Position of salvage

In case of claims under various types of insurance policies, the partly damaged goods or the wreck of a car or any machinery or any other property settled on Total Loss Basis is known as “Salvage”. After settling the claim for the full amount the salvage becomes the property of insurance company. Generally, the job of salvage disposal is entrusted by the insurance company to the surveyor who carried out the loss assessment, subject to observance of procedure for salvage disposal. The amount realized through salvage disposal will be set off by insurer against losses paid by them. http://www.policyholder.gov.in/Faqlist.aspx?CategoryId=79

Marine Insurance: One of the complete definition of “salvage” is given by Geoffrey Brice, QC in his book ‘Maritime Law of Salvage’: The right to salvage arises when a person, acting as a volunteer, preserves or contributes to preserving at sea any vessel, cargo, freight or other recognized subject of salvage in danger. “Salvage” has been defined in different ways, there are four essential features incorporated into all of the definitions: (1) a volunteer, (2) with the purpose of preserving, (3) a recognized subject of salvage, (4) which is in danger.

Salvage is a basic principle of insurance. It means once a claim for a damaged item has been paid, the insurer takes ownership of the item. The insurer usually offers the damaged item for commercial sale to reduce its loss (i.e. amount it paid to the claimant).

The practice of taking salvage for damaged items is common in motor vehicle insurance claims. When a car is written off and the insurer pays the claim, it takes possession of the damaged car and sells it. The proceeds from the sale of the damaged car are to the insurer’s benefit which offsets the claim amount paid to the policyholder.

Although salvage is common in motor vehicle insurance claims, it can occur in many other types of claims; e.g. household contents, business stock / inventory, machinery, marine and travel insurance.

It is a condition within the policy that the insurer retains the right to ask the claimant to send damaged items to it upon request. There are two reasons for this:

1. The insurer may wish to inspect the item to verify the damage and to determine if it is repairable.
2. If the item is irreparably damaged and the value of the item paid to the claimant, the insurer may look to offset its loss by offering the item for sale.

In travel insurance, the items an insurer may consider for salvage include electronic devices such as laptops, tablets, cameras and mobile phones. This is because even though the item may be irreparably damaged, it still has a commercial value for parts. Salvage may be considered for any type of property (not just electronics). If the insurer considers the damaged item has any realizable value, it will consider the salvage potential.

Marine Salvage is the process of rescuing, repairing and refloating a ship, its cargo and crew and other properties from unforeseen imminent peril. Ship salvage operations are mandatory and must be accomplished rapidly and without delay in order to repair, remove ship wreck and clear out the passage for further navigation and also reduce marine pollution. There are a few types of composite marine salvage processes.

1. Offshore Salvage - These operations include stranded or sunken ships in open waters and are challenging as the ships would be exposed to sea waves and weather. The procedure may take months as the hostility of the nature could hinder the workflow with frequent intervals between work-shifts due to unusual tides or bad weather.
2. Harbor Salvage - This is less challenging for the operations cover stranded or sunken ships in sheltered water and are unhindered by the natural conditions like weather or waves and currents. Unless it’s too necessary to clear out the passage for navigation there is not much need to hasten the process. Also harbor salvage is not much time consuming.
3. Cargo Salvage - This is even more important than salvaging the ship itself, as the cargo onboard may pose an imminent threat to the marine environment. The priority is to get rid of any hazardous element and save any expensive material as much as possible before it gets dumped in the water, beyond further repair.
4. Equipment Salvage - Salvaging large machinery components like engines, turbines, driving systems by dissecting, disassembling or destructing the hull if this equipment survive the intrusion of seawater.
5. Ship Wreck Salvage - This is a low priority task. The objective is to disembarrass the water area of hazardous or unsightly substances using the most practical and cheapest method possible. One of the most common methods is to cut the hull into very small sections and refloat the parts and scuttle it in deeper waters.
6. Afloat Salvage - When a ship is damaged but still floats in the water the salvage operation is called afloat salvage. This doesn’t take a toll of challenging exertions as the work involve damage controlling and primary repairing tasks like the hull welding, stabilizing by rebalancing ballast tanks and shifting cargo and structural bracing. The purpose and the path of the ship might get a little disrupted but it can remain underway with a timely afloat ship salvage operation.
7. Clearance salvage - These operations are carried out as the aftermath of catastrophic events like Hurricane, Tsunami, and War etc. In clearance salvage a number of ship wrecks are scavenged or removed coordinately to clear out the passage in a harbor or waterway that can be blocked for navigation by multiple obstructions with ships’ varying degrees of damage due to events like fire, collision, or explosions etc.

When settling the claim, an insurance company pays the value of a damaged item, they have a right to take possession of it. However, the insured party has first option on any salvage. This means that if the insured want to retain the item, then the insured can make a salvage offer to the insurance company. If the company accepts the offer, the insured can keep the item in addition to the claim payment.

Whilst an insurer retains a right to the salvage if they pay claim, they won’t always exercise it. If they do, the insured is legally obliged to comply with their request to hand over the item as part of the claim settlement process and terms of the insurance policy.

Salvage is an ancient concept, evolved with time and adapted technological and human changes, particularly with respect to environmental damage. It is expected that with the introduction of new technologies and changes in the way we protect our environment, this will continue to evolve. Property and liability insurers will continue to play a crucial role in creating and maintaining proper incentives. An insurer’s ultimate liability assures that it is a final party who maintains an incentive to lobby and fight for fair and evolving salvage concepts.