The Measure of Indemnity

In one line

The measure of indemnity is the most the assured can recover, and sections 68 to 71 say how it is calculated for a total loss, for a damaged ship, for lost freight and for damaged goods.

In the wording a student can write in an exam: by section 67 the measure of indemnity is the sum the assured can recover in respect of a loss, being the full insurable value under an unvalued policy or the value fixed by the policy under a valued one, and each insurer is liable for the proportion of it that his subscription bears to that value; sections 68 to 71 apply it to a total loss, a partial loss of ship, of freight and of goods; section 76 governs a policy warranted free from particular average; section 77 deals with successive losses; and section 78 with the suing and labouring clause.

The measure defined: section 67

Section 67(1) provides that the sum which the assured can recover in respect of a loss on a policy by which he is insured, in the case of an unvalued policy to the full extent of the insurable value, or in the case of a valued policy to the full extent of the value fixed by the policy, is called the measure of indemnity.

Section 67(2) provides that where there is a loss recoverable under the policy, the insurer, or each insurer if there be more than one, is liable for such proportion of the measure of indemnity as the amount of his subscription bears to the value fixed by the policy in a valued policy, or to the insurable value in an unvalued one.

Section 67(2) is the co insurance arithmetic, and it works with section 26(2), which makes each subscription a distinct contract. An underwriter who has written twenty per cent of a policy pays twenty per cent of the measure of indemnity, no more and no less.

Total loss: section 68

Section 68 provides that, subject to the Act and to any express provision in the policy, where there is a total loss:

(1) if the policy is a valued policy, the measure of indemnity is the sum fixed by the policy; and

(2) if the policy is an unvalued policy, the measure of indemnity is the insurable value of the subject matter insured, ascertained under section 18.

That is the whole of the departure from strict indemnity. In a valued policy the agreed value is paid whether the true value was more or less, subject to section 29(3)'s exception for fraud.

Partial loss of ship: section 69

Section 69 gives four rules, and which one applies depends on what the owner did with the ship.