The court described the origin of the necessity of giving a notice of abandonment in a shipping insurance claim and explained its function.
Brett LJ said: ‘This case raises the questions of abandonment and notice of abandonment on a policy of marine insurance. Before I enter upon the merits of the present case I think it desirable to state my view of the law.
I agree that there is a distinction between abandonment and notice of abandonment, and I concur in what has been said by Lord Blackburn, that abandonment is not peculiar to policies of marine insurance; abandonment is part of every contract of indemnity. Whenever, therefore, there is a contract of indemnity and a claim under it for an absolute indemnity, there must be an abandonment on the part of the person claiming indemnity of all his right in respect of that for which he receives indemnity. The doctrine of abandonment in cases of marine insurance arises where the assured claims for a total loss. There are two kinds of total loss; one which is called an actual total loss, another which in legal language is called a constructive total loss; but in both the assured claims as for a total loss. Abandonment, however, is applicable to the claim, whether it be for an actual total loss or for a constructive total loss. If there is anything to abandon, abandonment must take place; as, for instance, when the loss is an actual total loss, and that which remains of a ship is what has been called a congeries of planks, there must be an abandonment of the wreck. Or where goods have been totally lost, as in the case of Roux v. Salvador, but something has been produced by the loss, which would not be the goods themselves, if it were of any value at all, it must be abandoned. But that abandonment takes place at the time of the settlement of the claim; it need not take place before.
and
With regard to the notice of abandonment, ‘I am not aware that in any contract of indemnity, except in the case of contracts of marine insurance, a notice of abandonment is required. In the case of marine insurance where the loss is an actual total loss, no notice of abandonment is necessary; but in the case of a constructive total loss it is necessary, unless it be excused. How, then, did it arise that a notice of abandonment was imported into a contract of marine insurance? Some judges have said it is a necessary equity that the insurer, in the case of a constructive total loss, should have the option of being able to take such steps as he may think best for the preservation of the thing abandoned from further deterioration. I doubt if that is the origin of the necessity of giving a notice of abandonment. It seems to me to have been introduced into contracts of marine insurance – as many other stipulations have been introduced – by the consent of shipowner and underwriter, and so to have become part of the contract, and a condition precedent to the validity of a claim for a constructive total loss. The reason why it was introduced by the shipowner and underwriter is on account of the peculiarity of marine losses. These losses do not occur under the immediate notice of all the parties concerned. A loss may occur in any part of the world. It may occur under such circumstances that the underwriter can have no opportunity of ascertaining whether the information he received from the assured is correct or incorrect. The assured, if not present, would receive notice of the disaster from his agent, the master of the ship. The underwriter in general can receive no notice of what has occurred, unless from the assured, who is the owner of the ship or the owner of the goods, and there would therefore be great danger if the owner of a ship or of goods – that is the assured – might take any time that he pleased to consider whether he would claim as for a constructive total loss or not – there would be great danger that he would be taking time to consider what the state of the market might be, or many other circumstances, and would throw upon the underwriter a loss if the market were unfavourable, or take to himself the advantage if the market were favourable. These are the reasons why I think the assured and the underwriters came to the conclusion that it should be a part of the contract and a condition precedent that, where the claim is for a constructive total loss, there must be notice of abandonment, unless there were circumstances which excused it.’
and ‘Notice of abandonment, therefore, being a part of the contract, questions arose as to the time when that notice should be given. The first question which arose was whether the notice must be given at the first moment that the assured heard of the loss, or at some subsequent period. It was, however, decided that it is not at the moment of the first hearing of the loss notice of abandonment must be given, but that the assured must have a reasonable time to ascertain the nature of the loss with which he is made acquainted; if he hears merely that his ship is damaged, that may not be enough to enable him to decide whether he ought to abandon or not; he must have certain and accurate information as to the nature of the damage. Now, sometimes the information which he receives discloses at once the imminent danger of the subject-matter of insurance becoming and continuing a total loss; as, for instance, if he hears his ship is captured in time of war, it must be obvious to everybody, unless the ship is re-captured, it would be a total loss; or if he hears that the ship is stranded, and her back is broken, although she retains her character as a ship, if he gets information upon which any reasonable man must conclude that there is very imminent danger of her being lost, the moment he gets that information he must immediately give notice of abandonment. The law that has been laid down is, that immediately the assured has reliable information of such damage to the subject-matter of insurance as that there is imminent danger of its becoming a total loss, then he must at once, unless there be some reason to the contrary, give notice of abandonment; but if the information which he first receives is not sufficient to enable him to say whether there is that imminent danger, then he has a reasonable time to acquire full information as to the state and nature of the damage done to the ship.
