Abandonment Clause – Definition

Cite this article as:"Abandonment Clause – Definition," in The Business Professor, updated September 17, 2019, last accessed October 28, 2020, https://thebusinessprofessor.com/lesson/abandonment-clause-definition/.


Abandonment Clause Definition

An abandonment clause is a clause in an insurance contract which permits the insured party or the property owner the right to abandon a damaged or lost property and still get the full payment from the insurance. This is possible when the damaged property cannot be repaired or if the cost to repair is higher than the value of the property. In this case the insurance company takes the full ownership of the damaged property.

A Little More on What is the Abandonment Clause

The abandonment clause is usually used by insurance companies when dealing with marine properties like ship or boats. A ship may sink or get lost at the sea if after a tremendous effort to find the ship or recover it becomes futile, the clause gives the owner the right to full insurance settlement. The damaged property is henceforth owned by the insurance company.

There are two circumstances which must occur for the property to be abandoned.

First, the property owner must do something that shows that he or she has given up the rights to the asset. Secondly, there must be the intention by the owner that they have surrendered the control over the property.

This means that the property owner must make a conclusive decision that he no longer needs the property. Any act is enough as long as the asset is left free for anyone who may need to claim it. Inaction or a situation in which the property is not in any use and there is no intention to release the property to the insurance company means the property owner has not given up the rights to the property. This also applies even in cases where the property is not used for several years.

For example, a farmer may decide not to cultivate his land for years or a quarry owner may not extract stones from a quarry, this does not mean legal abandonment to the property. The intention of a person to abandon a property may be expressed by the words of mouth he/ she denounces the property or from the way the owner treats that particular property. The treatment could be leaving the property recklessly unguarded in an unsafe environment. Also, leaving property unattended for a long time may show the intention of abandoning a property.

Hull insurance

The insurance policy that covers the ship damage cost is called Hull insurance. Hull refers to the body of the ship. Hull insurance includes all the other fittings attached to the body of the ship as an essential part. This insurance is one of the parts of marine insurance and is popularly known as Marine hull insurance.

It covers the destruction of the ship body or hull, machinery damage, fitting and fright losses, ship-breaking losses and disbursement losses. It also includes damages caused by your ship to other ships and also injuries caused by the ship to the workers.

Actual loss vs Constructive loss

In scenarios where the expected expense for the repair of a damaged ship is more than the total value of the ship, this is referred to as constructive total loss. Sometimes recovering a vessel from the place it’s damaged or lost is not economically viable resulting in the vessel being abandoned. In other cases, the damage would be to an extent that the expected expenses for repair are more than the value of the ship, abandonment is the best solution. If the requirement for a constructive total loss of an insured vessel is met, the policyholder is allowed to claim for full payment of the vessel.

A loss that arises when the insured vessel is completely wrecked or damaged in a way that it cannot be repaired for any further use is referred to as actual loss. This could be due to several circumstances such as theft, natural disaster or an accident. This should not be confused with a constructive loss which means the property is technically damaged partly but the cost of repair is too high hence the property to be rendered unusable.

When an actual loss arises, the policyholder will receive a disbursement from the insurance company which is equivalent to the insured value of the property. This insurance company also pays the total value insured in case of constructive loss though the property is not completely damaged but is beyond repair and also rendered unusable.

There are other types of property that can be abandoned?

These include personal and household properties, agreements, copyrights, patents, and inventions. There are certain rights especially in real property such as easements and leases that can also be abandoned.

For instance, a ranch owner who gives a sheep farmer an easement to use a path on his land for the sheep to use when is accessing the watering hole. The sheep owner later sells all his sheep and relocates never intending to return. This scenario demonstrates that the sheep has abandoned the easement since the sheep owner stopped using the path with no intention to use it again.

Abandonment of Contract

The abandonment of contract occurs when the parties to a binding contract behave in a way that makes the original contract invalid. This occurs when both parties violate the terms of the contracts. In this case, both parties must come up with a mutual agreement to abandon the contract. If the two parties cannot agree to abandon the contract, they might need to have a court case. If one party abandons the contract, the other one has a strong case to violate the contract.

In construction contract abandonment, it is where the contractor is completely unable to complete the work he or she was contracted for. This could be due to various reasons such as the contact fails to start the work in a reasonable period of time or the contractor may also fail to finish the project within the stipulated time frame. The project owner may force the contractor to reimburse the funds and abandon the contract.

