Abandonment and constructive total loss

The decision by an insurer to pay in respect of a constructive total loss without taking over the interest of the assured in a wreck requires careful consideration. In Dor noch Ltd v Westminster International BV [2009] EWHC 889 Admlty, Mr Justice Tomlinson rejected the proposition that an insurer will always have the protection of an equitable lien while it makes that decision. As a consequence the interest of those underwriters who had not elected to take over the wreck at the time of a sale by the insured was left unprotected. The case is discussed by Roger Stewart QC and Jonathan Hough of 4 New Square.

Dornoch Ltd: the facts

The enormous hopper-dredger, WD Fairway, was damaged in a collision off the coast of China in March 2007. The claimants were the excess layer insurers of a hull and machinery policy. On 27 March 2007, the first defendant owners tendered notice of abandonment to the insurers. The insurers declined the notice in the usual way. The wreck was then towed to a dockyard in Thailand. Subsequently, all the insurers subscribing to the policy paid their proportionate payments in respect of the constructive total loss. These sums had all been paid by 16 April 2008. In July 2008, the insurers also paid the owners’ salvage/wreck removal claim.