Property Insurance: calculation of total loss

In the High Court case of Blackspear Holdings (Pty) Ltd v SASRIA the debate revolved around the proper interpretation of the total loss clause:

“‘2.        Total loss

In the event that the insured property is totally lost or destroyed the amount

payable shall be the cost of removing the damaged property (limited to the

removal costs of 15% of the claim) less the value of the remains plus

(a) … cost of replacing or reinstating on the same site property of equal

performance capacity and age but not superior to or more extensive than the

insured item insofar as is practicable . ..”

It was common cause: that the insured had suffered a total loss underground; that it was uneconomical to recover the insured property from the mine; that the insured would not be indemnified for the cost of removing the equipment from where it was; and that the damaged equipment had no residual value.

The court said that, when striving for businesslike sense, the concept of a total loss or total destruction relates to the utility of the insured property.  That construction accommodates the notion of residual value and the scrap.  A total loss does not necessarily require that the property has to have literally disappeared.

Where scrap is accessible and may have another use it has a residual value which can be set off against the utility value of the property.  Where however the scrap is inaccessible that factor has no practical application.

That interpretation recognised the predicament of the insured party and provided compensation commensurate with the loss consistent with the purpose of a contract of insurance. 

Where the contract of insurance was concluded to provide for equipment situated underground, the parties to the contract must be taken to have contemplated the circumstances of those goods.  On the facts, the compensation was not required to take account of the cost of removing the equipment from the underground site nor its scrap value.

This judgment is a sequel to the earlier judgment discussed here in which the court ordered Sasria to pay the insured the sum of its proven damages