In everyday marine insurance
cases, losses are not quantified easily. While the cost, insurance, and freight are calculated and communicated on every invoice, quantifying the actual marine losses
for the various types of marine insurance
policies is trickier. Thus, it becomes essential to understand marine losses
and how they are integrated into the insurance contract.
What are the Types of Marine Losses?
Broadly, the types of marine losses
are categorized into two forms – total losses and partial losses. The former indicates a 100% or near-100% loss of the goods' value, while the latter suggests a considerable but not complete loss or damage of the goods' value.
Understand the types of marine losses
can help in:
- Evaluating the risk exposure per trade, transit, vessel, and cargo.
- Prepare for the claim processed.
- Get a complete understanding of the exclusions and the total retrievable amount.
- Analysing the cash and reserve requirements for each transit.
- Choosing between riders in the policy enhances the cover.
Here are the two types of marine losses
in more significant details:
I. Total Loss
This marine loss
category shows that the insured goods have lost 100% or near-100% of their value. The category is further divided into Actual Total Loss and Constructive Total Loss in Marine Insurance
- Actual Total Loss: To get quantified as an actual total loss, one or more of the following conditions must be met:
- The insured cargo or the goods are entirely damaged or damaged to an extent where they cannot be repaired.
- The insured cargo or the goods are in a state that the insured business cannot access altogether.
- The vessel carrying the cargo has gone missing, and there are no reasonable chances of its retrieval.
When Actual Total Loss is realized, the insured business becomes entitled to the insured goods' entire value. The insurance company becomes liable to clear the claim and pay the stipulated amount. With this, the ownership of the goods gets transferred from the insured business to the insurance company. If the goods, their remains, or any other traces are located in the future, the insurance company will have the absolute ownership of the findings.
Assume you import some vintage furniture from Trinidad & Tobago and have paid ₹50 lakhs as per their market value. Since you already have buyers lined up, you are just waiting for the cargo to arrive. But since the cargo has a very long route across the Indian ocean, you decided to take a marine insurance policy
for covering the goods. Unfortunately, the ship caught fire in the middle of the sea, and the entire shipment was damaged. Since you have lost the whole set of your vintage furniture, you will be compensated the total agreed value as per the insurance policy.
- Constructive Total Loss in Marine Insurance: This is one of the trickiest marine losses to understand but can be simplified with an illustration.
Building on the same example – imagine that the cargo carrying your shipment was abducted by Somalian pirates. They are demanding a ransom of over ₹10 crores from the shipping company for releasing the ship. The shipping company understands that the combined value of goods on board the vessel and the small vessel itself is valued at not more than ₹7 crores in total, including your vintage furniture.
In this case, if you successfully file a claim for your vintage furniture, the surveyor will term it as a constructive total loss as the cost of retrieving the goods is more than the price of the goods itself.
II. Partial Loss:
This type of loss quantification requires discretion and subjective decision-making at the hands of the surveyor.
- Particular Partial Loss: One of the most common forms of marine losses quantified under this category is Particular Partial Loss. If the goods incurred partial damage for a reason covered under the marine insurance policy, it will be deemed a particular partial loss.
- General Average Loss: This type of loss is quantified only when the goods were damaged deliberately to avoid some form of danger.
For instance, imagine that you are a supplier of biochemical substances. You had a shipment worth ₹30 lakhs exported via a shipping company. On the way, the captain found that ₹10 lakhs worth of boxes had leaked and were contaminating the ship. It had to be thrown away to secure the rest of the shipment. This would be a General Average Loss. If the entire load was sold for ₹15 lakhs to another pharmaceutical manufacturer on the next port, it would have been a case of Particular Partial Loss.
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- Who decides the category of marine loss?
The insurance company appoints a surveyor for both verifying and quantifying the loss.
- Can the insured business get access to evidence of how the losses were quantified?
In exceptional cases, the proof of damage might be shared, but the process to quantification is not shared.