If your vessel suffers catastrophic damage, your insurance company may declare a constructive total loss depending on the cost and scope of repairs. This differs from an actual total loss and is based on established case law. And let’s not forget Sue and Labor, which provides additional coverage for your claim regardless of whether it is a total or constructive loss.
A total loss (or actual total loss) occurs when a vessel is completely destroyed. A vessel smashed to bits against rocks, destroyed by fire, or sunk in water too deep to allow recovery are all examples. When a covered total loss occurs, the owner will receive the full stated hull coverage amount on your policy. The deductible does not apply in a total loss.
A constructive total loss occurs when a vessel has suffered severe damage that, while potentially salvageable, would cost more to repair than the insured value. Examples include a fire that is extinguished but leaves severe smoke damage to the interior, water damage to mechanical and electrical systems, or structural damage to a wooden vessel’s frames and planks. There can be some negotiation with the adjusters. The vessel owner may find a shipyard that can complete the repair for less than the insurance company’s estimate, effectively canceling out the constructive total loss. If that happens, a satisfactory survey at the completion of repairs will be required for the insurance company to remain on the account. If the claim truly is a constructive total loss, you have the option to buy back the damaged vessel from the insurance company at a negotiated price, though the cost of repairs would then fall entirely on the owner.
A sue-and-labor clause provides additional coverage regardless of whether the loss is constructive, actual, or partial. This includes hiring mechanics to pickle an engine, renting shore storage to keep gear dry and secure, and making emergency repairs to prevent further damage. These expenses are not only covered, but your policy requires you to take reasonable steps to minimize further loss.
When a severe claim occurs, be prepared to receive a settlement for less than the cost of replacing your vessel with a new one. Talk to your agent to make sure you understand and are comfortable with what your coverage actually provides.
