4. Policy on goods. The ship becomes a constructive total loss, SECT. 61 and the goods have to be landed in a damaged condition. There is a constructive total loss of the goods if the cost of landing, warehousing, conditioning, reshipping, and forwarding them to their destination (minus the original freight) would exceed their value on arrival.1

5. Insurance on goods from Bombay to London with liberty to send them through France. On arrival in Paris they are detained in consequence of the siege, and it is uncertain what will become of them. The assured may treat this as a constructive total loss.2

6. Policy on cargo of salt. The ship meets with bad weather, and is towed into a port of refuge by salvors. The salt is landed in a damaged condition, and is sold under a decree of the Court for salvage costs. This is a partial loss, not a constructive total loss.3

NOTE. For further illustrations, see § 63, and compare § 58.

There is a constructive total loss, says Mr. McArthur, "when the subject insured, though existing in specie, is justifiably abandoned, on account of its destruction being highly probable, or because it cannot be preserved from actual total loss unless at a cost greater than its value would be if such expenditure were incurred.” 4

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 owner would be bound to take. This, perhaps, is fortunate, because the test is not an easy one to apply. The question is, not what the particular owner, if uninsured, would do, but what a man of average prudence ought to do under similar circumstances.

Constructive total loss lies midway between actual loss on the one hand, and partial loss on the other. It is in effect a hybrid loss, and

1 Farnworth v. Hyde (1866), L. R. 2 C. P. 204, Ex. Ch. Average adjusters are agreed that this case is commercially wrong so far as relates to the deduction of freight; McArthur, Ed. 2, p. 151; Lowndes, Ed. 2, p. 137; Gow on Insurance, p. 157.

2 Rodocanachi v. Elliott (1873), L. R. 8 C. P. 649; affirmed L. R. 9 C. P. 520, Ex. Ch.

3 De Mattos v. Saunders (1872), L. R. 7 C. P. 570; cf. Meyer v. Ralli (1876), 1 C. P. D. 358.

✦ McArthur, Ed. 2, p. 146. For further definitions of constructive total loss, see Kaltenbach v. Mackenzie (1878), 3 C. P. D. at 473 and 479, per Lord Esher; Shepherd v. Henderson (1881), 7 App. Cas. at p. 70, per Lord Blackburn.

SECT. 61. its dual character has complicated the decisions. In some instances notice of abandonment has been given as a matter of precaution, and a case is treated as one of constructive total loss when the facts would have justified its being treated as an actual total loss. In other instances due notice of abandonment has not been given, and the case has to be treated as a partial loss, though the facts show a total constructive loss. Again, when there is a warranty F.P.A., and the loss is heavy, juries sometimes struggle to bring the case within the line of constructive total loss. The result is that the outlines of the law are somewhat blurred.

Take the case of a consignment of tobacco as a normal instance.. If it is so sea-damaged as no longer to answer to the description of tobacco, there is an actual total loss. If by any process the tobacco could be reconditioned, so as to make it saleable as tobacco, but the cost of the operation is prohibitive, there is a constructive total loss. If a portion only of the consignment is spoilt, or if the whole of it is damaged, but not so damaged that it cannot be made into saleable tobacco and forwarded to its destination at a reasonable cost, there is a partial loss.

In the majority of cases the distinction between actual total loss and constructive total loss corresponds with the distinction which has been drawn between physical impossibility and mercantile impossibility. A merchant trades for profit, not for pleasure, and the law will not compel him to carry on business at a loss. A commercial operation is regarded as impracticable, from the mercantile point of view, when the cost of performing it is prohibitive.

The same general principle as to loss by frustration of the adventure seems to cover goods, freight, and profits. See the application of the rule to goods criticized, Lowndes, Ed. 2, p. 238, but it is settled law. "It is well established," says Lord Bramwell, "that there may be a loss of the goods by a loss of the voyage in which the goods are being transported, if it amounts, to use the words of Lord Ellenborough, to a destruction of the contemplated adventure." 2

With the object of avoiding the uncertainty and complication of the English rule, the laws of most foreign countries arbitrarily detail certain facts which authorize the assured to abandon and claim for a total loss. Thus, in the United States, unless the policy otherwise provides, there is a constructive total loss if the damage to a ship exceeds 50 per cent. of her repaired value. (Phillips on Insurance,

1 Moss v. Smith (1850), 19 L. J. C. P. at p. 228, per Maule, J.; cf. Rankin v. Potter (1873), L. R. 6 H. L. at p. 101.

"Rodocanachi v. Elliott, L. R. 9 C. P. at p. 522, Ex. Ch.

§ 1539.) In France, among other conditions, the assured may abandon SECT. 61. when the damage to the subject-matter insured amounts to threefourths of its value. (Code de Commerce, art. 369.)

