Measure of Indemnity under the Marine Insurance Act 1906

Measure of Indemnity under the Marine Insurance Act 1906

The measure of indemnity under the Marine Insurance Act 1906 determines the amount that the insured may recover under a marine insurance contract when an insured loss occurs. This calculation depends on the type of policy, the Insured Value, the Sum Insured, the nature of the loss, and the extent of loss.

Sections 67 to 75 of the Marine Insurance Act 1906 set out the basic rules for determining the measure of indemnity under Valued and Unvalued Policies for total loss, partial loss of ship, freight and cargo, apportionment of a Policy Valuation, general average contributions, salvage charges, and liabilities to third parties.

In marine cargo insurance, physical loss of or damage to cargo does not automatically result in payment of the full Sum Insured. It is necessary to determine whether the cargo is totally lost, whether part of it is totally lost, whether it arrives damaged, how far its value at destination has fallen, and whether the policy is a Valued Policy or an Unvalued Policy.

For damaged cargo, the Indemnity Amount is not determined merely by the repair estimate or the amount claimed. The loss ratio is calculated from the Total Value of Sound Goods and the Total Value of Damaged Goods and is then applied to the Policy Valuation under a Valued Policy or to the Insured Value under an Unvalued Policy.

The numerical examples in this article illustrate the basic structure of Sections 67 to 75 of the Marine Insurance Act 1906. Actual claim payments depend on the specific policy, the Institute Cargo Clauses, any special clauses, deductibles, underinsurance, prior payments made, and individual loss documentation.

Scope Covered in This Article

Item	Content Covered in This Article	Content Covered in Other Articles in Detail
Basic Principles of the Measure of Indemnity	Valued and Unvalued Policies under Section 67 and each insurer’s proportionate liability	Calculation of the Insured Value itself is covered in the specialized Insured Value article.
Total Loss	Calculation standards at total loss based on Section 68	Requirements for actual total loss and constructive total loss are covered in the specialized total loss article.
Partial Loss of Ship	Calculation methods for repaired, partially repaired, and unrepaired cases	Assessment of repair costs and new-for-old deduction in marine hull insurance should be checked under the individual contract.
Partial Loss of Freight	Calculation method using the proportion of lost freight	Insured interest in freight profit and uncollected freight is covered in separate articles.
Total Loss of Part of Cargo	Calculation based on the proportion of Insured Value represented by the lost part	The relationship with total loss of an apportionable part and particular average warranties is covered in separate articles.
Damaged Cargo	Method for calculating the loss ratio from the Total Value of Sound Goods and Total Value of Damaged Goods	Specific assessments of residual sales, repairs, reconditioning, and quality deterioration should be checked individually.
Apportionment of the Policy Valuation	Allocation where different types or qualities of cargo are insured under a single Policy Valuation	Individual insurance declarations and open cover policies are covered in separate articles.
General Average Contributions and Salvage Charges	Indemnity treatment in cases of full insurance and underinsurance	Requirements for general average and adjustment procedures are covered in specialized general average articles.
Third-Party Liability	Indemnity Amount for expressly insured liability to third parties	Freight forwarder liability, carrier liability, and shipowner liability insurance are covered in separate articles.
General Provisions	Subject matter not expressly addressed, double insurance, and the relationship with insurable interest	Double insurance, subrogation, and insurer contribution are covered in separate articles.

Purpose and Background of the Framework

Marine insurance is a system designed to indemnify the insured for losses incurred within the scope of the insurance contract. It is not intended to provide the insured with a profit exceeding the amount of the loss.

The calculation basis differs between a Valued Policy and an Unvalued Policy. The applicable formula also depends on whether the cargo is totally lost, part of it is totally lost, or it arrives damaged.

When cargo arrives damaged, it is necessary not only to consider repair costs but also to compare its value as sound goods at destination with its value in the damaged condition and thereby determine the loss ratio.

For general average contributions and salvage charges, it is necessary to determine whether the subject matter is insured for its full Contributory Value or the full value of the salved property. Where it is underinsured, the insurer’s liability is reduced proportionately.

Sections 67 to 75 of the Marine Insurance Act 1906 set out common principles of indemnity and specific calculation methods for these different types of loss.

