[edit] Supreme Court Decision 2000Da21062 delivered on June 28, 2002 [Insurance Proceeds]
【Main Issues】
[1] Requirements under England's Marine Insurance Act of 1906 (hereinafter the "Marine Act") for the insurer's exemption from insurance liability due to unseaworthiness and who has the burden of proving that such requirements are met (=insurer)
[2] The meaning of the insured's "privity" under the Marine Act as a requirement for the insurer's exemption from insurance liability due to unseaworthiness
[3] A precedent that, despite findings of unseaworthiness and the insured's privity, rejected the insurer's claim for exemption due to the lack of seaworthiness whose rejection was based on the lack of a substantial causality between unseaworthiness and the insured peril
[4] The basis for determining repair cost to be included into the constructive total loss for purposes of Article 60(2)(ii) of the Marine Act and the point in time to be used for such determination
[5] Who has the burden of proving the requirements under Article 60(2)(2) of constructive total loss (=the insured) and the specific burden to be met
[6] The meaning of a ship's "cost of repairs" under the Marine Insurance Act and the Institute's Marine Time Policy Clause
[7] A precedent that reversed the judgment of the court below in its finding of the constructive total loss, based on the presence of error as to the point of time used for such determination and the insufficiency of objective investigation into the ship's cost of repairs
【Summary of Decision】
[1] Article 39(4) of the Marine Insurance Act states: "A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured," and Article 39(5) thereof states: "In a time policy, there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness." In other words, under the Marine Insurance Act, seaworthiness in the context of a marine insurance is a relative concept meaning "at the time of the insurance able to perform the voyage unless any external insured peril should happen." Furthermore, under the Act, there is no definite or absolute standard for determining whether a ship is seaworthy, and such notion must be determined on relative terms or with respect to the special circumstances surrounding a specific voyage. In addition, the Act recognizes, as a matter of default, that under a voyage policy unseaworthiness exempts the insurer from insurance liability while it does not make a default recognition of such implied exemption under a time policy, except where the insured caused the voyage to proceed despite having privity of the ship's unseaworthiness. Therefore, pursuant to the principles of the Act, in order for an insurer to find exemption under a marine time policy, by reason of unseaworthiness, the damage must have been caused by unseaworthiness, the insured must have had privity of such unseaworthiness, and there must be causality between such unseaworthiness and the insured peril. (i.e. the whole or part of the damage was caused by such unseaworthiness.) Furthermore, pursuant to the principles of the Act, the insurer bears the burden of proving that the foregoing requirements are met.
[2] The insured's "privity," which is one of the requirements for the insurer's unseaworthiness-related exemption from insurance liability, is an Anglo-American concept. The concept indicates the knowledge of not only what caused the unseaworthiness of a ship, but also that due to such causes the ship was made unable to withstand the normal dangers on the sea, i.e., the fact of the ship's unseaworthiness. As such, the concept includes the notion of not only "positive knowledge of unseaworthiness," but also "turning a blind eye to unseaworthiness."
[3] The present ruling represents a precedent, which, despite findings of unseaworthiness and the insured's privity, rejected the insurer's claim of exemption due to the lack of seaworthiness whose rejection was based on the lack of substantial causality between unseaworthiness and the insured peril.
[4] With respect to the constructive total loss, Article 56(1) of the Marine Insurance Act states, "A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss;" Article 56(2) thereof states, "A total loss may be either an actual total loss, or constructive total loss;" Article 60(1) states, "Subject to any express provision in the policy, there is constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred;" Article 60(2)(ii) provides, "In particular, there is constructive total loss - In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired. In estimating the cost of repairs, no deduction is to be made in respect to general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired;" Article 12-1 of the Institute's Marine Time Policy Clause states, "No claim arising from a peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence exceeds … in which case this sum shall be deducted;" and according to the language of and customs relating to the Marine Insurance Act, a finding of constructive total loss should be based on the objective facts and circumstances at the time of the notice of abandonment, and not on the facts as subjectively known to the insured. The point in time used for finding constructive total loss should be the time "at the commencement of the action" of an insurance claim, not the time of the notice of abandonment unless the insurer causes the insured to expressly consent to acknowledging the time of the notice of abandonment, or the time of rejection of such notice, as the point in time at which the causes of action have accrued.
