the assured can recover upto the higher value, but no more.
(iv) As regards contribution between the insurers themselves, section 80 of the English Act will govern the matter in all such cases.
Dual Valuation Clause.-There can be two values fixed in the policy-e.g., one for total loss purposes and other for other purposes. An example of this is the "Dual Valuation Clause". This is not, however, much in vogue now.13
1. See also notes to section 16, English Act-clause 13.
2. See section 67 of the English Act-clause 68.
3. North of England Iron Steamship Association v. Armstrong, 1876 LR 5 QB 244.
4. Under the doctrine of subrogation, see section 79 of the English Act-clause 80.
5. See notes under section 4, English Act-clause 9.
6. See Lord Chorley Shipping Law, 3rd Edn., p. 284, far a full discussion.
7. For a fuller treatment, see Dover, pp. 303 and 338.
8. See also, as to the effect of such clause, observations in Boag v. Standard Marine Insurance Co., (1937) 1 All ER 714 (719), CA., per Lord Wright MR.
9. For the meaning of 'constructive total loss', see section 60 of the English Act-clause 61.
10. As to double-insurance, see section 32 of the English Act-clause 90.
11. Bruce v. Jones, (1863) 32 LJ Ex. 132-1 HLC 769; 7 LT 748.
12. See section 32 of the English Act-clause 29 and notes thereto.
13. See Keate, p. 103, and Dover, pp. 160-161.