Key Terms for Calculating the Measure of Indemnity

Term	Basic Meaning	Role in Calculation	Frequently Confused Terms	Main Reference Materials
Indemnity Amount	The amount recoverable by the insured after applying the statutory and contractual calculation rules	Calculated separately for each type of loss	Amount claimed by the insured, repair estimate	Insurance policy, statutory provisions, and loss breakdown
Insured Value	The monetary value of the insured interest	Basis for calculating indemnity under an Unvalued Policy and for assessing underinsurance	Sum Insured	Invoice, freight, premium, and insurance declaration
Sum Insured	The contractual amount that limits the insurer’s liability	Sets the payment limit and is relevant to underinsurance	Insured Value, Policy Valuation	Insurance policy and insurance schedule
Policy Valuation	The value fixed by a Valued Policy	Basis for calculating the Indemnity Amount under a Valued Policy	Market value at destination	Valued Policy and insurance schedule
Total Value of Sound Goods	The total value at destination that the cargo would have had if it had arrived sound	Denominator in the loss-ratio calculation for damaged cargo	Invoice price, Policy Valuation	Destination market-price evidence and Survey Report
Total Value of Damaged Goods	The total value at destination of the cargo in its damaged condition	Deducted from the Total Value of Sound Goods to determine the reduction in value	Residual sale proceeds	Sale estimate, residual value, and appraisal documents
Loss Ratio	The proportion by which the cargo’s value has been reduced	Applied to the Policy Valuation or Insured Value	Proportion of damaged quantity	Evidence of the values of sound and damaged goods
Contributory Value	The value used as the basis for calculating a general average contribution	Determines the recoverable proportion where the subject matter is underinsured	Insured Value	General average adjustment statement and cargo value declaration
Insurance Proportion	The proportion that the Insured Value bears to the relevant full value	Determines the proportional reduction resulting from underinsurance	Subscription proportion under co-insurance	Insurance policy and adjustment statement

Comparison of Sections 67 to 75 of the Marine Insurance Act 1906

Section	Subject	Main Basis of Calculation	Main Figures	Relation to Marine Cargo Insurance Practice
Section 67	Extent of the insurer’s liability	Policy Valuation for a Valued Policy or Insured Value for an Unvalued Policy	Policy Valuation, Insured Value, and each insurer’s subscription	Forms the basis for the calculations in the following Sections
Section 68	Total Loss	Valued Policy: Policy Valuation; Unvalued Policy: Insured Value	Applicable value in a total-loss case	Applies to actual and constructive total loss
Section 69	Partial Loss of Ship	Reasonable repair cost or depreciation arising from unrepaired damage	Repair cost, depreciation, and Sum Insured	Not central to cargo insurance but relevant to the general repair-cost framework
Section 70	Partial Loss of Freight	Proportion represented by the freight lost	Total freight, lost freight, Policy Valuation, and Insured Value	Relevant where freight interest is insured
Section 71	Partial Loss of Cargo	Value proportion for total loss of part or loss ratio at destination	Insured Value of the lost part, Total Value of Sound Goods, and Total Value of Damaged Goods	One of the principal calculation Sections for marine cargo insurance
Section 72	Apportionment of Policy Valuation	Proportion of the respective Insured Values by type, quality, or item	Total Policy Valuation and Insured Value of each part	Important where different cargoes or lots are insured under one valuation
Section 73	General Average Contributions and Salvage Charges	Full recovery where fully insured or proportional reduction for underinsurance	Contributory Value, Insured Value, general average contribution, and salvage charges	Important in general average and salvage cases
Section 74	Liability to Third Parties	Amount paid or payable to the third party	Established liability and policy limit	Applies where third-party liability is expressly insured
Section 75	General Provisions	Application of the preceding principles as nearly as practicable	Values appropriate to the individual loss	Supplements the calculation of losses not expressly addressed

Main Calculation Formulas

Type of Loss	Basic Calculation Formula	Relevant Section	Notes
Total Loss under a Valued Policy	Indemnity Amount = Policy Valuation	Section 68	The Sum Insured and other policy restrictions must also be checked.
Total Loss under an Unvalued Policy	Indemnity Amount = Insured Value	Section 68	The Insured Value must be established after the loss.
Total Loss of Part of Cargo under a Valued Policy	Policy Valuation × Insured Value of Lost Part ÷ Total Insured Value	Section 71(1)	The Insured Value ratio, rather than the quantity ratio, is used.
Total Loss of Part of Cargo under an Unvalued Policy	Indemnity Amount = Insured Value of Lost Part	Section 71(1)	Evidence identifying and valuing the lost part is required.
Loss Ratio of Damaged Cargo	Loss Ratio = (Total Value of Sound Goods − Total Value of Damaged Goods) ÷ Total Value of Sound Goods	Section 71(2)	Values at the destination are used.
Damaged Cargo under a Valued Policy	Indemnity Amount = Policy Valuation × Loss Ratio	Section 71(2)	The amount is not determined solely by repair costs.
Damaged Cargo under an Unvalued Policy	Indemnity Amount = Insured Value × Loss Ratio	Section 71(2)	Insured Value and Total Value of Sound Goods are different concepts.
Apportionment of the Policy Valuation	Policy Valuation of Each Part = Total Policy Valuation × Insured Value of Each Part ÷ Total Insured Value	Section 72	A reasonable basis by item, quality, or lot must be used.
General Average Contribution where the Subject Matter Is Underinsured	Insurer’s Share = General Average Contribution × Insured Value ÷ Contributory Value	Section 73	The values in the general average adjustment statement must be confirmed.
Allocation among Co-Insurers	Each Insurer’s Share = Indemnity Amount × Each Insurer’s Subscription	Section 67	Co-insurance must be distinguished from double insurance.