[5] Pursuant to the principles of the Marine Insurance Act, the insured must prove whether a particular insured peril meets the requirements of constructive total loss and submit evidence that his cost of salvaging and repairing the ship exceeded the amount of insured value. In light of the purpose of Article 55(1) of the Act, which states that "unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but subject to the aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against," and the principle of substantial causality between the insured peril and the insured's property damage, the cost of repairing a ship should be limited to the losses incurred by the insured peril, and exclude the cost of repairs not incurred by the insured peril. Therefore, in order to claim abandonment on the basis that the insured peril caused a constructive total loss, the insured must establish as a threshold matter that the ship would not require repair unless the insured peril materialized and also the cost of repairs made subsequent to the insured peril. If the insured fails to prove the absence of a defect prior to the occurrence of the insured peril, the insured must specify the portion of the ship damaged by the insured peril and provide specific proof of the repair cost incurred as a result thereof.
[6] The ship's "cost of repairs" under the Marine Insurance Act and the Institute's Marine Time Policy Clause, as used for determining whether the notion of the constructive total loss is applicable, means the cost incurred to restore the damaged ship to its original condition. Such cost includes the cost of appraising the damaged portion of the ship and the extent of such damage, the cost of towing the ship to the dock of repair, the cost incurred by the inspector to classify the ship, the cost of issuing the towage certificate, the cost of the supervisor of repair and other costs incidental to repair. The extent of repair required here is not the extent necessary to transport an equal amount of cargo, but the extent necessary for the ship to make a voyage to the intended destination, whether without load or with load. Under the English law, the cost of repairs must be computed by accounting for all circumstances relating to the ship at the time and place of the insured peril, and it should be noted that the repair cost as determined at the place of the ship is controlling. If the repair cost is computed according to the Institute's Marine Time Policy Clause, the increase in repair cost due to the ship's age or wear and tear is not deducted; however, if the repair may make the ship voyageable at a cost less than the value of the ship following the repair, the insured cannot opt for a constructive total loss by claiming abandonment on the ground that the cost of completely repairing the ship, including with respect to the wear and tear, is greater than the value of the ship following the repair.
[7] A precedent that reversed the lower court decision in its finding of the constructive total loss, based on the presence of error as to the point of time used for such determination and the insufficiency of objective investigation into the ship's cost of repairs.
【Reference Provisions】 [1] Articles 39(4) and 39(5) of the Marine Insurance Act / [2] Articles 39(4) and 39(5) of the Marine Insurance Act / [3] Articles 39(4) and 39(5) of the Marine Insurance Act / [4] Articles 56(1), 56(2), 60(1) and 60(2)(ii) of the Marine Insurance Act and Articles 638 and 710 of the Commercial Act / [5] Articles 56(1), 56(2), 60(1) and 60(2)(ii) of the Marine Insurance Act and Articles 638 and 710 of the Commercial Act / [6] Articles 56(1), 56(2), 60(1) and 60(2)(ii) of the Marine Insurance Act and Articles 638 and 710 of the Commercial Act / [7] Articles 56(1), 56(2), 60(1) and 60(2)(ii) of the Marine Insurance Act and Articles 638 and 710 of the Commercial Act
【Reference Cases】 [1] Supreme Court Decision 94Da60332 delivered on October 11, 1996, Gong1996Ha, 3279, Supreme Court Decision 99Da26221 delivered on May 15, 2001, Gong2001Ha, 1364) / [5] Supreme Court Decision 99Da26221 delivered on May 15, 2001, Gong2001Ha, 1364) / [6] Supreme Court Decision 98Da59309 delivered on February 23, 2001, Gong2001Sang, 715).
【Plaintiff, Appellee】 Golden G. Ocean Shipping Corporation (Law Firm Chang-jo, Attorneys Lee Ki-wook and 6 others, Counsel for plaintiff- appellee)
【Defendant, Appellant】 Oriental Marine Insurance, Inc. (Law Firm Lee & Ko, Attorneys Ryu Kyung-hee and 7 others, Counsel for defendant- appellant)
【Court of First Instance】Seoul District Court Southern Branch Court Judgment 97Gahap9919 delivered on May 7, 1999
【Court of Second Instance】Seoul High Court Judgment 99Na28717 delivered on April 4, 2000
【Disposition】 The decision of the court below shall be reversed and the case shall be remanded to the Seoul High Court.
【Reasoning】The grounds for appeal are examined as follows. (The supplementary grounds submitted after the legal due date are examined only to the extent that they concern grounds for appeal submitted within the due date.)