Abandonment and salvage

This where one party or person abandons a property and another party claims that property later. It is a common clause in insurance contracts. An insurance holder can abandon a property that has been insured and the insurance company claims the right to salvage the property.

For instance, a homeowner may decide to abandon a home perhaps due to heavy floods, he is supposed to show his intention through a written notice to abandon the house to the insurance company. Consequently, the insurance company will sell this property to salvagers.

Reference for “Abandonment Clause”


https://www.investopedia.com › Insurance › Home Insurance




Academic research on: Abandonment Clause”

Hull Policy: Actual and Constructive Total Loss and Abandonment, Lord, H. M. (1966). Tul. L. Rev., 41, 347. This article provides an overview of the Hull policy in reference to actual and constructive loss. The author explains that the notion of full indemnity for partial damage has its historical background based on the law of marine insurance. The author illustrates that according to the hull policy, an actual total loss of a vessel occurs only when the vessel is destroyed or impaired by injuries thought to the extent of a trifling value. A vessel may also be considered to have actual total loss when ‘she’ has permanently withdrawn from the control or possession of the owner with no hope of recovering it. On the other hand, the author defines a constructive total loss to include a vessel that is so damaged or reduced to a condition that the costs needed to recover ‘her’ from the restraint is likely to exceed the repaired value. The two terms, constructive total loss and actual total loss have been explained in-depth.

… v. Morrison; an Analysis of the Diminished Effect of Congressional Findings in Commerce Clause Jurisprudence and a Criticism of the Abandonment of the Rational …, Irr, M. (2000). U. Pitt. L. Rev., 62, 815. This paper discusses the diminished effect of congressional finding in commerce clause jurisprudence using the case of United States v. Morrison. The author also offers criticism of the court’s abandonment of the rational basis test in the case and subsequent events. The paper describes the United States v. Morrison case citing that Christy Brzonkala had filed an assault lawsuit citing that she was sexually assaulted by Antonio Morrison and James Crawford, two varsity football players. During the hearing, Morrison confessed that Crawford had admitted to assaulting the girl at least two times. On the basis of these events, the author criticizes court’s utilization of the Commerce Clause.

New Law of Standing a Plea for Abandonment, Tushnet, M. V. (1976). Cornell L. Rev., 62, 663. This article explains the gaps in the legal definition of ‘standing’ as well as discusses the plea for abandonment. According to the author, the generalization of the concept has for a long time been worthless, yet the law of standing is acknowledged without any fear. The law is considered to lack rational conceptual framework, which makes it meaningless to the public. According to the author, ‘standing’ requires grouping together of doctrines under the name and appropriately applied. The article also claims that the Supreme Court has not provided any guidelines to the application of the standing law, and in turn, continues to use the doctrine only when it wishes to sustain a claim on the merits.

Family Values 1990’s Style: US Immigration Reform Proposals and the Abandonment of the Family, Trucios-Haynes, E. (1997). Brandeis J. Fam. L., 36, 241. This article discusses the effect of the US immigration reform proposals in the 1990s on family structure. Enid Trucios-Haynes explains that there is an increasing emphasis on the economic integration of world markets and the access to foreign markets to maintain economic growth in the US. Meanwhile, the national policy reflects a growing isolationism. The antagonistic reality is highlighted by proposals for restrictive immigration reform directly undermining the longstanding family unity goals reflected in immigration law. The proposals, according to the author, are undermining the longstanding family unity goals which are stipulated in the immigration law. The proposals are also believed to be in conflict with the emerging transnational identity of many individuals in the US with non-immigrant status.


Perspectives on newborn abandonment, BRADLEY, D. (2003). Pediatric emergency care, 19(2), 108-111. This study identifies the socioeconomic influences which may result in the abandonment of newborn and the common attributes of individuals that abandon their own infants. It further uses legislative framework to understand the effects of newborn abandonment as well as describe an emergency care program that is designed preserve newborns. The methodology applied involved a qualitative review of case files, headline news, and publications. Accurate statistics were not evident; however, the author considered extrapolations which were used to document the cases. Findings of the study revealed that there were at least 46 states with proposed legislation related to infant abandonment. The laws, according to the author, were designed to promote safety of the newborns who are surrendered to child protective agencies.

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