Valued Policy and Unvalued Policy

Section 67 of the Marine Insurance Act 1906 provides that, under an Unvalued Policy, the insured may recover to the full extent of the Insured Value, while under a Valued Policy the Policy Valuation provides the relevant basis, subject to the Act and the terms of the policy.

Under a Valued Policy, the Policy Valuation serves as the basis for calculating total and partial losses.

Under an Unvalued Policy, the Insured Value must be established and the Indemnity Amount is calculated by reference to that value.

Comparison Item	Valued Policy	Unvalued Policy	Practical Impact
Timing of Value Determination	Policy Valuation fixed when the contract is concluded	Insured Value established after the loss	An Unvalued Policy requires supporting evidence of the Insured Value.
Basis for Total Loss	Policy Valuation	Insured Value	The calculation basis may differ even for identical cargo.
Total Loss of Part of Cargo	The proportion represented by the lost part’s Insured Value is applied to the Policy Valuation.	Insured Value of the lost part	A proportional calculation is required under a Valued Policy.
Damaged Cargo	The loss ratio is applied to the Policy Valuation.	The loss ratio is applied to the Insured Value.	The same loss ratio may produce different Indemnity Amounts.
Main Supporting Documents	Policy and insurance schedule	Invoice, freight, premium, and value evidence	Insufficient evidence may affect the calculation.

Numerical Comparison Between a Valued Policy and an Unvalued Policy

Consider a case where the Total Value of Sound Goods is 10 million yen and the Total Value of Damaged Goods is 7 million yen.

Loss Ratio = (10 million yen − 7 million yen) ÷ 10 million yen = 30%

Policy Type	Basis for Calculation	Calculation	Indemnity Amount
Valued Policy	Policy Valuation: 12 million yen	12 million yen × 30%	3.6 million yen
Unvalued Policy	Insured Value: 10 million yen	10 million yen × 30%	3 million yen

The difference arises not from the loss ratio but from the different value to which that ratio is applied.

When Multiple Insurers Jointly Underwrite

When multiple insurers jointly underwrite a single insurance contract, each insurer is liable in proportion to its subscription.

This is a co-insurance arrangement in which several insurers share one risk at specified proportions. It must be distinguished from double insurance, where multiple independent policies cover the same interest.

For example, if the Indemnity Amount is 3,600,000 yen, with Insurer A subscribing 60% and Insurer B subscribing 40%, the allocation is as follows.

Insurer	Subscription	Calculation	Amount Payable
Insurer A	60%	3,600,000 yen × 60%	2,160,000 yen
Insurer B	40%	3,600,000 yen × 40%	1,440,000 yen
Total	100%	2,160,000 yen + 1,440,000 yen	3,600,000 yen

Total Loss under Section 68

Where the subject matter insured is totally lost, the measure of indemnity is the Policy Valuation under a Valued Policy and the Insured Value under an Unvalued Policy.

Policy Type	Reference Value	Example	Basic Indemnity Amount
Valued Policy	Policy Valuation	Cargo with a Policy Valuation of ¥12,000,000 is totally lost.	¥12,000,000
Unvalued Policy	Insured Value	Cargo with an Insured Value of ¥10,000,000 is totally lost.	¥10,000,000

The actual amount payable remains subject to the Sum Insured, underinsurance, any deductible, the insured perils, exclusions, and other policy terms.

Partial Loss of Ship under Section 69

Where a ship has been repaired, the measure of indemnity is the reasonable cost of the repairs after customary deductions, subject to the Sum Insured.

Where only part of the damage has been repaired, the measure of indemnity combines the reasonable repair costs actually incurred with the reasonable depreciation attributable to the unrepaired damage. The total cannot exceed the reasonable cost of repairing the whole damage.

Where no repairs have been carried out, the reasonable depreciation caused by the unrepaired damage is used, subject to the reasonable cost of repair as the upper limit.

