Abandon ship, help for policy holders in case of total loss
What happens when your vessel is lost or is no longer suitable for navigation? What can a policy holder do to receive their settlement and compensation? This is what the Italian Code of Navigation has to say
It often happens, unfortunately, that a vessel can no longer sail or be repaired. We had proof of this over the last few months with the tragic storm that hit the Tigullio area. What can policy holders do in these cases and what protection is offered to them by the Code of Navigation?
TOTAL LOSS OF A VESSEL
Art. 540 of the Italian Navigation Code considers that the policy holder can abandon their vessel to the insurance company, making a claim for total loss in specific cases:
- When the vessel is lost (effective total loss)
- When the vessel can no longer sail and con not be repaired or when the means necessary to repair the vessel are not available and the vessel cannot reach a port where those means are located or can be procured by asking others (complete functional loss)
- When the vessel is presumed lost (presumed total loss)
- When the total amount of repair costs for the damages to the vessel is three-quarters of its insurable value
This last case, is certainly the most frequent, and is commonly referred to “constructive total loss”, an expression with no meaning in Italian, but derives from the English “constructive total loss” (where the term “constructive” indicates facts that do not subsist as such but following a legal instruction).
Abandoning a good to the insurer is, therefore a typical system for liquidation in the maritime industry and protects the position of the policy holder in all those cases where the proof of the damage for total loss of the insured item (ship, goods, rental) is difficult and makes, as a consequence, it difficult to pay out a claim.
As often happens, this is a convention which came about through custom before the law was written, and the first traces go back to a Florentine insurance contract in 1397, elaborated over the years that followed until it took on its more modern shape in the Genoa Statutes of 1588.
ABANDONMENT AND COMPENSATION
In the case of accident, the owner is legitimised to abandonment with a written declaration by the insurer within two months or, if the accident happened outside of Europe, or countries along the Mediterranean, within four moths from the date of the accident (or the date in which the policy holder proves they found out about it).
This declaration can be challenged by the insurers, also in writing, within thirty days: if there is no challenge – or in the case in which the validity of the abandonment has been legally recognised – abandonment usually has two effects: on the one hand the insurer is obligated to pay the claim for total loss (this is called a binding effect) and on the other the ownership and other rights regarding abandoned property are transferred to the insurer from the day they became aware of the declaration of abandonment called an actual effect).
Pursuant to Art. 546 of the Italian Code of Navigation, however, within ten days from the moment in which the abandonment became indisputable, the insurer can declare to the policy holder, in writing, that they do not want to take on the actual effect. It is important, therefore, to remember that the provision of which we are speaking has an enacting character, which means that the parties can waive the provision, conventionally modifying it extensively or restrictively which often happens through custom.
Maria Elena Iafolla