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.

RELATED TERMS
  1. Abandoned Property

    Abandoned property is an asset that has been turned over to the ...
  2. Abandonment Option

    A clause granting parties the option of withdrawing from the ...
  3. Abandonment Value

    Abandonment value is the value of a project or asset if it were ...
  4. Unadjusted Basis

    Unadjusted basis is the original purchase price of an asset, ...
  5. Hammer Clause

    A hammer clause is an insurance policy clause that allows an ...
  6. Waiver Of Inventory Clause

    A clause in an insurance policy that says that the insurance ...
Related Articles
  1. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  2. Insurance

    Understanding your insurance contract

    Learn how to read one of the most important documents you own: your insurance contract.
  3. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  4. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  5. Insurance

    The Importance Of Property Insurance

    Property insurance is important, but there's a lot you need to learn in order to get the proper coverage.
  6. Insurance

    What To Do When Your Insurance Company Won't Pay

    Struggling to get a claim honoured? Find out what you can do.
  7. Insurance

    Insurance Coverage: A Business Necessity

    Don't go to work without this policy in place - especially if your work is in your home.
  8. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  9. Insurance

    The 5 Biggest Chinese Insurance Companies

    Read about the top Chinese insurance companies by market capitalization, and learn a little about their positions in the marketplace.
RELATED FAQS
  1. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center