Mr. Justice Willes in 1867 furnished a memorandum on constructive total loss and valuation to the Royal Commission on Unseaworthy Ships. It may still be usefully referred to. Sec, too, a valuable paper read to the International Law Association by Mr. T. G. Carver, Q.C., in which he discusses the English and foreign laws as to constructive total loss, and suggests the following definitions: (a) Where, by a peril insured against, a ship is so damaged or so placed that the cost of recovering and making her fit for the same service as before will probably exceed her value when recovered and repaired, there is a constructive total loss of the ship. (b) Where, by a peril insured against, the owner of an insured subject is deprived of the possession or control and use of it indefinitely, or for a period which is unreasonable, having regard to the adventure on which it is insured, there is a constructive total loss of the subject.2

construc

§ 62. Where there is a constructive total loss the Effect of assured may either treat the loss as a partial loss, or tive total abandon the subject-matter insured to the insurer and loss. treat the loss as if it were an actual total loss. The assured must make his election within a reasonable time.8

NOTE. AS Cotton, L.J., puts it, "A constructive total loss is when the damage is of such a character that the assured is entitled, if he thinks fit, to treat it as a total loss." 4

The section, of course, does not apply to a case where by the terms of the policy the assured is only entitled to claim for an actual total loss, see § 57 (3), ante.

1 Report, 1874, Vol. II., App. No. lvii., p. 426.

2 International Law Association, 18th Report, 1899, pp. 106, 172. 3 Arnould, Ed. 6, pp. 951-953; Roux v. Salvador (1836), 3 Bing. N. C. at pp. 286, 287, Ex. Ch.; Fleming v. Smith (1848), 1 H. of L. Cas. 513; Rankin v. Potter (1873), L. R. 6 H. L. at pp. 118, 131, 135, and Kaltenbach v. Mackenzie (1878), 3 C. P. D. 467, 479, C. A., where abandonment and notice of abandonment are distinguished. As to election, see ibid., and Browning v. Provincial Ins. Co. (1873), L. R. 5 P. C. 263.

• Kaltenbach v. Mackenzie (1878), 3 C. P. D. at p. 479.

SECT. 63.

§ 63.-(1.) Subject to the provisions of this section, Notice of where the assured elects to abandon the subject-matter abandon insured to the insurer he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss.1

ment.

(2.) Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in any terms which indicate the intention of the assured to abandon the subject-matter insured unconditionally to the insurer.2

(3.) Notice of abandonment must be given with reasonable diligence after the receipt of reliable information of a constructive total loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to make inquiry.3

(4.) Where notice of abandonment has been given by the assured it cannot be withdrawn without the consent of the insurer.4

(5.) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment.5

(6.) The acceptance of an abandonment may be either express or implied from the conduct of the insurer.

1 Arnould, Ed. 6, pp. 953-970; McArthur, Ed. 2, p. 153. As to origin of notice of abandonment, see Kaltenbach v. Mackenzie (1878), 3 C. P. D. at p. 471, C. A., where the whole subject is discussed.

2 Arnould, Ed. 6, p. 957; Currie v. Bombay Ins. Co. (1869), L. R. 3 P. C. at p. 78.

3 Arnould, Ed. 6, p. 960; Currie v. Bombay Ins. Co. (1869), L. R. 3 P. C. at p. 79; Rankin v. Potter (1873), L. R. 6 H. L. at p. 105; Kaltenbach v. Mackenzie (1878), 3 C. P. D. at pp. 472, 478.

✦ Arnould, Ed. 6, pp. 968, 970; Rankin v. Potter (1873), L. R. 6 H. L. at p. 119. This is the general rule of law as to the exercise of an election, but cuilibet licet renunciare juri pro se introducto.

5 McArthur, Ed. 2, p. 156; and illustrations below.

The mere silence of the insurer after notice is not an SECT. 63. acceptance.1

(7.) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice.2

(8.) Notice of abandonment is unnecessary where at the time when the assured receives information of the loss there would be no possibility of benefit to the insurer if notice were given to him.3

(9.) Notice of abandonment may be waived by the insurer.4

(10.) Where an insurer has re-insured his risk, no notice of abandonment need be given by him.5

(11.) Where the assured has given a notice of abandonment which has not been accepted, the validity of the abandonment must be determined with reference to the state of affairs at the time of action brought."

Illustrations.

1. Policy on ship. On the 7th of February assured is informed that she is a constructive total loss. On the 23rd of February she is sold for what she will fetch. On the 10th of March notice of abandonment is given. This is too late."

1

Arnould, Ed. 6, pp. 968, 969; Provincial Ins. Co. v. Leduc (1874), L. R. 6 P. C. 224.

2 Arnould, Ed. 6, p. 968; Provincial Ins. Co. v. Leduc (1874), L. R. 6 P. C. 224 (implied acceptance, waiver of breach of warranty).

3 Arnould, Ed. 6, p. 959; Farnworth v. Hyde (1865), 18 C. B. (N. S.) 835; Rankin v. Potter (1873), L. R. 6 H. L. 83; Kaltenbach v. Mackenzie (1878), 3 C. P. D. 467, C. A.

✦ Arnould, Ed. 6, p. 958; Houstman v. Thornton (1816), Holt N. P. 242.

5 Uzielli v. Boston Mar. Ins. Co. (1884), 15 Q. B. D. 11, C. A.

• Ruys v. Royal Exchange (1897),2 Q. B. 135; Sailing Ship Blairmore v. Macredie (1898), A. C. 593; but qu. if this rule applies to Scotland, ibid. at pp. 606, 609.

7 Kaltenbach v. Mackenzie (1878), 3 C. P. D. 467, C. A.