Lloyd's Maritime and Commercial Law Quarterly
CONSTRUCTIVE TOTAL LOSS—THE DIMINISHING IMPORTANCE OF THE PRUDENT UNINSURED OWNER
Jeffrey Thomson*
The Renos
Regarding the constructive total loss (“CTL”) of an insured ship, resulting from damage to the same, the Marine Insurance Act 1906 (“MIA”), s.60 provides:
“(1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned … because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. (2) In particular, there is a constructive total loss— … (ii) In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired …”
Co-existing alongside this statutory definition is an older, common-law, test, framed by reference to the hypothetical figure of the “prudent uninsured owner”.1 Its invention is credited to Lord Abinger CB, who put it thus: “… if a prudent man not insured, would decline any further expense in prosecuting an adventure … a party insured may, for his own benefit, as well as that of the underwriters, treat the case as one of a total loss, and demand the full sum insured”.2
How were these tests intended to relate? Commenting on the clause in their Bill which (with amendments) would become MIA, s.60, Chalmers and Owen noted: “The cases habitually refer to the ‘prudent uninsured owner’ test. But as decisions multiply that test becomes of diminishing importance, because the decisions tend to settle as a matter of law the course which a prudent uninsured owned would be bound to take. This, perhaps, is fortunate, because the test is not an easy one to apply …”.3
In its recent judgment in The Renos,4 the UK Supreme Court moved decisively in this direction, further diminishing the relevance of the prudent uninsured owner test
* Lecturer in Law, The City Law School, City, University of London.
1. Arnould’s Law of Marine Insurance and Average, 19th edn (London, 2018) (hereafter, “Arnould”), [29.27–29.30].
2. Roux v Salvador (1836) 3 Bing NC 266, 286; 132 ER 413, 421 (Exch Ch).
3. MD Chalmers and D Owen, A Digest of the Law Relating to Marine Insurance (London, 1901), 73.
4. Sveriges Angfartygs Assurans Förening (The Swedish Club) v Connect Shipping Inc (The Renos) [2019] UKSC 29; [2019] 2 Lloyd's Rep 78 (Lords Reed, Hodge, Lloyd-Jones, Kitchin and Sumption) (hereafter “The Renos SC”); partly reversing [2018] EWCA Civ 230; [2018] 1 Lloyd's Rep 285; [2018] Bus LR 1333 (hereafter “The Renos CA”); and also partly reversing [2016] EWHC 1580 (Comm); [2016] 2 Lloyd's Rep 364; [2016] Bus LR 1184 (hereafter “The Renos HC”).
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