1. Facts found by the court below
A. The plaintiff, a shipping company, is the owner of the ship in question, the Golden Fionia, which is of Belizean nationality (total weight of 1,253 tons, maximum cargo weight of 1,601.00 tons, a general cargo carrier, constructed in January 1974, made of steel; the name of the ship was changed from the Golden Trade to the Golden Fionia; the name of the ship as referred to in the judgment of the court below apparently was in error). The defendant is an insurer which underwrites various non-life insurance policies, including marine insurance policies.
B. Hangil Shipping, Inc., the ship administrator, entered into an insurance contract(contract number: 5102518) with the defendant. The contract designated the plaintiff as the insured and had the following terms: the period of insurance to run from 12:00 PM, October 23, 1995 to 12:00 PM, October 23, 1998, the insurance to cover the ship's body and other fixtures up to US$ 500,000 at a premium of US$ 28,944.50. The insurance premium was paid.
C. According to the policy of the present insurance contract, the contract insures against the total loss only of the ship incurred by the innate perils of the seas, rivers, lakes and other navigable waters, an accident arising in the course of loading of cargo or fuel, discharge or relocation, engine breakdown, axial damage, or dormant defect in the engine or the body of the ship (See clause 6). As to a constructive total loss, the insured value is deemed to be the value of the ship upon completion of repairs and will account only for the costs incurred from a single accident or from a series of damages caused by the same accident (See clause 12). The contract specified the laws and customs of England as the governing law.
D. The ship at issue was inspected and repaired at the port of Busan as required under the insurance policy. Thereafter, for the purpose of transporting cargo it entered the port of New Yingkou of China around 1 PM, January 28, 1996 and moored there. It loaded 1,348,570 tons of magnesite as cargo at 10:30 AM, January 30, 1996, and left the port for the destination of the port of Kutagam of Japan around 12:30 PM January 31, 1996. In the course of such voyage, the accident at issue occurred around 9:30 pm, February 1, 1996 at 40°09′34″ north in longitude and 121°48′4″ east in latitude, by running aground after being pushed by drifting ice and tidal waters.
E. After the accident, a call for emergency help was made to the port authority in China. The ship at issue was towed to the port of New Yingkou around 8:30 AM, February 3, 1996 by two towing ships after drifting among colliding ice and tidal waters, but due to the large volume of water that came aboard, an urgent request was made to pump out the water. After the pumping operation, the ship was towed to the port of Dallian on February 9 and moored there. On February 27, the ship was transported to a fishing boat shipyard where it was inspected for damage.
F. At the time of the accident, the ship at issue was trapped by drifting ice, large and small, and due to constant collisions, was unable to proceed further and ran aground into a sand bank. When the ship ran aground, it was stranded askew to the left. Stranding for forty hours until it was towed away, the ship collided continually with drifting ices and tidal water and vibrated left and right. As a result, the ship suffered damages to the outer plates, the machinery in the engine room, the propellers, measuring equipment, compass and other navigating instruments, among others.
G. A port inspector in Belize, the country where the ship at issue was registered, inspected the foregoing damage, and based on his recommendations, the plaintiff submitted a notice of claims for the costs of direct repairs carried out at the Namsung Shipyard of Dallian in the amount of 631,706 dollars and at Songlian No. 1 Shipyard of Dallian in the amount of 569,667 dollars to the defendant on February 21. The notice stated that the accident at issue resulted in constructive total loss and therefore the plaintiff was abandoning the ship and demanding payment of the insured value.
2. Seaworthiness according to the Marine Insurance Act in the context of a time policy.
A. At the trial, the defendant contended that because the ship at issue was not in a proper condition to withstand marine hazards which would normally occur in navigation due to factors such as corrosion and cracks in the double bottom ballast tank bulkhead, the bottom shell, and the rudder stock, among others, and the plaintiff, the insured, proceeded with navigation despite above privity, the defendant should not be held liable. The court below, however, dismissed the defendant's contention as lacking the supporting evidence.
