Report No. 21
General.-This deals with the effect of constructive total loss.
Right to treat total loss as partial.-Option to treat the loss as partial has been given to the assured. The question will naturally arise, how, treating the loss as a partial one would benefit the assured. The answer is this
(i) Even a partial loss can be claimed upto 100 per cent. of the insured value.1 The amount claimable under a total loss cannot, obviously, also exceed 100 per cent. of the insured value. Thus, the assured is not in a worse position in all cases by treating it as a partial loss only.
(ii) As a matter of fact, in a partial loss, the insurer may, in addition, be liable for "sue and labour" or "salvage charges"2. In the case of total loss, however, the doctrine of "abandonment" transfers to the insurer the rights of the assured in what remained of the subject-matter.3
(iii) Further, a partial loss does not terminate the policy as such, and, therefore, if the policy is a time policy, the assured continues to enjoy the benefit of the policy after the partial loss, until the expiry of the specified period.
(iv) Lastly, where the subject-matter is greatly under-insured, claiming for constructive total loss would not, obviously, benefit the assured, because all that he would get is the amount insured (which would be lower than the value of the subject-matter).
Departure from the English Act-Events subsequent to election.-Two questions have arisen in connection with abandonment. The first is, whether, after the assured has elected to treat a loss as a total loss, can the insurer by his act affect prejudicially the right of the assured? The second is, whether after the assured exercises his election, can events happening subsequently affect his rights so as to enable the insurer to insist on the assured taking back the ship and claiming only for a partial loss?
As regards the first question, the law in England is well-settled that the insurer cannot require the assured to take possession of the ship merely on the ground that the suit has not yet been filed and the ship has been salved in the meantime. See in this connection the following case4 and the discussion in the text books.5
As regards the second question, the rule in England would appear to be that the circumstances as they existed on the date of the action have to be looked at. On this view, a total loss is said to be "deemed" if the loss did not continue to be total at the commencement of the action. Thus, if a ship is captured and due notice of abandonment given, still if the property is re-captured the assured can recover only for a partial loss. See the decision cited below6 and the discussion in the text-book.7 This rule is peculiar to England and is not recognised in Scotland, United States, or the Continental systems.
It is considered that such subsequent events should not affect the right of the assured. The validity of the election made by the assured should be judged with reference to the state of affairs existing on the date of election; the doctrine of "ademption" should not be adopted and the view recognised in Scotland, United States, and the Continents should be followed here also. Necessary provision has been made.
Course adopted.-Thus, the clause under discussion
(i) embodies the English rule on the first point and
(ii) departs from the English law, on the second point.8
[It will be of some interest to note that an attempt was made to codify the English rule at the time when the Marine Insurance Act was on the anvil. The following sub-clause was there in the original Bill:
"Where the assured has given a notice of abandonment which has not been accepted, the validity of the abandonment must be determined with reference to the state of affairs at the time of action brought".]
The clause was, however, struck out in consequence of objections taken to it by Scottish Members.9
It will also be interesting to note that some controversy did prevail as to whether the Act has altered the English Common Law rule; but the decision of the Court of Appeal10 laid down that in deciding upon the validity of claims of this nature the matter must be considered "as they stood on the date of the commencement of the action".
This view was approved by Lord Wright in-Rickward v. Forestal etc. Co., 1942 AC 50 (85) observing that "the old rule is, I think, still the law"
1. On the principle of indemnity.
2. See sections 65 and 78, respectively of the English Act-clauses 66 and 79.
3. See section 63 of the English Act-clause 64.
4. Blairmore Sailing Ship Co. v. Macredie, 1898 AC 593 (607).
5. Halsbury, 3rd Edn., Vol. 22, p. 156, para. 302, and Arnould, Vol. 2, 1954 Edn., Article 1126.
6. Bainbridge v. Neilson, (1808) 10 East 329.
7. Halsbury, 3rd Edn., Vol. 22, p. 1595, para. 308; and Arnould Vol. 2, pp. 1000-1001, Arts. 1096 et seq; and Keate, p. 93, discussion under "Waiver clause".
8. See also the body of the Report, paras. 8 and 9.
9. See Arnould Vol. 2, p. 1001, Article 1097A and Chalmers 5th Edn., pp. 94-95.
10. Polurrian Steamship Co. Ltd. v. Young, (1915) 1 KB 922.