Key takeaways
- Partial loss of goods delivered damaged is measured as (GASV − GADV) ÷ GASV, applied to the sum insured or insurable value.
- In a rising market the damaged goods may still sell above invoice value, so a claim can shrink to nothing if the formula is skipped in the insurer’s favour.
- In a falling market, ignoring the formula can pay the insured for price decline rather than physical damage. Either way the formula protects the integrity of the claim.
The provision
Sections 67 to 78 of the Marine Insurance Act 1906 deal with the measure of indemnity. Section 71 covers partial loss of goods, and its third sub-section is the one that governs most cargo damage assessments. In substance: where goods are delivered damaged at destination, the indemnity is the proportion of the policy sum (valued policy) or insurable value (unvalued policy) that the difference between gross sound and damaged values at the place of arrival bears to the gross sound value.
% depreciation = ( GASV − GADV ) ÷ GASV × 100
- GASV: gross arrived sound value, what the goods would have fetched at arrival if undamaged.
- GADV: gross arrived damaged value, what the goods actually fetch, including salvage.
- The percentage is applied to the sum assured or insurable value, not to the market price.
A numerical illustration
| Case | GASV | GADV | Depreciation | Result on a sum insured of 100 |
|---|---|---|---|---|
| Method applied | 100 | 60 | 40% | Indemnity of 40 |
| Rising market, damaged goods still sell at invoice | 130 | 100 | 23% | Indemnity of 23 on sum insured, not zero |
| Skipping the method on invoice value | — | 100 | — | ‘No loss’ against an invoice of 100 |
Illustrative numbers only.
Rising markets: the insured is exposed
When prices climb, salvage can equal or exceed the invoice value. A claims manager can then argue that there is no loss, because the damaged goods sold for what the buyer paid. The percentage method answers this: the goods lost value relative to what sound goods would have fetched. Insured parties and their brokers should ask the surveyor, in writing, to apply the section.
Falling markets: the insurer is exposed
When prices fall, a buyer can claim the entire fall as a ‘loss’ on damaged goods. Insurers that pay on that basis cover commercial price risk, which the policy does not insure, and invite audit queries and disputes. Here the insurer should ask its surveyor to apply the section so only physical depreciation is paid.
Why this matters beyond one claim
Few insurance classes are as market-linked. In marine cargo, an inverse relationship appears: when markets rise, claims fall, and when markets fall, claims rise. Applying the formula consistently removes the market from the claim, and removes the temptation to apply it only when it helps.
Educational commentary, not legal advice. Take advice on the wording of your own policy.
Questions answered
- What does Section 71(3) of the Marine Insurance Act 1906 say?
- For goods delivered damaged, the indemnity is the proportion of the sum insured equal to the difference between gross sound and damaged values at the place of arrival, divided by the gross sound value.
- What are GASV and GADV?
- GASV is the gross arrived sound value. GADV is the gross arrived damaged value, including what salvage fetches.
Cite this note
iCargoFinsure Research Desk. “Section 71(3) and Why Cargo Claims Move With the Market.” Manthan, iCargoFinsure, 20 Oct 2026. https://www.icargofinsure.com/manthanblog/section-71c-rising-falling-markets.html