B. Article 39(4) of the Marine Insurance Act of England, the governing law in this case, states: "A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured," and Article 39(5) thereof states: "In a time policy, there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness." In other words, under the Marine Insurance Act, seaworthiness in the context of a marine insurance is a relative concept meaning "at the time of the insurance able to perform the voyage unless any external insured peril should happen." Furthermore, under the Act, there is no definite or absolute standard for determining whether a ship is seaworthy, and such notion must be determined on relative terms or with respect to the special circumstances surrounding a specific voyage. In addition, the Act recognizes, as a matter of default, that under a voyage policy unseaworthiness exempts the insurer from insurance liability while it does not make a default recognition of such implied exemption under a time policy, except where the insured caused the voyage to proceed despite having privity of the ship's unseaworthiness. Therefore, pursuant to the principles of the Act, in order for an insurer to find exemption under a marine time policy by reason of unseaworthiness, the damage must have been caused by unseaworthiness, the insured must have had privity of such unseaworthiness, and there must be a causality between such unseaworthiness and the insured peril. (i.e. the whole or part of the damage was caused by such unseaworthiness.) Furthermore, pursuant to the principles of the Act, the insurer bears the burden of proving that the foregoing requirements are met.
C. Returning to this case, based on the records we find the following facts: the ship at issue was built in January 1974, 21 years prior to the time of accident, and was superannuated as of the time of the accident; within 20 days of the commencement date of insurance under the insurance contract at issue, the Korean Classification Institute conducted a condition survey of the ship, and the compliance with the recommendations of such survey was expressly made a requirement under the insurance contract (plaintiff's exhibit 2-1); under such conditions, on November 2, 1995 the representative owner of the ship and staff received a review and inspection by the Korean Classification Institute as to the safety conditions of the ship's machinery and equipment, and pursuant to such review, the Institute submitted a survey report (plaintiff's exhibit 8) on November 25, 1995, which stated to the effect that "the ship at issue has been poorly maintained in light of its age, and the ship may be navigable if recommendations set forth in 23 clauses, including that regarding the replacement of the fan cover of the corroded engine motor, are satisfactorily carried out by May 2, 1996;" from the period of November 2, 1995 to the 28th of the same month, the plaintiff hired Namkyung Industry, Inc. to repair or replace, among others, the first electric generator and the surface marker on the left and right port sides, but the repair fell short of the recommendations of the Korean Classification Institute; and despite a request made on November 10, 1995 for an immediate repair of the double bottom ballast tank, in light of the fact that due to corrosion there was risk that such tank would lose balance even in a very low draft (plaintiff's exhibit 10). There is no evidence that such defect was repaired prior to the insured event at issue (note that prior to the survey by the Korean Classification Institute on November 2, 1995, due to a lack of an access way, a detailed investigation was not made; see Repair Request Item No. 12 in plaintiff's exhibit 8).
D. Summing up the foregoing facts and circumstances, we are of the view that the ship at issue was not seaworthy at the time of the accident, the shipowner knew of such condition which was an objective fact, and the shipowner may have acted in bad faith as to such unseaworthiness of the ship in light of the fact the repair request had been made directly to the shipowner. Therefore, we hold that the court below's dismissal of the plaintiff's claim as lacking evidence was in error in terms of law with respect to the insurer's exemption from liability for reasons of unseaworthiness under a time policy and also in error in applying the rules of evidence and making factual determinations.
However, even where, as in the present case, the unseaworthiness of the ship and the bad faith of the plaintiff are established, in order to the insurer to be exempted from liability for reasons of unseaworthiness under a time policy, the causality between the unseaworthiness and the insured peril must be established, as discussed earlier. But according to the court below's findings of fact, the cause of the insured event can only be presumed to be the collision of drifting ice into the outer plate of the ship, which punctuated a hole thereon and let water through. However, since the facts do not support a substantial causality between any specific attribute of the ship's unseaworthiness and the accident, or other causality, the court below's rejection of the insurer's exemption from liability by reason of unseaworthiness on the part of the defendant was correct. In conclusion, the first claim for appeal is without merit.
3. Whether the accident at issue caused constructive total loss.
A. The court below found that under the Marine Insurance Act of England, with respect to interpreting and proving the cost of repairing the ship, which serves as the basis for determining whether constructive total loss applies, the following factors should be considered in addition to the direct costs incurred in repairing the damage: the cost of towing the ship to the port where repairs may be made, the cost of docking the ship at a stopover port and making provisional repairs for the purpose of towing the ship to the port of repair, and the fees paid to the surveyor of the classification institute. As to abandonment, the court below decided that the question of whether an insured may abandon must be decided on the basis of the facts existing as of the time of abandonment even if after the abandonment the cost of repairs turns out to be insufficient for purposes of meeting the conditions of abandonment, and therefore that the counter-evidence as to abandonment presented after the act of abandonment should not be deemed to be conclusive. Based on the foregoing reasoning and in light of its factual findings, the court below accepted the plaintiff's estimate of US$ 500,000 as the direct cost of repairing the damages to the ship at issue. This figure does not include the cost of towing the ship on or about March 20, 1996 to the port where the ship could be repaired, the cost of docking the ship at a stopover port, and making provisional repairs, or the fees payable to the surveyor at the classification institute, and based on such acceptance, the court below accepted the plaintiff's claim that the insured peril at issue amounted to a constructive total loss.
