Definition:Unvalued policy
📄 Unvalued policy is a marine insurance contract that does not fix an agreed value of the insured subject matter at inception but instead leaves the insurable value to be determined at the time of loss. Defined in Section 28 of the UK Marine Insurance Act 1906 and recognized in equivalent marine insurance legislation globally, the unvalued policy stands in contrast to the valued policy, where the insurer and insured agree in advance on the value that will be paid in the event of a total loss. While unvalued policies appear across various lines of insurance, the distinction carries particular historical and practical weight in marine markets.
📊 At the point of claim, the insured must prove the actual value of the goods, vessel, or other insured interest at the time and place of loss. For cargo, this typically means the invoice cost plus freight, insurance cost, and an expected profit margin, consistent with the statutory measure of insurable value. For hull, it would be the market value of the vessel at the commencement of the risk. Because the burden of proof falls on the policyholder, unvalued policies can lead to more complex and contested loss adjustment processes. The sum insured stated in the policy acts as a maximum liability cap for the underwriter, but the actual recovery depends on whatever value the insured can substantiate. Partial losses are settled proportionally based on the proven value rather than a pre-agreed figure.
⚖️ In practice, the vast majority of modern marine hull and cargo policies are written on a valued basis, precisely because agreed values simplify claims and reduce disputes. Unvalued policies tend to appear in situations where the insured interest is difficult to quantify at inception — for instance, anticipated profits on speculative cargo shipments or interests where market prices fluctuate significantly during transit. They also arise in certain statutory or regulatory contexts where agreed-value provisions are restricted. Understanding the distinction matters for brokers structuring placements and for underwriters assessing exposure, because the choice between valued and unvalued wording directly affects how much will actually be paid when a loss occurs and how contentious the settlement process may become.
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