Average total Loss (ATL)
An average total loss in marine cargo insurance occurs when the cost of repairing the damaged cargo or rescuing it is greater than the value of the cargo itself. In this case, the insured is entitled to claim the full value of the cargo from the insurance company.
There are two types of average total loss:
- Actual total loss: This occurs when the cargo is completely destroyed or lost.
- Constructive total loss: This occurs when the cost of repairing the damaged cargo or rescuing it is greater than the value of the cargo itself.
To determine whether an average total loss has occurred, the insurance company will consider the following factors:
- The cost of repairing the damaged cargo
- The cost of rescuing the damaged cargo
- The value of the cargo
If the cost of repairing or rescuing the cargo is greater than the value of the cargo, then the insurance company will declare an average total loss.
If the insured chooses to abandon the cargo, the insurance company will take ownership of the cargo and pay the insured the full value of the cargo. If the insured chooses to keep the cargo, the insurance company will pay the insured the cost of repairs, minus the value of the salvage.
Here are some examples of average total loss in marine cargo insurance:
- A ship carrying a cargo of electronics sinks in a storm. The cargo is completely destroyed, so the insurance company declares an average total loss.
- A cargo of perishable goods is damaged in a fire on board a ship. The cost of repairing the damaged cargo is greater than the value of the cargo, so the insurance company declares an average total loss.
- A cargo of computers is stolen from a warehouse. The insurance company is unable to locate the stolen cargo, so it declares an average total loss.
Average total loss claims are relatively rare in marine cargo insurance. However, they can be very costly for insurance companies, so it is important for insurers to carefully assess the risk of average total loss before issuing a policy.