This term derives from section 57 of the Marine Insurance Act 1906 (MIA) and refers to situations in marine insurance where;(a) the subject matter of the insurance is destroyed, (b) the subject matter of the insurance is so damaged as to be no longer be capable of still being described as the thing insured; or (c) the insured is deprived of the subject matter of the insurance forever. Section 58 of the MIA adds that where there is no news of a missing ship then after a reasonable period an actual loss may be presumed.
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According to the Marine Insurance Act, s.57, this occurs in three ways: (a) destruction of the subjectmatter; (b) subject-matter so damaged that ceases to be a thing of the kind insured (loss of specie’, e.g. cement becomes concrete); (c) the insured is irretrievably deprived of the subjectmatter. A fourth way (s.58) provides that if, after a reasonable time, there is no news of a missing ship, actual total loss is presumed.
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Actual total loss occurs (a) When the subject matter of the insurance is destroyed there is a clear case of actual total loss. The word “destroyed” is not to be interpreted literally. If a vessel is badly damaged by fire reducing it to charred metal, absolutely beyond repair, it is deemed to be total loss. Thus, total physical destruction is not contemplated. (b) When the goods are so damaged that they cease to be thing of the kind insured. This is known as “loss of specie.” If a vessel collides with rocks and is reduced to a complete state of dismemberment, thereby losing its characteristics form a ship fit to carry goods, an actual total loss occurs. When the sugar may be so damaged by sea water as to lose its character as sugar, there will be an actual total loss. Cement damaged by sea water may turn into concrete. Fish, fruit and other perishable goods may be so damaged by fermentation or putrefaction caused by sea water damage that they will lose their original character of the commodity insured. (c) Where the goods are so situated that the insured is irretrievably deprived of their possession. e.g., goods may be intact on a ship which has been captured during war and not released. If vessel founders at sea and it is practically impossible to save her by salvage measures an absolute total loss occurs. Cargo on board the vessel will also be actual total loss although it may be still intact. If a ship is missing and that if no news has been received after the lapse of a reasonable period, she is presumed to be an actual total loss by a marine peril.