B. With respect to the constructive total loss, Article 56(1) of the Marine Insurance Act states, "A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss;" Article 56(2) thereof states, "A total loss may be either an actual total loss, or constructive total loss;" Article 60(1) states, "Subject to any express provision in the policy, there is constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred;" Article 60(2)(ii) states, "In particular, there is constructive total loss - In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired. In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired;" Article 12-1 of the Institute's Marine Time Policy Clause states, "No claim arising from a peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence exceeds... in which case this sum shall be deducted."
In addition, according to the language of and customs relating to the Marine Insurance Act, a finding of constructive total loss should be based on the objective facts and circumstances at the time of the notice of abandonment, and not on the facts as subjectively known to the insured. The point in time used for finding constructive total loss should be the time "at the commencement of the action" of an insurance claim, not the time of the notice of abandonment, unless the insurer causes the insured to expressly consent to acknowledging the time of the notice of abandonment, or the time of rejection of such notice, as the point in time at which the causes of action have accrued.
Furthermore, pursuant to the principles of the Marine Insurance Act, the insured must prove whether a particular insured peril meets the requirements of constructive total loss and submit evidence that his cost of salvaging and repairing the ship exceeded the amount of insured value. In light of the purpose of Article 55(1) of the Act, which states that "unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject to the aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against," and the principle of substantial causality between the insured peril and the insured's property damage, the cost of repairing a ship should be limited to the losses incurred by the insured peril, and exclude the cost of repairs not incurred by the insured peril. Therefore, in order to claim abandonment on the basis that the insured peril caused a constructive total loss, the insured must establish as a threshold matter that the ship would not require repair unless the insured peril materialized or must prove the cost of repairs made subsequent to the insured peril. If the insured fails to prove the absence of a defect prior to the occurrence of the insured peril, the insured must specify the portion of the ship damaged by the insured peril and provide specific proof of the repair cost incurred as a result thereof.
The ship's "cost of repairs" under the Marine Insurance Act and the Institute's Marine Time Policy Clause, as used for determining whether the notion of the constructive total loss is applicable, means the cost incurred to restore the damaged ship to its original condition. Such cost includes the cost of appraising the damaged portion of the ship and the extent of such damage, the cost of towing the ship to the dock of repair, the cost incurred by the inspector to classify the ship, the cost of issuing the towage certificate, the cost of the supervisor of repair and other costs incidental to repair. The extent of repair required here is not the extent necessary to transport the equal amount of cargo, but the extent necessary for the ship to make a voyage to the intended destination, whether without load or with load. Under the English law, the cost of repairs must be computed after accounting for all circumstances relating to the ship at the time and place of the insured peril, and it should be noted that the repair cost as determined at the place of the ship is controlling. If the repair cost is computed according to the Institute's Marine Time Policy Clause, the increase in repair cost due to the ship's age or wear and tear is not deducted; however, if the repair may make the ship voyageable at a cost less than the value of the ship following the repair, the insured cannot opt for a constructive total loss by claiming abandonment on the ground that the cost of completely repairing the ship, including with respect to the wear and tear, is greater than the value of the ship following the repair.
C. Therefore, the present insurance contract is a "total loss only" contract. As such, as claimed by the plaintiff, the notion that a constructive total loss covers the cost of repair incurred by damages to a ship presumes the occurrence of an insured peril, and since the burden of proof there rests with the plaintiff, the plaintiff must prove that the cost of repairing the ship, as incurred by the insured peril at issue, exceeds the insured value. Furthermore, the question of whether the insured peril in this case amounts to a constructive total loss must be determined on the basis of the objective repair costs as determined by all objective facts and circumstances discovered as of the time at which the plaintiff filed the suit for insurance claims, unless the defendant, as the insurer, has expressly consented to acknowledging the time of the notice of abandonment, or the time of rejection of such notice, as the point in time at which the causes of action for the suit of insurance claims have accrued. (there is no such record on file). However, the court below, without confirming the amount of the repair cost for the purpose of determining whether a constructive total loss applies, rejected the evidentiary value of the survey reports submitted by the defendant on the grounds that they had not been submitted until the time of the plaintiff's notice of abandonment, and instead quoted the plaintiff's subjective estimate on the grounds that it was proper. There was a reversible error in matters of law in misinterpreting the principles of the Marine Insurance Act of England governing constructive total loss and abandonment.