and ‘But then there arose another question. Ships, or goods, or the subject-matters of marine insurance, are liable to danger at various parts of the globe, where neither the assured nor the underwriter is present; and upon the emergency the master of the ship being there alone, must act. Now, under those circumstances, masters have often sold either ship or goods; and masters have had to consider whether they would sell the ship or goods even in cases where such ship or goods are not insured. The general rule with regard to the propriety of a master selling the ship or the goods, is that he has no right to sell either the ship or the goods without the consent of the owner, but if necessity arises the master becomes what is called, from the necessity of the thing, the agent to bind his owner by a sale, or to bind the owner of goods by a sale. Now, the rule I should say from the necessity of things, at all events from the justice of things, is this, that if the circumstances are such that any reasonable person having authority from the owner would sell, then the master is entitled to sell, although he has not such authority. The question, I think, as between the person to whom a master sells and the owner of the property, is whether the circumstances were those which would have caused a reasonable owner, had he been present, to sell. If that state of things exists, the master has authority to sell, and his act is binding upon the owner of the ship or goods. Where, therefore, there has been a constructive total loss of either ship or goods, circumstances may have arisen which would justify the master in selling, or they may not; there may be a constructive total loss without any sale, and there may also be a constructive total loss accompanied by a sale. If the first information which the assured,, not being present, has of the damage which has occurred to his ship, or being the owner of goods of the damage which has occurred to his goods, although they were not an actual total loss by reason of the perils of the seas, is accompanied also by information that the master has sold, and if the circumstances of that sale were justifiable, so that the property passed to the vendee, under those circumstances that is the time when, if at all, the assured would be bound to give notice of abandonment; but in others that doctrine seems to be questioned. In Rankin v. Potter the law was established that where at the time when the assured receives information which would otherwise oblige him to give notice of abandonment, at the same time he hears that the subject-matter of the insurance has been sold so as to pass the property away, inasmuch as there was nothing of the subject-matter of the insurance which he could abandon, notice of abandonment was not necessary. No doubt the reason given for this was that notice at that time and under such circumstances would be a mere idle ceremony; it could be of no use. That was the point decided in Rankin v. Potter. In those particular circumstances it was held that notice of abandonment need not be given because there was nothing to abandon. That in one sense is true; but if goods had been sold it is obvious there must be something to abandon, that is the proceeds of the sale; the money which is the proceeds of the sale, when the insurance is settled, is abandoned; but where there is nothing of the subject-matter of insurance to abandon, there is no ship to abandon, there are no materials of the ship to abandon, there are no goods to abandon, notice of abandonment under those circumstances was said to be futile. But Rankin v. Potter went no further; it did not decide – because the point was not raised – that if, at the time when the assured had to make up his mind and when otherwise he ought to abandon, there was no sale of the subject-matter of the insurance, the assured would be excused from giving notice of abandonment if he was able to shew that, had he given such notice, in the result it would have turned out to be of no use. It was argued before us that the necessary inference to be drawn from Rankin v. Potter was, although there had been no sale of the subject-matter of the insurance when information of the disaster was received by the assured, yet if he could shew that before any notice of abandonment could reach the underwrite and before the underwriters orders could reach the assured a sale could take place, so that had the assured given notice of abandonment such notice would have been of no use to the underwriter, the assured would be excused from giving it. That point, however, is not raised here, and therefore it becomes unnecessary to decide it. I am not prepared to say that if it could be shewn that the subject-matter of insurance, at the time when the assured has information upon which otherwise he would be bound to act, is in such a condition that it would absolutely perish and disappear, before notice could be received or any answer returned, that that might not excuse the assured from giving notice of abandonment, but I am prepared to say that nothing short of that would excuse him; and although I do not say what I have stated would excuse him, I am not prepared to say it would not; that is the limit to which I think the doctrine could be carried, and it seems to me that to go further than that would let in the danger to provide against which the doctrine of notice of abandonment was introduced into the contract and made a part of the contract’.
Cotton LJ: ‘I give no opinion on the question which arises when the state of the thing insured is such that before the communication could have reached the underwriters it must, so far as human probability goes, have ceased to be in specie.’
Judges:
Brett LJ, Cotton LJ
Citations:
[1878] 3 CPD 467
Jurisdiction:
England and Wales
Cited by:
Cited – Kastor Navigation Co Ltd and Another v AGF M A T and others (‘Kastor Too’) ComC 4-Dec-2002
The claimant ship owner and its mortgagee sued the defendant insurer after the loss of the insured vessel, through fire. The insurers replied that the damage by fire was so extensive that the vessel was beyond repair when she sank, and was therefore . .
Lists of cited by and citing cases may be incomplete.
Insurance
Updated: 20 April 2022; Ref: scu.251808