Suez Fortune Investments Ltd & Anor v Talbot Underwriting Ltd & Ors Re: M/V Brillante Virtuoso

For a constructive total loss, the court must ask what a prudent uninsured owner would have done, including where and how the vessel would have been repaired. The assessment is not confined to a precise arithmetical comparison. A substantial margin may be allowed for risks and uncertainties which such an owner would reasonably consider. The relevant repair costs may include cleaning, towage, salvage, insurance and other necessary expenditure. A sale does not defeat a constructive total loss claim where the assured acts in the interests of both parties and accounts for the proceeds. Under an express policy provision referring to market-value depreciation, an unrepaired partial-loss indemnity is measured by actual market depreciation, not the insured value. Sue and labour expenses remain recoverable while the insured peril continues, but the entitlement ends when proceedings are issued.

The owners of the tanker Brillante Virtuoso and its mortgagee claimed under war-risk insurance after the vessel was attacked, disabled and seriously damaged by fire. They claimed primarily for a constructive total loss and alternatively for partial loss, loss of hire and sue and labour expenses.

The trial was split. This judgment determined whether the vessel was a constructive total loss, whether the sale defeated that claim, the alternative partial-loss measure, loss of hire and sue and labour issues. The insurers’ remaining coverage defences were reserved for a later trial.

1. Constructive total loss. Under section 60(2)(ii) of the Marine Insurance Act 1906, as modified by clause 19 of the policy, the issue was whether repair costs would exceed the insured value of US$55 million. The court had to assess what a prudent uninsured owner would have done, including the appropriate place and method of repair.
2. The prudent uninsured owner would have repaired in Dubai or elsewhere in the Middle East. Cost was important but not determinative. The court considered the risks and cost of a long tow to China, possible pollution, delay, cost overruns, yard reputation, loss of income and the vessel’s position after repair.
3. The assessment was not an exact arithmetical exercise. Applying Angel v Merchants Marine Insurance Co, a substantial margin was appropriate for risks and uncertainties which could not be precisely quantified. This did not reverse the burden of proof or give the assured the benefit of the doubt.
4. The costs included cleaning and gas-freeing, removal of contaminated ballast, salvage, towage, insurance, replacement equipment and standby tugs. The cost of repair was assessed at about US$64.4 million in the Middle East and US$53 million in China. Adding salvage and standby-tug costs produced totals exceeding the insured value. The vessel was therefore a constructive total loss.
5. The owners did not lose the right to claim by selling the vessel. The insurers knew of and did not object to the proposed sale. The owners acted for the interests of both parties and intended to account for the sale proceeds. The sale was therefore not inconsistent with the notice of abandonment: Royal Boskalis NV v Mountain.
6. Partial loss. Clause 18 measured unrepaired damage by reasonable market-value depreciation. The proper calculation was the agreed sound value less the agreed damaged value, producing a maximum indemnity of US$9.5 million. The insured value was not the relevant measure.
7. Loss of hire. The policy excluded loss of hire where the occurrence caused an actual or constructive total loss. If the vessel had suffered an unrepaired partial loss, the repair provisos in LPO 454 would not have required repairs as a condition of cover. The Wondrous did not require a different construction.
8. Sue and labour. After salvage redelivery the vessel remained a dead and disabled ship outside a place of safety. The original insured peril continued to operate, and employing two standby tugs was reasonable and necessary. Salvage, standby-tug and agency expenses were recoverable until the claim form was issued. The claim form was the watershed after which sue and labour expenses were no longer recoverable. The insurers’ alleged election to take over the vessel was rejected.
9. The court concluded, subject to the reserved coverage defences, that the vessel was a constructive total loss and that the claimants were entitled to indemnities for salvage and standby-tug and agency costs up to 8 February 2012. Consequential matters were reserved for further submissions.

First-instance Commercial Court judgment. The court ordered a split trial and reserved the insurers’ remaining coverage defences for a later stage.