However, no time frame is set for determining when the assured can no longer recover the ship or goods, so over time this has become a matter of case law, dating back to the war between Iran and Iraq in the 1980s, when a number of ships were trapped in the Shatt al Arab waterway by Iraqi forces. As such, a time period has been set forth in many war risk insurance policies.

One standard detainment clause, taken from the Institute War and Strikes Clauses – Hulls 1.10.83, reads: "In the event that the vessel shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the assured shall thereby have lost the free use and disposal of the vessel for a continuous period of 12 months, then for the purpose of ascertaining whether the vessel is a constructive total loss, the assured shall be deemed to have been deprived of the possession of the vessel without any likelihood of recovery."

Clauses, of course, are subject to negotiation and in some cases a policy will pay out a constructive total loss after just six months.

In Sailor Inc. F/V v. City of Rockland, 324 F. Supp. 2d 197 (D. Maine 2004), plaintiff asserted claims for breach of contract, negligence, and breach of a joint venture agreement, seeking damages in excess of $ 1.6 million including damages for lost profits, consequential damages, and out of pocket expenses. Sailor had a commercial fishing vessel docked at a fish pier owned by the City of Rockland, and the boat sank while docked there. It was alleged the boat sank because a bolt protruding from the wharf punctured the vessel's hull. The city moved for partial summary judgment to limit the damages to the fair market value of the vessel before sinking. The court noted that under maritime law, a vessel was considered a constructive total loss when the cost of repairs was greater than the fair market value of the vessel immediately before the loss. When a vessel was a constructive total loss, damages for loss of use were not recoverable. The city argued that the vessel was a constructive total loss. The court noted that salvage and salvage value did not figure into the constructive total loss equation. The court found that the fair market value of the vessel immediately prior to its sinking was between $150,000 and $180,000. The estimated cost of repairing the vessel was $187,543. Because the cost of repairing the vessel exceeded its fair market value, the vessel was a total constructive loss.

In T Moore Servs., LLC v. Rentrop Tugs Inc., 2012 U.S. Dist. LEXIS 28210 (W.D. La. 2012),  the salvage company T. Moore hired a towing company to bring a scrap rig to the salvage yard. In the process of being towed, the rig sank and T Moore claimed the towing company was negligent.  T Moore, the salvage yard owner argued that it was worth $913,750. Rentrop Tugs, who was helping move the vessel at the time it sank, claimed the value was only $36,800. According to the court, neither party had included the sunken rig's condition at the time of loss in their calculations. The court found a genuine issue of material fact existed as to the value of a sunken vessel and therefore did not decide whether the vessel was a total or constructive total loss.

Commercial Property:

In a property loss, property damage is treated as a constructive total loss when the cost of repairing the damaged property exceeds the value of the property. According to Black's Law Dictionary, Fifth Edition, a constructive loss is "one resulting from such injuries to the property, without its destruction, as render it valueless to the assured or prevent its restoration to the original condition except at a cost exceeding its value." It follows that a constructive total loss "in insurance, exists whenever an insured item of property has lost its total usefulness and insured is deprived of its benefit totally."

A typical exclusion in a property policy may read as follows: "We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss…The enforcement of any ordinance or law…requiring the tearing down of any property, including the cost of removing its debris." And it is enforcement of the law that has led to the property's being a constructive total loss.

The total loss of the property would not mean however that the insured is entitled to replacement cost. That provision applies only when the property is actually repaired or replaced, and is subject to the least of the amount actually spent to repair or replace, the cost to replace the property on the same premises, or the policy limit.

Yet in a situation when part or the remainder of a building must be destroyed following a covered loss, the insured may be entitled to its actual cash value. The policy language says the insurer will not pay for loss caused by the insured's being required to demolish the remainder of the building, but the loss settlement provisions of the CP 00 10 allow the insurer to "pay the value of lost or damaged property." If repair or replacement are options, then these are subject to this provision:  "the cost to repair, rebuild or replace does not include the increase cost attributable to enforcement of any ordinance or law…"

It is the ambiguity of language addressed in the case of Denise Danzeisen v. Selective Insurance Company of America, 689 A.2d 798 (1997). Regarding whether by application of a municipal code governing razing a building, the insured was entitled to have the property declared a constructive total loss, the appellate court referred to the case of Feinbloom v. Camden Fire Insurance Association, 149 A.2d 616 (1959). In that case (citing sources stating that if public regulation prohibits rebuilding, a loss is total even though some portion of the building remains), the decision was made that no language of the insurance policy excluded liability for the constructive total loss; that precedent was followed in the Danzeisen case. And, with regard to the ordinance and law provision, the court held "If, in the face of the general rule [Appleman and Couch] defendant had sought to exclude responsibility for enhanced losses occasioned by a governmental requirement to raze the balance of property substantially destroyed by a catastrophic occurrence, it could have stated the exclusion with far greater clarity." … the court held that if the defendant had sought to exclude responsibility for additional losses caused by a governmental requirement to remove the balance of property that had been substantially destroyed by a catastrophe, that the exclusion could have been worded more clearly. 

