7 Constructive total loss and notice of abandonment
Sir Richard Aikens describes constructive total loss as being where an insured can claim for “total loss of the subject-matter insured even when it is not completely lost by an insured peril, e.g. such as when sunk, or blown up, provided the insured can show that the object’s ultimate loss appears to be unavoidable or its loss could not be avoided without an expenditure that would be more than the object’s value after the expenditure has been incurred.” In Nordic terminology CTL refers to condemnation, which covers the situation where the cost of repair exceeds 80 % of the insurable value of the object insured.(1) See today NP 2023 Cl. 11-3. Abandonment is regulated together with a missing ship as one type of total loss. In addition, however, NP chapter 15 on war risk regulates “Intervention by a foreign State power, piracy” (Cl. 15-11) and “Blocking and trapping” (Cl. 15-12). As these clauses were first included in the NP in 1996 and taken from the War policy, the history of the Plan sheds little light on them.
Cl. 15-11 solves the problem of how long the detention had to last, an issue which was not solved through the English court cases, but instead in the detention clause: the assured must have been deprived of the vessel for 12 months, provided that if it is established before this time that the assured will not recover the vessel, he may claim for total loss immediately. It is not relevant to this assessment, whether the vessel is released at a later time.
NP also contains a provision on blocking and trapping that is interesting in the light of Royal Boskalis Westminster NV v Mountain [1997] LRLR 523, which arose out of Saddam Hussein’s invasion of Kuwait. The insured’s dredgers were working in the Shatt al Arab and were detained. The insured gave a notice of abandonment of the vessels, claiming a CTL. This situation could potentially be regulated by NP Cl. 15-12:
“If the vessel is prevented from leaving a port or a similar limited area due to blocking, the assured may claim for a total loss, if the relevant obstruction has not ceased within twelve months after the day it occurred.”
In appears from the Commentary(2) Commentary NMIP 1996 Version 1999 p. 355. that this provision was aimed at covering a vessel that
“remains trapped in a canal, etc., because the lock gates or other structures have been destroyed. The events in Shatt-al-arab during the Iran-Iraq war and in the Suez Canal during the war between Israel and Egypt are examples of this type of situation. The provision will not apply, however, if a general cargo vessel is prevented from leaving the Great Lakes because the lock gates have been bombed in the St. Lawrence Seaway. By contrast, in relation to the Strait of Hormuz, the provision must be given a wide interpretation. Accordingly, if an oil tanker is unable to get out of the Strait of Hormuz during a conflict, e.g. because the Strait has been mined, the provision will apply.”
The provision does not explain who may perform the “blocking”. It obviously covers blocking by foreign states for overriding political reasons, but it also presumably covers blocking by pirates and other groups covered by war insurance,(3) NP § 2-9 sub clause 1 d also covers riots, sabotage and acts of terrorism. cf. ND 2009.202 NA Bulford Dolphin below.(4) See Commentary 2023 p. 358 and Wilhelmsen/Bull 2017 pp. 390–391. It is more uncertain whether the concept of “blocking” includes non-physical measures and also how the geographical limits contained in the expression “port or similar limited area” should be interpreted in light of the geographical references provided in the Commentary.(5) See to the following Wilhelmsen/Bull 2017 pp. 391–392. These issues were addressed in ND 2009.202 NA Bulford Dolphin with regard to the similar provision in Cl. 15-16 concerning loss of hire insurance under the war risk cover in case of blocking and trapping:
The drilling rig Bulford Dolphin was anchored off the coast of Nigeria in the Niger delta during a drilling operation. The rig was attacked by armed pirates. The attack resulted in loss of hire and costs to evacuate the rig. The owner claimed cover for loss of hire and mitigation costs from the war risk insurer, and argued that the rig was blocked and trapped by pirates in the Niger delta. The parties agreed that the rig was not anchored in a «port or similar limited area», but the assured claimed that the situation was nevertheless covered by the provision, due i.a. to the examples used in the Commentary. The Strait of Hormuz was of a size equal to Great Britain, and it was therefore difficult to see a reason to exclude the Great Lakes. The owner therefore argued that the wording of § 15-16 should be interpreted widely. The court, however, did not agree and argued that the Commentary illustrated the natural understanding of the expression «port or similar limited area» with the exception of the reference to the Strait of Hormuz. This reference could be explained by reference to the similar cover in the Norwegian War Risk Association which were presumed to cover this situation, and the Plan Committee did not want to depart from these conditions. This explanation did not provide a basis for a more general widening of the scope of § 15-16.
With this conclusion, it was not necessary to discuss whether non-physical blocking (threats) by pirates was covered, but the court also addressed those issues. The court referred to comments in the Commentary and concluded that these seemed to presume that non-physical blocking and trapping had to be performed by a foreign State power, in order to be covered.
The arbitration court therefore concluded that Cl. 15-16 only applies to non-physical hindrances if these are instituted by a foreign state power, and that blocking or trapping due to threats of attack by terrorists or pirates is not recoverable.