Status	Example Figures	Calculation Approach	Indemnity Amount
Fully Repaired	Reasonable repair cost: 3,000,000 yen	Reasonable repair cost after customary deductions	Up to 3,000,000 yen
Partially Repaired	Repair cost: 1,500,000 yen; depreciation from unrepaired damage: 1,000,000 yen	Total of 2,500,000 yen, subject to the reasonable cost of fully repairing the damage	Up to 2,500,000 yen
Unrepaired	Depreciation: 2,500,000 yen; reasonable repair cost: 2,000,000 yen	Limited to the reasonable repair cost	2,000,000 yen

Partial Loss of Freight under Section 70

Where part of the freight is lost, the proportion that the lost freight bears to the total freight at risk is applied to the Policy Valuation under a Valued Policy or to the Insured Value under an Unvalued Policy.

If the total freight is 5 million yen and 1 million yen is lost, the lost proportion is 20%.

Policy Type	Calculation Base	Calculation	Indemnity Amount
Valued Policy	Policy Valuation: 6 million yen	6 million yen × 1 million yen ÷ 5 million yen	1.2 million yen
Unvalued Policy	Insured Value: 5 million yen	5 million yen × 1 million yen ÷ 5 million yen	1 million yen

Total Loss of Part of Cargo under Section 71

Where part of the cargo is totally lost, the calculation differs between a Valued Policy and an Unvalued Policy.

Under a Valued Policy, the proportion that the Insured Value of the lost part bears to the total Insured Value of the cargo is applied to the Policy Valuation.

Under an Unvalued Policy, the Indemnity Amount is the Insured Value of the part totally lost.

Numerical Example of Total Loss of Part of Cargo

Assume that the total Insured Value of the cargo is 10 million yen and that a lot with an Insured Value of 2 million yen is totally lost.

Ratio represented by the lost part = 2 million yen ÷ 10 million yen = 20%

Policy Type	Calculation Basis	Calculation	Indemnity Amount
Valued Policy	Policy Valuation: 12 million yen	12 million yen × 20%	2.4 million yen
Unvalued Policy	Insured Value of lost part: 2 million yen	2 million yen	2 million yen

Even where 20% of the cargo quantity is lost, the Insured Value ratio may differ if the unit values are unequal. The calculation therefore uses the Insured Value of the lost part rather than the quantity ratio.

Indemnity Amount for Damaged Cargo

Where all or part of the cargo arrives damaged at destination, the loss ratio is calculated from the difference between the Total Value of Sound Goods and the Total Value of Damaged Goods.

Loss Ratio = (Total Value of Sound Goods − Total Value of Damaged Goods) ÷ Total Value of Sound Goods

Under a Valued Policy, the loss ratio is applied to the Policy Valuation.

Under an Unvalued Policy, the loss ratio is applied to the Insured Value.

Example Calculation Using Total Value of Sound Goods and Total Value of Damaged Goods

Consider a case where the Total Value of Sound Goods at destination is 8,000,000 yen and the Total Value of Damaged Goods is 6,000,000 yen.

Decrease in Value = 8,000,000 yen − 6,000,000 yen = 2,000,000 yen

Loss Ratio = 2,000,000 yen ÷ 8,000,000 yen = 25%

Policy Type	Basis for Calculation	Calculation	Indemnity Amount
Valued Policy	Policy Valuation: 10,000,000 yen	10,000,000 yen × 25%	2,500,000 yen
Unvalued Policy	Insured Value: 8,000,000 yen	8,000,000 yen × 25%	2,000,000 yen

The decrease in value at destination is 2,000,000 yen, but that figure is not itself the Indemnity Amount under a Valued Policy. The 25% loss ratio is applied to the Policy Valuation of 10,000,000 yen, producing an Indemnity Amount of 2,500,000 yen.

Do Not Confuse Invoice Price with Arrival Value

The Total Value of Sound Goods and Total Value of Damaged Goods compare the value of sound and damaged cargo at the place of arrival.

The invoice price is important evidence, but it does not necessarily equal the Total Value of Sound Goods. Destination market price, wholesale price, cargo quality, marketability, value after repair, and residual value may also be relevant.

Document	Information Confirmed	Use for Total Value of Sound Goods	Use for Total Value of Damaged Goods
Commercial Invoice	Sale price, description, and quantity	Provides basic price and quantity evidence	Does not directly establish the post-damage value
Market Price at Destination	Market value of sound goods at arrival	Important evidence of the Total Value of Sound Goods	Provides the comparison basis for valuing the damaged goods
Survey Report	Condition, cause, quantity, and quality deterioration	Supports comparison with the sound condition	Provides primary evidence of the damaged condition
Repair Estimate	Repair feasibility and repair cost	Indicates whether the sound condition can be restored	Helps assess the reduction in value
Residual Sale Estimate	Current sale value in the damaged condition	Normally not used directly	Important evidence of the Total Value of Damaged Goods
Expert Appraisal	Quality deterioration, functional impairment, and marketability	Supports the Total Value of Sound Goods	Supports the Total Value of Damaged Goods

Apportionment of the Policy Valuation under Section 72

Where different types or qualities of property are insured under a single Policy Valuation, that valuation is apportioned in proportion to their respective Insured Values.

