Marine insurance 101 Understanding loss and abandonment claims

Whether you are in the export or import business or involved in shipments, sometimes the risks during transit are unavoidable. What if, on the sea route, a harsh storm with high and rough waves swallows the entire ship or damages a portion of the shipment? Have you ever wondered how your marine insurance policy can support you financially during such times? If not, now is the time to become aware of two main provisions: loss and abandonment. Different types of losses in marine insurance

In marine insurance, losses are classified into partial and complete losses.

Partial loss

As the name implies, partial loss means damage to a portion of a ship or cargo. It is further categorised into the following two types:

Particular Average Loss

This provision states that the insurer will only cover partial losses caused by specific risks outlined in the policy, such as fire, collision, or stranding. It applies to damage affecting only the insured’s cargo or ship, not the entire venture.

General Average Loss

If the awful circumstances require sacrificing a part of the cargo or ship, any expenses incurred to save the entire voyage are proportionally shared among all parties, such as the shipowner and cargo owners. Each party must contribute based on the value of their goods or vessel.

Total loss

Total loss occurs when the entire shipment is destroyed. It is further categorised into the following two types:

Actual loss

Actual total loss occurs when the insured ship or cargo is completely destroyed, lost, or so damaged that it becomes unusable. To understand actual loss better, consider a ship carrying a consignment of cars. One night, due to a severe storm, it sank in the middle of the ocean. The vessel and all the onboard cars were submerged and could not be salvaged.

Constructive total loss

Constructive total loss happens when the cost of saving or repairing the ship or cargo exceeds its actual value after recovery. In such cases, the insured can treat it as a total loss and claim full compensation, even though the item is not completely destroyed.

What is abandonment in marine insurance?

Abandonment is a provision in marine insurance where the insured can give up their rights to the damaged or lost cargo or vessel to the insurer and claim the full insured value. This usually happens when the insured believes the loss or damage is so severe that salvaging or repairing the property is not economically viable.

Suppose your ship carrying goods from Mumbai to London is severely damaged in a storm. The cost to repair the ship and the cargo is higher than their market value. You decide to abandon the vessel and cargo to your insurer. By doing so, you transfer ownership of the damaged property to them and claim the full insured amount. The insurer can then salvage whatever value remains.

Abandonment is typically used in cases of total loss or constructive total loss.

Key conditions for abandonment claims in marine insurance

Here is what you must know before filing an abandonment claim in marine insurance:

• You must voluntarily relinquish all rights and ownership of the damaged asset to the insurer, allowing the insurer to take possession and salvage if possible.

• Once you are aware of the loss, notify your insurer about abandonment immediately or within the specified timeframe. Any delay or ambiguity can invalidate the claim.

• You must demonstrate that recovery or repair is not commercially viable. Do factor in costs, risks, and time delays.

• If the vessel or cargo has already been recovered or salvaged, the provisions of abandonment may not apply unless the recovery is partial and uneconomical.

Documentation required for a marine insurance claim

For smooth claim processing of your marine insurance, keep the following documents handy:

• A written declaration to relinquish rights to the damaged property

• Marine insurance policy copy, including endorsements and schedule.

• Bill of lading and shipping documents

• Commercial invoice and packing list

• Report from an authorised marine surveyor detailing the extent of damage or loss.

• Correspondence with carriers, including protest letters and replies

• Customs documents

• Salvage reports

• Photographic evidence

• Duly filled and signed claim form

Step-by-step guide to raise a marine insurance claim

Here is how you can raise a claim for loss and abandonment under marine insurance:

• Step 1: Inform your insurance company as soon as the loss occurs or you decide to abandon the property.

• Step 2: Submit details of the ship or cargo, voyage route, nature of the loss, and the circumstances leading to it. Include dates, location, and the cause of damage.

• Step 3: If you are claiming for the abandonment of the vessel, formally declare to the insurer that you relinquish your rights to the damaged property, allowing them to take possession.

• Step 4: Share the list of documents mentioned above.

• Step 5: The insurer will appoint a surveyor to assess the loss. Coordinate with them by responding to their queries and providing missing documents.

• Step 6: The insurer calculates the claim amount and processes payment according to the policy terms after verification.

Conclusion

Marine trade carries an element of uncertainty. However, a comprehensive marine transit insurance policy can help cushion the financial shock of loss or abandonment. By knowing how these provisions work, businesses involved in shipping can better protect their assets and minimise risks during transit.

Whether facing a partial loss, total destruction, or an uneconomical recovery, these policy features offer a safety net that helps sustain trade continuity in turbulent maritime conditions.

(Disclaimer: The above press release comes to you under an arrangement with PNN and PTI takes no editorial responsibility for the same.). PTI PWR PWR

(This story has not been edited by THE WEEK and is auto-generated from PTI)