D. Furthermore, with respect to the costs of the ship's repair, such costs must be proven by the plaintiff. In other words, the plaintiff must establish that the ship would not have required repair unless the insured peril materialized and also the cost of repairs made subsequent to the insured peril. Alternatively, the insured must specify the portion of the ship damaged by the insured peril and provide specific proof of the cost of repairs incurred as a result thereof. As for the survey conducted for the purposes of calculating such cost of repairs, if the procedure and methodology of the survey was unreasonable, and the basis of computation was unclear, then the survey by itself is not credible evidence. (See Supreme Court Decision 98Da59309 delivered on February 23, 2001.)
According to the records, the evidence submitted by plaintiff to establish the cost of repairs made on the ship at issue is as follows: (1) the March 4, 1996 estimate from Namsung Shipyard in the amount of US$ 631,710; (2) the estimate from Songlian No. 1 Shipyard of Dallian in the amount o US$ 569,667; and (3) the appraisal prepared by Hirano Naosi of the New Japan Classification Institute that the repair cost would exceed at minimum US$ 500,000 (see plaintiff's exhibit 5). However, first of all, the estimates in the foregoing sub-clauses (1) and (2) were not prepared by a surveyor or an inspector who may make an objective evaluation of damages, but were prepared by shipyards who cannot vouch for an objective valuation but instead are likely to reflect the wishes of the shipowner; therefore, the credibility of such estimates is significantly hampered. Secondly, the estimates or appraisal in the foregoing clauses (1) through (3) apparently computed the repair cost on the assumption that the ship would be completely restored without considering whether the ship had any preexisting damage prior to the accident. Thirdly, as for the appraisal in the foregoing clause (3), Hirano Naoshi the inspector did appraisals mostly in Japan and the appraisal in China was the first for him. His inspection report did not represent a direct expression of his views in the sense that its conclusion that the minimum repair cost would be US$ 500,000 was made only after reviewing the appropriateness of the survey report in clause (2) as prepared by Songlian No. 1 Shipyard and noting some of the errors therein; as for the evaluation itself, the repair cost was computed on the assumption that a substantial portion of the repair would be made in Japan or using materials brought from Japan although such computation should have been based on local repair costs; and while the estimate of the Songlian No. 1 Shipyard was excessively high with respect to the cost of repairing the steel materials as compared to the repair cost schedule.
Furthermore, in the present case, given that the defendant as the insured, while objecting to the plaintiff's estimates and appraisal, submitted two separate damage appraisals that are significantly different from those submitted by the plaintiff, and that the ship at issue was put to the sea despite the many areas thereof requiring repair and without evidence of such repairs having been made, it is difficult to accept that the cost of repairing the ship in connection with the accident exceeded US$ 500,000 and therefore, resulted in a constructive total loss or the total loss as insured by the present insurance contract, even after accounting for the various incidental costs claimed by the plaintiff on the basis of evidence presented by the plaintiff such as estimates and appraisals.
E. Furthermore, the court below should have evaluated the plaintiff's claim as to a constructive total loss in light of all the evidence submitted as of the time when this suit was filed. In other words, on the basis of such evidence, the court below should have further investigated the cost of repairs as claimed by the plaintiff to determine whether the ship at issue required repair prior to navigation; if repair was required, whether it was possible to specify the portion that required repair in connection with the insured peril at issue; if such specification was not possible based on the plaintiff's evidence alone, whether there were other methods to so specify; and if the direct repair cost for a ship like the ship at issue can be specified, what the objective cost of repair should have been in a similar accident when all the relevant incidental costs are accounted for. However, the court below did not do so, and such omission was in error as it misinterpreted the principles of the Marine Insurance Act of England governing constructive total loss and abandonment and did not conduct a full investigation as to the cost of repairs. The decision of the court below clearly suffered from the foregoing errors.
The second ground for appeal pointing this out is justified.
4. Conclusion
In conclusion, the decision of the court below shall be reversed and the case shall be remanded to the court below for retrial and determination. This decision is delivered with the assent of all the Justices who reviewed the appeal.
It is hereby decided as per Disposition.
Justices Yoon Jae-sik (Presiding Justice)
Song Jin-hun (Justice in charge)
Byun Jae-seung
Lee Kyu-hong
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