If the purchase cost or equivalent value of each type cannot be established, the apportionment may be made by reference to the respective net arrived sound values.

Numerical Example of Apportioning the Policy Valuation

Suppose a Valued Policy covers Cargo A, Cargo B, and Cargo C under a total Policy Valuation of 15 million yen.

Cargo	Individual Insured Value	Proportion of Total	Apportioned Policy Valuation
Cargo A	6 million yen	6 million yen ÷ 10 million yen = 60%	15 million yen × 60% = 9 million yen
Cargo B	3 million yen	3 million yen ÷ 10 million yen = 30%	15 million yen × 30% = 4.5 million yen
Cargo C	1 million yen	1 million yen ÷ 10 million yen = 10%	15 million yen × 10% = 1.5 million yen
Total	10 million yen	100%	15 million yen

If Cargo B suffers a 50% loss, the apportioned Policy Valuation of 4.5 million yen is multiplied by 50%.

4.5 million yen × 50% = 2.25 million yen

The basic Indemnity Amount for Cargo B is therefore 2.25 million yen.

General Average Contribution under Section 73

Where the insured has paid or is liable to pay a general average contribution and the subject matter is insured for its full Contributory Value, the insurer is generally liable for the full contribution.

If the subject matter is insured for less than its Contributory Value, the insurer’s liability is reduced in proportion to the underinsurance.

Numerical Example of General Average Contribution

Consider a case where the cargo’s Contributory Value is ¥10,000,000 and the general average contribution is ¥1,000,000.

Insurance Status	Insured Value	Calculation	Insurer’s Liability
Full Insurance	¥10,000,000	¥1,000,000 × ¥10,000,000 ÷ ¥10,000,000	¥1,000,000
Underinsurance at 80%	¥8,000,000	¥1,000,000 × ¥8,000,000 ÷ ¥10,000,000	¥800,000
Underinsurance at 60%	¥6,000,000	¥1,000,000 × ¥6,000,000 ÷ ¥10,000,000	¥600,000

Where a particular average loss for which the insurer is liable has been deducted from the Contributory Value in the general average adjustment, that loss must also be deducted from the Insured Value when calculating the insurer’s proportionate liability.

Numerical Example of Salvage Charges

Under Section 73, the insurer’s liability for salvage charges is determined according to the same principles as its liability for a general average contribution.

Assume that the value of the salved property is 10 million yen, the Insured Value is 8 million yen, and the salvage charges are 500,000 yen.

Insurer’s Liability = 500,000 yen × 8,000,000 yen ÷ 10,000,000 yen = 400,000 yen

The actual allocation must be checked against the salvage contract, any salvage award, the value of the salved property, and the policy terms.

Third-Party Liability under Section 74

Where the policy expressly insures liability to a third party, the Indemnity Amount is, unless the policy otherwise provides, the amount paid or payable by the insured to that third party.

If the established liability is 12 million yen and the policy limit is 20 million yen, the basic Indemnity Amount is 12 million yen.

If the established liability is 25 million yen and the policy limit is 20 million yen, the payment is limited by the policy limit and other applicable terms.

Marine cargo insurance primarily covers loss of or damage to cargo. It must not be confused with freight forwarder liability, carrier liability, shipowner liability, or other third-party liability insurance.

General Provision of Section 75

For a loss affecting subject matter not expressly dealt with in Sections 68 to 74, the measure of indemnity is determined, as nearly as practicable, in accordance with those provisions.

Section 75(2) further provides that the rules concerning the measure of indemnity do not affect the rules relating to double insurance.

Those provisions do not prevent the insurer from disproving the insured’s interest wholly or in part or from showing that, at the time of the loss, all or part of the subject matter insured was not at risk under the policy.

Calculating the Indemnity Amount therefore does not remove the need to consider double insurance, the existence and extent of the insured interest, or whether the subject matter insured was at risk under the policy at the time of the loss.

