We recently published a guide to the different types of marine insurance. We explored various different insurance products, and what they cover. In this post we will provide an overview of the different types of losses in marine insurance, to help you further understand the role marine insurance can play in protecting your business.
Different Types of Marine Loss
In this post, we’ll cover the following types of marine losses:
- Actual total loss
- Constructive total loss
- Particular average loss
- General average loss
Actual Total Loss
Actual total loss (ATL) is a situation where a ship, or its cargo, has been completely lost or destroyed. Or, the ship or cargo has been so severely damaged that repairs or salvage is no longer economically feasible.
How do ATL Claims Work? ATL claims are usually quite straightforward. If you experience total loss of your ship or cargo, you make a claim on your policy, and your insurer will then take ownership of your ship’s wreckage, or your lost, damaged, or stolen cargo. You will then be entitled to a settlement that is equal to the ship’s or the cargo’s full value, as specified in your policy wording.
Constructive Total Loss
Constructive total loss (CTL) is a situation where a ship, or a cargo, is significantly damaged to the point that the cost of repair or recovery would exceed the insured item’s value.
Typically, a marine insurance policy will specify a percentage of insured value that will trigger a CTL situation, usually around 75%. So, if the cost of repairs or recovery exceeds this percentage, it would automatically trigger a CTL situation.
How do CTL Claims Work? CTL claims are generally more complicated than ATL claims. When you make a claim for a CTL situation, you have the option to let your insurer take ownership of your insured property. Your insurer may then sell this property as salvage and use the proceeds to offset your settlement. If you prefer, you can retain ownership of your insured property, but you may receive a smaller settlement as a result.
Read our full guide to constructive total loss in marine insurance.
Particular Average Loss
Particular average loss is a type of partial loss. It is cover for when some, but not all, of your cargo is damaged or lost as a result of an incident. The term refers to losses as a result of a specific cause (hence, “particular”).
How do Particular Average Loss Claims Work? In a particular average loss claim, only the owner of the damage property is entitled to compensation. The amount of compensation received is based on the extent of damage or loss suffered as a proportion of its full value.
General Average Loss
General average is a principal in marine insurance outlining that all stakeholders proportionately share any losses resulting from incidents at sea. Specifically, the general average principal applies to situations where crew members voluntarily sacrifice part of a ship’s cargo in order to save the whole. For example, through deliberately throwing cargo overboard to prevent a ship from sinking, or intentionally taking on some water to extinguish a fire.
What’s the Difference between General Average Loss and Particular Average Loss?
A key difference between particular average loss and general average loss is that, in a particular average loss situation, only one policyholder will receive compensation. On the other hand, in a general average loss situation, the compensation will be distributed equally among numerous stakeholders.
Read our full guide to general average in marine insurance.
Get Comprehensive Marine Insurance From James Hallam
James Hallam is an independent Lloyd’s broker, and we have partnered with Everard Marine and Commercial Insurance to deliver tailored marine insurance packages.
As we deal with a wide range of niche insurance providers, we can arrange the cover you need, whether you are looking to cover a single vessel or an entire marine trade supply chain.
Find out more about our specialist marine insurance services.