UK: The Significance Of Taking Out A Valued Policy In The Present Economic Climate

Last Updated: 12 December 2008

Under the Marine Insurance Act 1906, a distinction is made between valued and unvalued policies of insurance. Pursuant to section 27 (2) of the Act 1906, "a valued policy is a policy which specifies the agreed value of the subject-matter insured". Pursuant to s 27(3) of the Act, in the absence of fraud, the value fixed by the policy will be conclusive, as between the insurer and assured, of the insurable value of the goods or vessel in question.

By contrast, section 28 of the Act 1906 defines an unvalued policy as "a policy which does not specify the value of the subject-matter insured, but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained..."

In other words, a valued policy will specify the agreed value of the subject matter, whilst an unvalued policy will state merely the maximum limit of the sum insured and leave the insurable value to be ascertained subsequently.

The main difference between the two types of policy is that in the case of a valued policy, the value fixed by the policy will, in the absence of fraud, be conclusive of the insurable value of the subject insured, while in the case of an unvalued policy the value of the insured goods has to be proved by production of invoices, vouchers, estimates and other evidence. In the case of an unvalued policy, the insurable value of goods is the prime cost of the goods, plus the expenses of and incidental to shipping and the charges of insurance upon the whole.

Furthermore, under section 68 (2) Act 1906, "if the policy be an unvalued policy, the measure of indemnity is the insurable value of the subject matter insured". Whilst this appears at first instance to be the logical way to measure the amount payable under the insurance policy, it does raise the question of how adversely ship-owners will be affected by the falling market rates for their vessels in the event they make a claim under an unvalued policy relating to the vessel. They may find that any recovery they make will be only a fraction of what the vessel was worth at the time they took out the policy and as a result they could face significant losses.

That is why it is doubly important for those seeking to take out cover for their vessels to ensure they obtain the appropriate cover with the requisite wording. Whilst the distinction between valued and unvalued policies seems to be clear, the identification of a policy as being of one or the other type has proved far from clear-cut as can be seen from some of the case-law.

In the case of "Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Assoc (Europe)" [2000] 1 LLR 505, it was held that the words "agreed value" or "valued at" were not necessary to create a valued policy provided that the parties' intentions were clear that there was a specified agreed value, proposed by the assured and accepted by the underwriter. On the other hand, the court added that the use of the term "sum insured" would normally indicate the amount for which the subject matter was insured and not as specifying the agreed value. That sum would the ceiling of recovery.

In "Thor Navigation Inc v Ingosstrakh Insurance" [2005] EWHC 19 (Comm), there were two fleet policies of hull and machinery insurance. One policy, issued by the Russian insurer, Ingosstrakh, covered 40% of the risk. The remaining 60% was insured by a second policy issued by Ingosstrakh's German subsidiary. The policies provided cover in materially identical terms and set out details of each vessel insured, its owners, the particular cover terms applicable to that vessel and a "sum insured" for each vessel. The "THOR II" was listed with a sum insured of US$1.5 million. In 2002, it was immobilised by a broken shaft and main engine damage and the repairs were estimated to cost US$2 million. The ship-owners gave notice of abandonment as the repairs were expected to cost more than the sum insured. They argued the vessel was a constructive total loss.

The insurers declined the notice as they believed the vessel could be repaired for less. The owners subsequently sold the vessel for scrap. One issue arising in the subsequent legal proceedings was whether the policies were unvalued policies as the insurers claimed. The court had to consider whether failing to use the words "agreed value" or "valued at" were conclusive. It held that it was not essential that these words were used in order to create a valued policy, provided the intention of the parties was clear. However, the term "sum insured" would not normally be treated as specifying the agreed value of the subject matter insured; rather, it fixed a figure by which the premium could be calculated and established the limit of recovery. Without reference to any words of valuation though, the policy remained unvalued. Consequently, the court held that the appropriate measure of indemnity in this case was the market value of the vessel at the time and place of her loss.

In the very recent Australian case of "Vero Insurance NZ Ltd v Posa" (unreported but decided in August 2008), the issue of whether a policy was for an agreed value arose again. The case is relevant to English insurance law practitioners because the New Zealand Marine Insurance Act is in all material respects similar to the English Marine Insurance Act 1906.

In that case, Mr. Posa's pleasure craft was destroyed by a fire at his home. The insurer sought to avoid the policy on the grounds inter alia of failure to disclose material information at previous renewals of the policy, including an alleged failure to inform the insurer about previous unsuccessful attempts to sell the vessel below the market rate. Whether this disclosure was material depended partly on whether the policy was for an agreed value.

The policy schedule stated that the "sum insured" was $105,000, that the total liability of underwriters should not exceed this amount and that "the agreed value would be used to help Vero measure the amount of the loss". The conditions in the policy provided inter alia that underwriters could settle up to the sum insured specified in the schedule and that if there was a total loss, they would not deduct for depreciation in determining the value of the vessel.

The judge in that case relied on the decision in "Thor v Ingosstrakh" and found there was insufficient intention to fix a value for the vessel in the policy terms. Rather, he held that the terms of the cover did no more than fix a maximum amount that could be paid out and the insurable value remained subject to determination at the time the claim was made. The policy was therefore unvalued.

In that case, the decision worked in the assured's favour in that it meant the underwriters were not entitled to avoid the policy on the grounds of material non-disclosure by the assured at the renewal of the policy. However, where such circumstances do not apply, the assured is likely to lose out where his policy is unvalued, particularly in the present economic climate. It is important, therefore, that the language used in policies is clear in identifying whether a policy is valued or unvalued and the provisions in the policy should be consistent so as to leave no room for doubt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.