Kastor Navigation Co Ltd & Anor v AXA Global Risks (UK) Ltd & Ors

A constructive total loss exists when the statutory conditions are met. Its existence is distinct from the assured’s later right to claim an indemnity as for a total loss. Where a notice of abandonment would provide no benefit to insurers, Marine Insurance Act 1906, section 62(7), excuses notice. It does not impose a separate requirement for a prior subjective election to abandon.

An assured does not treat a constructive total loss as a partial loss merely by initially claiming an actual total loss. A properly maintained constructive total loss caused by an insured peril is not merged into a later actual total loss caused by an independent peril. The merger rule for unrepaired partial loss does not apply.

On costs, a successful claimant’s Part 36 result does not displace the court’s discretion as to incidence. An issue-based order must nevertheless reflect all the circumstances and cannot be applied mechanically.

The owners and mortgagees of the Kastor Too claimed under marine insurance after an engine-room fire and the vessel’s subsequent sinking. The insurers accepted that the fire was accidental but contended that it did not cause the sinking, which resulted from an unexplained and non-fortuitous ingress of seawater.

Tomlinson J held that the fire had not caused the actual total loss, but that it had caused a constructive total loss before the sinking. He awarded the agreed value. His merits judgment was [2002] EWHC 2601 (Comm); his costs judgment was [2003] EWHC 472 (Comm).

The insurers appealed the constructive-total-loss finding. The owners cross-appealed the costs order, which had left them liable for a substantial net proportion of the insurers’ costs despite recovering their claim and bettering a Part 36 offer.

1. The insurers’ appeal was dismissed. The judge was entitled to find that fire damage had made the vessel a constructive total loss at a material time before, and independently of, the actual total loss by sinking. The evidence supported the finding of two separate casualties, rather than one indivisible casualty.

2. The court held that the existence of a constructive total loss under Marine Insurance Act 1906, section 60, is distinct from the assured’s right to claim it as a total loss under sections 61 and 62. Since notice of abandonment was admittedly unnecessary under section 62(7), the owners did not have to make a separate mental election before the vessel sank. The question was whether they had treated the fire loss as partial. They had not. Their original claim for an actual total loss was consistent with their willingness ultimately to cede the vessel to insurers and did not amount to an irrevocable election or estoppel.

3. The rule in section 77(2), and the corresponding rule concerning unrepaired damage, concerns an unrepaired partial loss followed by a total loss. It does not merge a constructive total loss which the assured is entitled to treat as total into a subsequent actual total loss caused by an independent peril. Once the insured peril had caused a valid constructive total loss, the owners had an accrued cause of action. Payment would exhaust the insurance but would not give a double recovery.

4. Clause 18.2 of the Institute Clauses did not assist the insurers. Read in context, its reference to unrepaired damage addressed partial loss, not a constructive total loss properly treated as total.

5. The cross-appeal on costs was allowed. CPR 36.21 concerned the basis of assessment of costs awarded, not the basic incidence of all costs. Although the owners had unsuccessfully pursued the costly actual-total-loss case, the judge had applied issue-based costs too mechanically. He should have stood back and weighed all the circumstances, including the owners’ overall success, their Part 36 offer, and the insurers’ late response to the constructive-total-loss claim. The fair order was no order for costs below. The insurers were ordered to pay 70 per cent of the owners’ appeal costs.

• Court of Appeal (Civil Division): insurers’ appeal against the constructive-total-loss judgment dismissed; owners’ cross-appeal on costs allowed.
• Commercial Court: Tomlinson J held that there was no actual total loss caused by fire but that the vessel was a constructive total loss by fire: [2002] EWHC 2601 (Comm), [2003] 1 All ER (Comm) 277, [2003] 1 Lloyd’s Rep 296. He subsequently made an issue-based costs order: [2003] EWHC 472 (Comm).