Actual total loss

Marine insurance law distinguishes two forms of total loss. An actual total loss occurs when the subject matter insured is destroyed, is damaged so badly that it ceases to be a thing of the kind insured, a cement cargo turned into a block of concrete, foodstuffs unfit for any use, or when the insured is irretrievably deprived of it, for example a ship sunk at great depth with no possibility of recovery. A ship missing without news for a reasonable time is also presumed lost. An actual total loss gives right to full indemnity without any particular formality. A constructive total loss, by contrast, concerns a thing that still exists but whose recovery or repair would cost more than its value, and it requires the insured to abandon the thing to the insurer. The distinction has practical consequences: it determines whether the insured must give notice of abandonment, whether the insurer acquires rights to the wreck and residual cargo, and how the indemnity is calculated. The UK Marine Insurance Act 1906, whose definitions permeate contracts worldwide, set out the terms.