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Fire Damaged $12 Million Ship a Total Loss

Insurance disputes in respect of whether a vehicle is or is not a write-off following an accident are sadly familiar to thousands of motorists. However, one High Court case involving a catastrophic fire on board a ship with an insured value of $12 million showed that such disagreements are not confined to dry land.

The vessel was fully laden and sailing in the Red Sea, off the coast of Egypt, when a blaze took hold in her engine room. Her owners gave notice to her machinery and hull insurers of their intention to abandon her on the basis that she was beyond economic repair and a constructive total loss.

A number of insurers, who had together underwritten 85 per cent of the risk, did not dispute that the fire was an insured peril and that the owners were entitled to be indemnified against their loss. However, in disputing the value of that loss, they insisted that the vessel was not a write-off.

Ruling in the owners’ favour, the Court noted that different repair yards had given radically different estimates of the cost of repairing the vessel. However, when the costs of salvage, towage and other expenses were taken into account, the Court was satisfied that the vessel was a total loss.

The ruling meant that the insurers had to indemnify the owners in accordance with the percentages of risk each of them had taken on. The owners were also entitled to be compensated for the reasonable costs incurred in seeking to avert or minimise the loss. Pursuant to an increased value clause in the relevant policy, the lead insurer was required to pay an additional $3 million.