Calculation Flow for the Measure of Indemnity

1. Identify the type of loss
   Determine whether the claim concerns total loss, total loss of part of cargo, damaged cargo, a general average contribution, salvage charges, or liability to a third party.
2. Confirm the applicable Section
   Determine which rule in Sections 67 to 75 of the Marine Insurance Act 1906 applies.
3. Confirm the policy type
   Determine whether the policy is a Valued Policy or an Unvalued Policy.
4. Distinguish the Insured Value, Policy Valuation, and Sum Insured
   Verify each value against the policy and transaction documents.
5. Check for co-insurance or double insurance
   Distinguish a shared subscription under one contract from multiple policies covering the same interest.
6. Calculate the value ratio where part of the cargo is totally lost
   Divide the Insured Value of the lost part by the total Insured Value.
7. Calculate the loss ratio for damaged cargo
   Divide the difference between the Total Value of Sound Goods and Total Value of Damaged Goods by the Total Value of Sound Goods.
8. Apportion the Policy Valuation where different cargoes are insured together
   Use the proportion represented by the Insured Value of each item, quality, lot, or other identifiable part.
9. Confirm the Insurance Proportion for general average and salvage charges
   Check whether the subject matter is insured for its full Contributory Value or the full value of the salved property.
10. Calculate each co-insurer’s share
    Apply each insurer’s subscription.
11. Apply the policy restrictions
    Confirm the Sum Insured, deductible, special clauses, and prior payments.
12. Document the calculation basis
    Record the formulas, values, supporting evidence, and rounding method used in the claim.

Common Practical Issues

Case	Main Issue	Reference Documents	Key Point	Initial Action
Total Loss of Cargo under a Valued Policy	Policy Valuation and Sum Insured	Insurance policy and total-loss evidence	Use the Policy Valuation while applying the policy limits.	Reconcile the Policy Valuation with the Sum Insured.
One Lot among Several Lots Is Totally Lost	Insured Value proportion represented by the lost part	Invoice, Packing List, and insurance schedule	Use the value proportion rather than the quantity proportion.	Establish the Insured Value by lot.
Cargo Arrives Damaged	Total Value of Sound Goods and Total Value of Damaged Goods	Market-value evidence, Survey Report, and sale estimate	Calculate the loss ratio at destination.	Obtain evidence supporting both destination values.
Repair Cost Exceeds the Reduction in Value	Repair cost compared with economic depreciation	Repair estimate, residual value, and expert opinion	Do not treat the repair estimate automatically as the Indemnity Amount.	Compare repair, sale, reconditioning, and replacement alternatives.
Different Cargoes Are Insured under One Policy Valuation	Apportionment under Section 72	Itemized invoices and insurance schedule	Use the Insured Value proportion of each item.	Prepare an itemized value table.
Loss Occurs under Co-Insurance	Subscription of each insurer	Insurance policy and co-insurance schedule	Allocate the total Indemnity Amount among the insurers.	Confirm the handling procedure with the lead insurer.
General Average Contribution under Underinsurance	Insurance Proportion based on the Contributory Value	General average adjustment statement and insurance policy	Reduce the recoverable amount in proportion to the underinsurance.	Reconcile the Contributory Value with the Insured Value.
Salvage Charges Are Claimed	Value of the salved property and Insurance Proportion	Salvage contract, award, and value evidence	Apply the proportional principles in Section 73.	Notify the insurer before making or agreeing payment.
Third-Party Liability Is Expressly Insured	Established liability and policy limit	Liability documents, settlement agreement, and insurance policy	Confirm the amount paid or payable.	Check any requirement for the insurer’s prior approval.

Application Scenario 1: Total Loss of Part of a Cargo Lot under a Valued Policy

Assume that the total Insured Value of the cargo is 10 million yen, the Policy Valuation is 12 million yen, and a lot with an Insured Value of 2 million yen is totally lost.

The lost lot represents 20% of the total Insured Value.

2 million yen ÷ 10 million yen = 20%

Under the Valued Policy, the 20% ratio is applied to the Policy Valuation of 12 million yen.

12 million yen × 20% = 2.4 million yen

Subject to any deductible, the Sum Insured, underinsurance, and other policy terms, the basic Indemnity Amount is 2.4 million yen.

Application Scenario 2: Damaged Cargo Arrives under an Unvalued Policy

Assume that cargo insured under an Unvalued Policy has an Insured Value of 10 million yen, a Total Value of Sound Goods at destination of 11 million yen, and a Total Value of Damaged Goods of 7.7 million yen.

Loss Ratio = (11 million yen − 7.7 million yen) ÷ 11 million yen = 30%

The 30% loss ratio is applied to the Insured Value of 10 million yen.

10 million yen × 30% = 3 million yen

The basic Indemnity Amount is therefore 3 million yen. The decrease in value of 3.3 million yen is not itself the Indemnity Amount.

