Actual and constructive total loss

Cl. 16-2 provides that "The insurer shall not be liable for loss of time resulting from a casualty which gives the assured the right to compensation for total loss under Chapter 11 of the Plan.”  Chapter 11 deals with actual total loss (Cl. 11-1), unsuccessful salvage (Cl.11-2), constructive total loss (CTL) or, as the Plan calls it, "condemnation" (Cl. 11-3), and a missing or abandoned vessel (Cl. 11-7).  Therefore, there can be no claim under the loss of hire insurance in all those cases where the assured is entitled to total loss compensation. It does not matter whether the assured actually makes use of his right to claim total loss compensation. It suffices that he has a right to do so.

In cases where there is a dispute concerning whether the vessel is a total loss pursuant to Chapter 11, the loss of hire insurer will usually follow the decisions made by the hull insurer. However, these decisions are not binding on the loss of hire insurer, cf. what is said in the Commentary to Cl. 16-1, sub-clause 1, about a parallel issue.

If the hull insurer pays the sum insured in accordance with Cl. 4-21, such payment cannot be equated with payment of total loss compensation in accordance with Chapter 11. The assured may be able to satisfy that the vessel was not a CTL[7] and, if so, would be entitled to loss of hire compensation.  Should it later prove that the conditions for condemnation would have been fulfilled, Cl. 16-2 will be applicable. The same applies if the further development of the casualty results in the ship actually becoming a total loss, for instance where it has struck a reef and later sinks during the salvage operation or during the towage to a safe port or place.

If the ship’s hull insurance has been effected on conditions other than those of the Plan, and the insurer has accepted those conditions, the question of the right to compensation for total loss shall be decided by the conditions of the hull insurance corresponding to Chapter 11 of the Plan, see also Cl. 16-1, sub-clause 1, second sentence which is expressly referred to in Cl. 16-2, see further under 3.6 above.

[7] Constructive Total Loss