What is Valued Marine Policy?
A valued marine policy is a branch of marine insurance that assigns a value on the insured property before the occurrence of loss or damage. Marine insurance is a form of marine policy that covers ships or cargo from the risk of loss or damage during transit. It manages the risk associated with accidents, such as loss or damage to the property, ship, terminal, or environment, and loss of life.
If the insurer cannot associate the loss or damage to fraud, it is required to pay the policyholder a sum equivalent to the specified value determined before the loss occurred. A valued marine policy differs from an unvalued marine policy, which requires the policyholder to produce invoices, estimates, and other evidence to help prove the loss after its occurrence.
- A valued marine policy is a type of marine policy that assigns a predetermined value on the subject matter insured.
- If the insured event occurs, the insurer pays a fixed amount specified in the policy document.
- A valued marine policy does not require a reassessment or re-evaluation if the insured event occurs.
Understanding Valued Marine Policies
The valued marine policy is a policy cover where an insurer assigns a predetermined value on the property or asset, and the value is assumed to be the value of the insured property if a loss occurs or it is damaged. The property’s value is indicated on the policy documents, and it eliminates any queries or disagreements between the insurer and the policyholder regarding the sum to be paid as settlement for the total loss of the insured property.
The policy document includes terms such as “valued” or “so valued” to specify the type of marine insurance. Usually, a valued marine policy does not include a provision for a reassessment of the insured property if the insured event occurs.
Insurance coverage for items such as jewelry, antiques, fine arts, or personal property is treated as a valued marine policy since the items possess sentimental value. For items with a historical value such as a masterpiece, the policyholder should ascertain that the insured value is the new replacement value at the destination. It ensures that the policyholder receives the full protection of the declared value from the insurer.
The insurer pays a fixed reimbursement amount for the insured property, regardless of the value of the loss at the time the insured event occurred. Even if the value of the property depreciates or appreciates during transit, it will not affect the amount that can be claimed in the event of a loss.
The Marine Insurance Act of 1906
The Marine Insurance Act of 1906 is an act of parliament in the United Kingdom that regulates marine insurance, which includes both ships and cargo. The act is not only used in the United Kingdom, but it’s also been the basis of maritime insurance laws in other countries.
The Marine Insurance Act set out the difference between valued and unvalued marine policies. A valued policy assigns a fixed value on the subject matter insured. The subject matter insured should be stated in the policy document with reasonable certainty. However, the extent of the interest in the subject matter is not required to be specified in the policy.
For an unvalued marine policy, the value of loss or damage of insured property is assessed after the policyholder files a claim. If the claim is approved, the insurer will reimburse the insured for the value of loss or damage assessed.
During periods of inflation, policyholders with a valued marine policy stand to get better rates than policyholders with an unvalued policy who may receive a reduced value of what the subject matter insured was worth at the time of taking the policy.
Actual Total Loss and Constructive Total Loss
Both terms are used to describe the extent of loss or damage to the subject matter insured. An actual total loss occurs when the insured property is damaged to the extent that it is impossible to repair or recover the property for further use. It means that the cost of repair is equal to or exceeds the value of the property.
When actual total loss is ascertained, it triggers maximum settlement according to the terms indicated in the policy document. Generally, the property insured can be destroyed or damaged in a cargo fire, sinking in the sea by a storm, or sinking in the deep sea through a collision with another ship.
On the other hand, constructive total loss occurs when the cost of repairing the damaged property exceeds the current value of the property. It means that the extent of the damage is so advanced that the cost of repair would be equal or more than the current value of the asset or its insurance limit.
A constructive total loss is common when there is a collision in the deep sea or a total wreck due to a storm. When such a loss is ascertained, the insurer reimburses the full value of the marine policy.
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