Constructive total loss
A loss where the insured property survives but the cost of recovering or repairing it exceeds its value, so that it is treated as a total loss.
The car carrier Golden Ray capsized in the Brunswick channel in Georgia on September 8, 2019 with 4,161 vehicles aboard. Its removal, by cutting the hull into eight sections and completed in October 2021, exceeded 800 million dollars, far beyond the value of the ship. A constructive total loss differs from an actual total loss on one point: the insured property still exists, but it cannot be recovered at a reasonable economic cost. The test is financial, not physical. You compare the value of the property once saved with the salvage, towage, repair and reinstatement costs that would have to be incurred. English law sets the threshold at the insured value and requires a notice of abandonment. French law uses a three quarters threshold to open abandonment. That gap is enough to make two adjustments of the same casualty diverge. Once the classification is made, the underwriter pays the insured value, becomes owner of the wreck and bears the removal cost, which can run to several times the indemnity paid. The problem solved: when persisting with repair would cost more than replacement, leaving the assured sole judge of when to give up would invite abuse.
The car carrier Golden Ray, which capsized in the Brunswick channel in Georgia on September 8, 2019 with 4,161 vehicles aboard, was declared a constructive total loss. The wreck removal, carried out by cutting the hull into eight sections and completed in October 2021, exceeded 800 million dollars, far beyond the value of the ship.
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