Constructive Total Loss - What Is It?

Recent updates estimate that as many as 12-15 vessels trapped in Ukraine will likely be declared constructive total losses if fighting continues until August. If so, market sources indicate that marine insurers could be hit with losses provisionally estimated at tens of millions of dollars. That number increases to another dozen or more if the Russian incursion is not over by February 2023, depending on whether the war risk insurance policies specify six months or 12 months as the applicable period of abandonment.

But what exactly does that mean? What is a constructive total loss? A constructive total loss can occur in any type of property policy. In marine insurance, the ship, aka the hull or vessel, is property, as is its cargo. Simply stated, property may be declared a constructive total loss when the estimated costs for its repair exceed its insured value. Sometimes, it falls to the courts to determine whether a constructive total loss is appropriate. Below is a review of cases for various lines of business concerning constructive total losses.