Updates from Spain on marine insurance: adding sue and labour expenses to a total loss claim beyond the amount insured only if agreed upon in the contract

Professional articles

In a recent decision of the Commercial Court of Madrid, the court held that the sue and labour expenses incurred while attempting to save a vessel were not recoverable in addition to a total loss claim where the policy explicitly included a limit on the indemnity.


Markus Gómez Dabic
Lloyd’s List

Owners of a barge set up an insurance contract containing ITCH 83 terms and specific conditions including a clause expressly limiting the maximum recoverable amount.

The vessel was involved in an operational accident, she sunk and was declared a total loss. The underwriters unsuccessfully attempted to avoid the loss by performing refloating operations worth 2/3s of the insured value and were only willing to reimburse owners for a total loss worth 1/3 of this value on the basis that the sum was the maximum recoverable amount. Owners objected on the grounds that the ITCH allowed to recover sue and labour expenses in addition to a total loss claim. Hence, they claimed for the remaining amount of the total loss claim.

The main issue for decision was whether owners could recover from underwriters the total loss claim in addition to the sue and labour expenses. The Commercial Court rejected the owner´s claim alleging a clause which set an overall limit to the total indemnity. This limit had been exhausted through the settlement of the sue and labour expenses and, therefore, the right to receive the remaining total loss claim had been exhausted, too.

The court states that, even though adding sue and labour expenses to a total loss claim surpassing the amount insured is possible, this must be expressly agreed upon in the policy. Given that the contract included an express limit to the indemnity which affected all aggregate claims under this policy, the reimbursement claim was dismissed.

The findings of this Judgment are consistent with Kuwait Airways Corporation v. Kuwait Insurance Co SAK, whereby the UK House of Lords held that where a limit on the indemnity exists, such limit must be applied to the aggregate of both primary losses and the sue and labour expenses.

While this decision contains nothing revolutionary, it confirms the general rule of sue and labour expenses: the maximum recoverable amount may exceed the insured value only where the contract does not include an express limit to the contrary.

This decision shall be welcomed by the insurance market dealing with Spanish interests as it is consistent with earlier UK case law and provides more certainty to underwriters.


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