(Cargo Insurance) Meaning of Abandonment, Subrogation, and Waiver of Subrogation Rights
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We proceeded with transportation after taking out cargo insurance, but significant damage occurred to the cargo. The cargo insurance representative recommends notifying abandonment to process it as a constructive total loss rather than a partial loss. I would like to know the meaning of constructive total loss and abandonment.
Answer 1
- 01. Total Loss (Actual Total Loss / Constructive Total Loss): Actual Total Loss includes cases where the insured subject matter is in an irrecoverable state, has lost its inherent nature, or is missing. On the other hand, Constructive Total Loss refers to an economic total loss where the subject matter is not missing or irrecoverable, but the cost of repairing the lost inherent nature or damage exceeds the value of the cargo; it is a loss that must be presumed as a total loss even if it has not practically become an actual total loss. Since a total loss represents an economic loss of the entire value of the insured subject matter, the insurer (cargo insurance company) pays the insured an insurance amount equal to the value of the subject matter (total amount of C/I) plus expected profit (typically 110%) as the compensation limit. 2. Partial Loss: Partial loss is divided into Particular Average and General Average. Cases where damage occurs to cargo arriving at the destination country can be processed as Particular Average, and insurance may be paid by reflecting the expected profit (typically 110%) on the value of the damaged portion. 3. Principle of Indemnity: Marine cargo insurance is based on actual loss compensation and does not allow for duplicate coverage; insurance is paid only when the insured suffers a financial loss due to actual damage. If the insured receives insurance money and also retains ownership of the damaged cargo, it constitutes double profit. Therefore, for cases of Constructive Total Loss or Partial Loss, the transfer of all ownership rights of the subject matter to the insurer is a condition for the payment of insurance (this does not apply to cases where the subject matter is lost due to Actual Total Loss). 4. Abandonment and Subrogation: Abandonment is a procedure where the insured applies for abandonment in cases of Constructive Total Loss and the insurer accepts it; it is a system where the insured transfers all rights to the subject matter to the insurer and claims the full amount of the insurance sum. Subrogation is a system where, upon the insurer paying the insurance money for total or partial loss cargo, the insured's ownership and right of recourse are transferred to the insurer, allowing the insurer to exercise the right of recourse against the carrier who caused the damage. Whether to claim recourse is at the insurer's discretion, and if a Waiver of Subrogation clause is inserted into the Insurance Policy, the insurance company cannot exercise the right of recourse against the carrier after paying the insurance money. [Related Regulations] Provisions regarding abandonment are found in the Commercial Act, such as Article 713 (Notice of Abandonment), Article 714 (Requirements for Exercising the Right of Abandonment), Article 716 (Approval of Abandonment), Article 717 (Disapproval of Abandonment), and Article 718 (Effect of Abandonment).Machine translated
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