WHAT IS 'Abandonment and Salvage'

Abandonment and salvage describes the forfeiture of property and the ensuing claim over that property by a second party.

BREAKING DOWN 'Abandonment and Salvage'

Abandonment and salvage can be added as a clause in an insurance contract, which gives the insurer the ability to accept the abandoned property. Abandonment must be expressed with intent. The potential financial rewards mean that salvage rights are sometimes legally contested by several parties. Salvage and abandonment clauses are usually found in marine insurance contracts.

Examples of abandonment and salvage

In marine insurance the insured has the right to abandon the property subject to acceptance by the insurer, thereby claiming a total loss. The insurer pays a total loss then takes over the salvage as owner regardless of any amount received from its subsequent sale. Non-marine policies usually prohibit abandonment by the insured and claiming total loss. However, the insurers may waive this condition in appropriate circumstances if merited. For example, if a vessel sinks it would be too expensive to reclaim, it could be declared abandoned. The insurer could then claim ownership and salvage rights to the sunken ship. Advancements in technology have made it possible and financially viable to reach previously inaccessible wrecks, resulting in increased salvage claims. Or, cargo on a vessel may be damaged by insured peril such as lightning or being washed overboard, resulting in is total loss of the cargo. The insured files the claim, and the insurer settles the claim for the total loss. The insured must transfer all rights, ownership and interest of the damaged cargo to the insurer. The insurer becomes the owner of the damaged remaining cargo, which is known as salvage. And this process of transfer of rights is called subrogation.

Partial loss and salvage

With partial loss and salvage, the insured can claim only the amount of the loss or damage sustained. They cannot abandon the property and claim full value. If the insured surrenders the remains of the property and the insurer also agrees to accept the salvage, the claim would be paid in full and the insurer would become owner of the salvage. In cases of clear cut total losses, insurance would pay in full, so the insurer is entitled to the benefit of the salvage. With an underinsured total loss, the insured would not be fully covered. They would be entitled to salvage, but only to the extent that the loss payment plus the value of salvage does not exceed the full loss or actual indemnity. With full coverage, the loss would be paid in full. The insurers become the absolute owners of the salvage, if any, and the total sale proceeds belong to them even though the proceeds may be more than the amount of the claim paid.

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