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Report No. 21

10. Sale of insured ship without repair-amount to be paid by insurer.-

Another question on which the English Act is silent is as to the measure of indemnity when a ship damaged by perils insured against is sold without repair. Section 69 of the English Act which prescribes the measure of indemnity in case of partial loss does not deal with this matter. The reason for this might be that the law on the subject was still considered unsettled at the time. The question arose for decision in Pitmen v. Universal Marine Insurance Co., (1882) 9 QBD 192.1 There a ship which was valued by the owners at 4000 consols ran aground. After effecting some repairs the owner sold it for 3897 consols and then sued to recover 781 consols from the insurers on the basis of the estimated cost of repairs, without selling the ship.

The defendants contended that they were liable to pay only the difference between the sound value of the ship and the amount actually realised in resale, and whatever was spent by the assured for the repairs, and on this basis paid 245 consols into court. Lindley, J., as he then was, held that the plaintiff was not entitled to anything more, as the contract of insurance was one of indemnity, and that no damages beyond what the plaintiffs had in fact suffered could be awarded on a hypothetical basis of repairs which were not in fact made.

The plaintiffs then appealed, and the Court of Appeal affirmed the judgment, of Lindley, J., by a majority consisting of Jessel, M.R., and Cotton, L.J. Brett, L.J. dissented, observing that damages should be calculated on the basis of the estimated cost of repair, less the usual deductions, and that the principle adopted by Lindley, J. was a dangerous innovation. There has been some difference of opinion as to whether the value of the ship should, for the purpose of this rule, be calculated as on the date of the commencement of the risk or as at the time of the casualty.2

But apart from that, the rule laid down by Lindley, J., and affirmed by the majority of the Court of Appeal appears to be equitable and in accordance with the character of the insurance contract as one of indemnity, and we have accordingly adopted it and provided3 that when a ship which has been damaged is sold in that condition, the assured is entitled to be indemnified for the reasonable cost of repairing the damage but not exceeding the depreciation in value as ascertained by the sale.

2. The matter has been discussed in detail in App. II in Notes on clause 70.

2. Vide Chalmers Marine Insurance Act, 1906, 5th Edn., p. 108.

3. App. I, clause 70.

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