Application Scenario 3: Allocation between Two Co-Insurers

Assume that the Indemnity Amount for damaged cargo is 5 million yen, with Insurer A subscribing 60% and Insurer B subscribing 40%.

Insurer A = 5 million yen × 60% = 3 million yen

Insurer B = 5 million yen × 40% = 2 million yen

The insured’s total Indemnity Amount remains 5 million yen. Co-insurance only allocates that amount between the insurers.

Application Scenario 4: Apportionment of the Policy Valuation for Cargo of Different Qualities

Assume that a Valued Policy has a total Policy Valuation of 15 million yen and covers premium goods with an Insured Value of 6 million yen, standard goods with an Insured Value of 3 million yen, and lower-grade goods with an Insured Value of 1 million yen.

The total Insured Value is 10 million yen. The Policy Valuation is apportioned at 60%, 30%, and 10%.

The apportioned Policy Valuations are 9 million yen for the premium goods, 4.5 million yen for the standard goods, and 1.5 million yen for the lower-grade goods.

If only the standard goods suffer a 40% loss, the calculation is as follows.

4.5 million yen × 40% = 1.8 million yen

The basic Indemnity Amount relating to the standard goods is therefore 1.8 million yen.

Application Scenario 5: Underinsurance and General Average Contribution

Assume that the cargo’s Contributory Value is 20 million yen, the Insured Value is 16 million yen, and the general average contribution is 2 million yen.

The Insurance Proportion is 80%.

16 million yen ÷ 20 million yen = 80%

2 million yen × 80% = 1.6 million yen

The insurer’s basic liability is 1.6 million yen. The remaining 0.4 million yen represents the uninsured portion resulting from underinsurance.

Application Scenario 6: Underinsurance and Salvage Charges

Assume that the value of the salved cargo is 20 million yen, the Insured Value is 15 million yen, and the salvage charges are 1.2 million yen.

The Insurance Proportion is 75%.

15 million yen ÷ 20 million yen = 75%

1.2 million yen × 75% = 900,000 yen

The insurer’s basic liability is therefore 900,000 yen. The legal nature of the salvage charges, the insured perils, and the policy terms must also be confirmed.

Common Misunderstandings

Misunderstanding	Actual Position	Practical Point
The full Sum Insured is always paid when cargo is totally lost.	The Policy Valuation or Insured Value provides the calculation basis, while the Sum Insured, underinsurance, and other terms may limit payment.	Distinguish the Sum Insured from the Indemnity Amount.
The Policy Valuation and Sum Insured are the same.	The Policy Valuation is the calculation basis under a Valued Policy, while the Sum Insured is the contractual liability limit.	Confirm each amount separately in the policy.
If 20% of the cargo quantity is lost, the Indemnity Amount is always 20% of the policy amount.	The calculation uses the Insured Value proportion of the lost part, not the quantity ratio.	Different unit values may produce a different result.
The repair cost directly equals the Indemnity Amount for damaged cargo.	The loss ratio based on the Total Value of Sound Goods and Total Value of Damaged Goods is central to the Section 71 calculation.	Distinguish repair cost from depreciation in value.
The invoice price is always the Total Value of Sound Goods.	The invoice is important evidence, but destination market value may differ.	Check market and destination evidence.
The Total Value of Sound Goods and Policy Valuation are the same.	The Total Value of Sound Goods is the denominator in the loss-ratio calculation, while the Policy Valuation is the amount to which that ratio is applied under a Valued Policy.	Distinguish the ratio denominator from the multiplication base.
Under co-insurance, the full loss can be claimed from each insurer.	Each insurer is liable only for its subscription.	Do not confuse co-insurance with double insurance.
No apportionment is required when different cargoes are insured under one Policy Valuation.	Where loss affects only part of the property, the Policy Valuation must be apportioned appropriately.	Maintain value records by item, quality, or lot.
A general average contribution is always paid in full by the insurer.	Where the subject matter is underinsured relative to its Contributory Value, the recoverable contribution is reduced proportionately.	Cross-check the Contributory Value and Insured Value.
Salvage charges are always paid in full regardless of underinsurance.	Salvage charges may be reduced proportionately where the subject matter is underinsured.	Confirm the value of the salved property, Insured Value, and Insurance Proportion.
Once the calculation produces an amount, insurance payment is guaranteed.	Insured perils, exclusions, insurable interest, and the insurance period must still be established.	Separate the Indemnity Amount calculation from the coverage determination.
The amount claimed from a third party directly equals the liability insurance Indemnity Amount.	The relevant amount is the legal liability paid or payable by the insured.	Distinguish the amount claimed from the established liability.

