Constructive total loss and abandonment

Ithaca Prospect LLC & Anor v Lloyd's Insurance Company SA & Ors [2026] EWHC 2700 (Comm) (21 October 2026)

Introduction

The Commercial Court has provided important guidance on what happens after a constructive total loss claim (CTL) is settled under a marine insurance policy. The decision highlights that payment of a CTL settlement will not necessarily amount to acceptance of a notice of abandonment.

The case is a reminder that shipowners should ensure any settlement agreement expressly addresses whether insurers are accepting abandonment. If that point is not clearly dealt with then disputes may arise about which party bears liabilities and benefits which would ordinarily pass to insurers following an accepted abandonment.

Background facts

The vessel Ithaca Prospect arrived at Mykolaiv shortly before Russia's invasion of Ukraine in February 2022. After the invasion the port was closed and the vessel became trapped. The vessel remained detained in Mykolaiv for more than twelve months.

The vessel was insured under a war risks policy. Before the invasion the insurers issued a notice of cancellation which brought cover at Ukrainian ports to an end from 2 March 2022. The owners were unable to agree terms for continuing cover and therefore purchased replacement war risks insurance at significant cost. The replacement premium exceeded USD 2.2 million.

Throughout the vessel's detention, the owners maintained a crew on board and continued to operate and preserve the vessel so that it would remain capable of leaving Mykolaiv if an opportunity arose. The owners later sought to recover the associated crew, bunker and other expenses as sue and labour charges under the policy.

After the vessel had been detained for twelve months the owners claimed for a CTL and served notices of abandonment on the insurers. The insurers rejected the notices of abandonment but indicated, subject to contract, that a valid claim for a CTL could in principle be advanced.

The parties subsequently entered into a settlement agreement. Under that agreement the insurers paid the insured value of USD 16 million. The vessel was then sold to a third party. The sale was carried out under the insurers' direction and the sale proceeds were credited to the insurers.

The owners subsequently sought to recover the replacement insurance premium and a range of expenses incurred while the vessel remained trapped, including crew costs, bunkers, legal expenses and other costs said to have been incurred in preserving the vessel.

Issues of law

Did the settlement agreement amount to an acceptance of abandonment?

The main issue was whether the insurers had accepted the owners' notices of abandonment. The owners argued that the insurers had effectively taken over the vessel after paying the CTL settlement and controlling the subsequent sale. The insurers argued that the settlement agreement was merely a commercial compromise and did not amount to an acceptance of abandonment.

If abandonment had not been accepted, could the owners recover the replacement insurance costs?

Under section 63 of the Marine Insurance Act 1906, an insurer who accepts abandonment is entitled to take over the assured's interest in the subject matter insured. Acceptance of a notice of abandonment takes effect retrospectively from the date of the casualty. The owners therefore argued that the replacement war risks insurance premium was an expense associated with ownership of the vessel which passed, or should be treated as having passed, to insurers from 24 February 2022. The insurers disputed this and argued that the notices of abandonment had never been accepted and that responsibility for the premium therefore remained with the owners.

Were the owners entitled to recover their expenses as sue and labour charges?

The Court also considered whether various costs incurred whilst the vessel remained trapped in Mykolaiv, including crew costs, bunkers and certain legal expenses, were reasonably incurred for the purpose of preserving the vessel and therefore recoverable as sue and labour charges.

Court findings

No acceptance of abandonment

The Court held that the insurers had not accepted abandonment.

The insurers had expressly rejected the notices of abandonment. They had also repeatedly stated that the owners remained responsible for the vessel unless and until the insurers chose to exercise any right to take over the owners' interest.

The Court found that the settlement agreement was a commercial compromise. It did not evidence a decision by insurers to accept abandonment of the vessel.

A key factor was the structure of the agreement itself. The insurers agreed to assume certain costs only from 24 February 2023. An accepted abandonment would have operated retrospectively from the date of the casualty on 24 February 2022. That inconsistency strongly indicated that abandonment had not been accepted.

Replacement insurance claim failed

Because there had been no acceptance of abandonment, the Court held that responsibility for the replacement insurance premium had not passed to insurers. The claim for the replacement war risks insurance premium therefore failed.

The Court nevertheless considered the position in principle. It concluded that the replacement insurance premium was capable of constituting an expense associated with ownership of the vessel. The insurance had been obtained to protect and preserve the owners' continuing interest in the vessel whilst it remained trapped in Mykolaiv.

Had the notices of abandonment been accepted, section 63 of the Marine Insurance Act 1906 would have entitled insurers to take over the owners' interest in the vessel, together with the associated benefits and burdens.

Sue and labour claim largely succeeded

The owners also sought recovery of various expenses under the sue and labour provision contained in the policy. The purpose of a sue and labour clause is to reimburse an assured for reasonable expenses incurred in averting or minimising a loss covered by the policy.

The Court found that the owners reasonably sought to keep the vessel ready to depart if an opportunity arose. There was a realistic prospect that conditions might improve and that the vessel could eventually leave Mykolaiv.

As a result:

• crew-related expenses were recoverable

• bunker expenses were recoverable

• part of the legal fees were recoverable

• port fee claims were rejected.

The Court's sue and labour analysis was heavily fact specific and turned largely on whether the expenses were incurred to preserve the vessel and facilitate a possible departure.

Comment

The Court held that payment of a CTL claim does not necessarily amount to acceptance of a notice of abandonment. The fact that insurers paid the insured value, directed the sale process and received the sale proceeds did not mean that they had accepted the notices of abandonment.

A key feature of the case was that the settlement agreement was a commercial compromise. The agreement provided that insurers would assume certain costs from 24 February 2023. That was inconsistent with an accepted abandonment, which would have taken effect retrospectively from the date of the casualty on 24 February 2022.

The decision is a reminder that owners should not assume that settlement of a CTL claim amounts to acceptance of abandonment. If the parties intend the rights and consequences of an accepted abandonment to follow, the settlement agreement should say so expressly.

Where owners wish insurers to assume rights, benefits and liabilities associated with the assured's interest in the vessel following an accepted abandonment, they should ensure that the agreement expressly provides for acceptance of the notice of abandonment. Absent clear wording, the Court may treat the arrangement as no more than a commercial compromise.

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