Office: +44 203 968 0500
24/7 Emergency Response: +44 7887 710 950
Select Page

Supreme Court rules on how to calculate Constructive Total Loss (CTL)

Supreme Court regains shipping experience|BDM Blog|BDM Law
Regular visitors to our blog may remember our earlier article on the “Renos” which can be found here. Since then hull underwriters were granted leave to appeal that decision to the Supreme Court on two issues.

Should costs incurred before Notice of Abandonment is tendered be excluded from the CTL calculation?

Should SCOPIC costs be taken into account in determining whether a ship is a CTL?

The factual context is as follows. In August 2012, the “Renos” sustained fire damage. As a consequence, the ship lost main engine power and salvage was required. An LOF form was signed and SCOPIC triggered. Hull underwriters did not accept that the ship was a CTL on a number of grounds and Owners sued underwriters in the English Courts under their insurance policies. The insured value was USD 12million topped up by an increased value policy of USD 3million. Owners succeeded in the High Court and Court of Appeal, leading underwriters to appeal to the Supreme Court.

The Supreme Court has now agreed(1) with the lower Courts in that pre-Notice of Abandonment costs should count towards CTL. This is significant (a) because such costs can be substantial and (b) there has been a dearth of relevant legal authority.

However, the underwriters’ second ground of appeal succeeded. The Supreme Court ruled that SCOPIC costs should not be taken into account for the purposes of CTL calculations and were not costs of recovery and/or repair. The Judges’ reasoning emphasised that SCOPIC was a matter of P&I cover not hull insurance, its aim being to minimise Owners’ liability for environmental pollution. SCOPIC was therefore by its nature separately identifiable from the cost of repairing damage.

This is an important decision for hull underwriters, P&I Clubs, shipowners, salvors and the marine insurance market in general. It has clarified a number of unanswered legal issues and set a binding precedent that the shipping and marine insurance markets can rely upon in the future.

(1) Sveriges Angfartygs Assurans Forening (The Swedish Club) and others (Appellants) v Connect Shipping Inc and another (Respondents) [2019] UKSC 29

BDM is a specialist shipping law firm offering high quality legal advice and representation at a reasonable price. Please follow us on social media by clicking below.

Other Recent Blogs

  • Tendering NOR does wirelessinclude email | BDM Blog | BDM Law
    November 21, 2022

    Tendering NOR – does “wireless” include email?

    In a recent arbitration under the LMAA Small Claims Procedure (1) the Tribunal had to determine the validity of a Notice of Readiness (“NOR”) which had been tendered by email. The NOR is one of the most important documents for ship owners because it acts as a trigger to [...]

    Read more >
  • Delivery without original bills – an example of what can go wrong | BDM Blog | BDM Law
    November 7, 2022

    Delivery without original bills – an example of what can go wrong

    Readers of our blog may recall an article we released back in November 2020 in which we highlighted the risks that a ship owner is required to undertake when accepting a letter of indemnity (LOI) in exchange for releasing the cargo without the production of an original bill [...]

    Read more >
  • Supreme Court gives permission to appeal in The Polar | BDM Blog | BDM Law
    October 31, 2022

    Supreme Court gives permission to appeal in “The Polar”

    We previously reported on the High Court and Court of Appeal’s decisions in one of the last Somali ransom cases still in the Court system. The Court of Appeal held that a war risks provision in a charterparty did not constitute an agreement that the owners would not claim [...]

    Read more >
+44 203 968 0500
+44 7887 710 950