Practical Decision-Making Checklist

Situation	Party to Consult	Points to Confirm	Action if a Problem Is Identified
Verifying the insurance policy	Insurer or insurance agent	Valued Policy or Unvalued Policy, Policy Valuation, Insured Value, Sum Insured, and deductible	Obtain the complete policy and insurance schedule.
A total loss occurs	Insurer and surveyor	Establishment of total loss, Policy Valuation or Insured Value, and Sum Insured	Submit the total-loss evidence and applicable value evidence.
Part of the cargo is totally lost	Insurer and cargo management personnel	Quantity, unit value, and Insured Value of the lost part	Prepare an Insured Value schedule by lot or item.
Damaged cargo arrives	Surveyor, market specialist, and insurer	Total Value of Sound Goods, Total Value of Damaged Goods, and loss ratio	Obtain evidence supporting both destination values.
Repair is being considered	Repair contractor, surveyor, and insurer	Repair cost, post-repair value, unrepaired value, and alternatives	Compare the economic alternatives and obtain approval where required.
Different items are insured together	Accounting personnel and insurer	Insured Value and allocation of the Policy Valuation by item or quality	Prepare an apportionment table under Section 72.
A claim is made under co-insurance	Lead insurer or each subscribing insurer	Each insurer’s subscription and payment procedure	Avoid duplicate claims and state each subscription clearly.
A general average contribution is claimed	General average adjuster and insurer	Contributory Value, contribution, Insured Value, and Insurance Proportion	Reconcile the adjustment statement with the policy.
Salvage charges are claimed	Salvor, shipping line, and insurer	Salvage charges, value of the salved property, Insured Value, and Insurance Proportion	Notify the insurer before making or agreeing payment.
Third-party liability is claimed	Insurer, lawyer, and counterparty	Legal liability, settlement terms, amount payable, and policy limit	Do not admit or settle liability without required insurer approval.
Underinsurance is suspected	Insurer and accounting personnel	Insured Value, Sum Insured, Contributory Value, and Insurance Proportion	Calculate the underinsurance ratio and identify the uninsured portion.
The insurance claim is submitted	Insurer or insurance agent	Calculation formula, value evidence, loss evidence, and rounding method	Submit a clear schedule showing the calculation basis.

Do Not Confuse the Amount of Loss, the Indemnity Amount, and the Sum Insured

The Amount of Loss is the actual economic loss suffered in relation to the cargo.

The Indemnity Amount is the amount recoverable under the policy after applying the Marine Insurance Act 1906 and the applicable policy terms.

The Sum Insured is the contractual amount that limits the insurer’s liability.

Category	Meaning	Example	Practical Point
Amount of Loss	Actual reduction in value or expense incurred	Value at destination falls by 3 million yen	Does not necessarily equal the Indemnity Amount
Indemnity Amount	Recoverable amount determined under the law and policy calculation rules	Policy Valuation of 12 million yen × loss ratio of 30% = 3.6 million yen	The Sum Insured and other policy restrictions must still be applied.
Sum Insured	The contractual amount that limits the insurer’s liability	Sum Insured: 12 million yen	The full Sum Insured is not payable merely because a loss has occurred.

Summary

Sections 67 to 75 of the Marine Insurance Act 1906 set out the rules for determining the measure of indemnity according to the type of policy and the nature of the loss.

Under a Valued Policy, the Policy Valuation provides the calculation basis. Under an Unvalued Policy, the Insured Value must be established and used as the basis.

Where part of the cargo is totally lost, the proportion represented by the lost part’s Insured Value is applied to the Policy Valuation under a Valued Policy. Under an Unvalued Policy, the Insured Value of the lost part is the Indemnity Amount.

Where cargo arrives damaged, the loss ratio is calculated from the Total Value of Sound Goods and Total Value of Damaged Goods and is applied to the Policy Valuation or Insured Value.

Where different types or qualities of cargo are insured under one Policy Valuation, that valuation is apportioned in proportion to their respective Insured Values.

Under co-insurance, each insurer bears the proportion of the Indemnity Amount corresponding to its subscription. This differs from double insurance, where multiple policies cover the same interest.

For general average contributions and salvage charges, underinsurance may reduce the insurer’s liability in proportion to the Insurance Proportion.

Where liability to a third party is expressly insured, the Indemnity Amount is generally the amount paid or payable by the insured, subject to the policy limit and other applicable terms.

When a cargo claim arises, the calculation must distinguish the Valued Policy from the Unvalued Policy and separately identify the Insured Value, Policy Valuation, Sum Insured, Total Value of Sound Goods, Total Value of Damaged Goods, Contributory Value, and Insurance Proportion.