It would therefore appear that the actual cash value of the building is something apart from the cost to demolish, which should be borne by the insured. As such, this may fall to how this gets  interpreted in the jurisdiction where the property is located.

Homeowners:

In homeowners, a total loss occurs when the home is either totally destroyed beyond usability, or it would cost more to repair than its actual cash value. When an insurance company is determining if a home is a total loss, it looks primarily at two types of loss. The first is actual loss. Actual loss is when everything is destroyed, such as in a fire loss. The second type of loss is constructive loss. This is when a home is not completely destroyed, but the cost to repair it would exceed its value. Courts have generally defined this type of total loss as one in which a building is destroyed to such an extent that local ordinances, building codes, or regulations prevent the homeowner from rebuilding the home. In either case, the insurance company is only liable up to the total amount insured.

In Wickman v. State Farm Fire & Cas. Co., 616 F. Supp. 2d 909 (E.D. Wis. 2009), the insured's home sustained fire damage which they contended resulted in total destruction of the home. The insurer disagreed with that assessment but paid nearly $750,000 in repair costs. Without notice to the insurer, the insureds decided to demolish the house and build another. They contended that they were entitled to the additional cost of replacement under Wisconsin's valued policy law, Wis. Stat. § 632.05, and under the insurance policy. The court found that no reasonable fact finder could conclude that the house was "wholly destroyed" for purposes of the valued policy law. From photos taken shortly after the fire, one could not reasonably maintain that the identity of the structure as a building was destroyed. Moreover, a building inspector found that only 35 percent of the building had been structurally damaged. Similarly, the insured's claim under the policy was that it was necessary to replace the home as opposed to repair it. Absent a qualified expert opinion that replacement was a more feasible option than repair, or that the actual cost of repair would have exceeded what was already paid under the policy, the court found that the insureds could not prevail. 

In Citizens Prop. Ins. Corp. v. Ashe, 50 So. 3d 645 (Fla. Dist. Ct. App. 2010), the insured's house was completely destroyed by a hurricane. The company argued that the trial court erred in denying summary judgment under the so-called "total loss recovery rule," asserting that the insured was fully compensated for his loss with payment of the policy limits under his flood policy and the partial payment under the wind policy. The company also contended that the trial court erred in granting the insured's motion in limine and excluding the introduction of evidence that the home was covered by flood insurance. [In the United States, a motion in limine is Latin for a "motion at the start." Essentially, this is a request that is sent to a judge and can be used in either civil or criminal proceedings.] The insured asserted that the trial court erred by precluding him from submitting to the jury a claim that wind caused a total loss to his insured property under Florida's Valued Policy Law (VPL), § 627.702, Fla. Stat. (2004). The appellate court found that nothing in the insurance policy supported requiring the company to pay for actual wind damage in the event of partial loss, but only a pro rata amount of the total wind damage in the event of a total loss. The trial court erroneously precluded the insured from introducing evidence to prove that the wind caused the total loss to the property before the storm surge arrived, thereby triggering the valued policy law.

Automobile:

A vehicle is deemed a total loss when it is damaged to such an extent that it cannot be restored to its pre-loss condition. However, if the vehicle is damaged but can be repaired, but the repair cost exceeds the insured value of the vehicle by 75% or greater, then it is a constructive total loss.

In Allen v. American Sec. Ins. Co., 53 N.C. App. 239 (N.C. Ct. App. 1981), the purchaser Allen filed a claim against the dealer for violation of N.C. Gen. Stat. § 20-109.1. This statute defined a wrecked automobile as a salvage vehicle whenever an insurance company, as a result of having paid a total loss claim, acquired title to a vehicle, and obtained possession or control of a vehicle, for any cause other than theft. The trial court granted summary judgment to the dealer. On appeal, the court affirmed the judgment of the trial court. The court held that the insurance company had never acquired title to the vehicle because it had never paid a total loss claim. Further, the court determined that the automobile dealer was not an insurance company and as such was not governed by N.C. