Total Loss Only Marine Hull Insurance

• Published date: 12 May 2023
• Subject Matter: Insurance, Transport, Marine/ Shipping, Insurance Laws and Products
• Law Firm: Azmi & Associates
• Author: Azri Nadiah Mohd Yani and Gabrielle Lim Wai Yee

Marine insurance is important as it covers the loss or damage of ships, cargo, and terminal and so on.¹ Generally, it provides a wide range of coverage that protects shipments from various perils.² Marine insurance is important to have as a consignee who has cargoes transporting on sea. Recently, there had been a few reported cases of cargo ship sinking, one of which is the cargo ship "Jin Tian" from China that sank in Japan's waters, causing eight death and others missing.³ Another recent case is the Tanzanian cargo ship that sank in Iran.⁴ In such situation, consignees are often faced with great cargo loss. However, the shipowners are also greatly affected by the sinkage of the ship. Besides marine insurance that is aimed to protect against cargo losses, there is also the marine hull insurance that protect against the loss and/or damage of the vessel itself.⁵ For that, this article explores into the Total Loss Only Cover ("TLO") available in marine hull insurances and how these policies operate. These forms of Hull and Machinery Insurance are often the only cover Insurers will be willing to offer for vessels beyond a certain age. Aged vessels will encounter more incidents of breakdown and may have to undergo costly repairs. The TLO policies do not cover partial losses which in most cases constitute repairs. The cover offered will be actual total loss or destruction of the vessel or situations of a constructive total loss.

Overview of TLC

A total loss occurs when all the goods are completely or almost completely lost.⁶ The Marine Insurance Act 1906 ("the Act") provides that there are two types of total loss, namely, actual total loss ("ATL") and constructive total loss ("CTL").⁷ It also further explained, unless a different intention appears from the terms of the insurance policy, the insurance protecting against total loss includes ATL and CTL.⁸ The law of marine insurance is originated in England, the Act codifies the common law, and is still acts as the central to marine insurance practice.⁹ The English law of marine insurance is applicable and adopted in Malaysia via Section 5 of the Civil Law Act 1956,¹⁰ this was confirmed in the case of Leong Brothers Industries Sdn Bhd v Jerneh Insurance Corp Sdn Bhd [1991] 1 MLJ 102. ATL as defined in section 57 of the Act, is where the subject-matter insured is destroyed, damaged, or ceased to be a thing of the kind insured or where the assured is irretrievably deprived thereof.¹¹ This provision is reproduced...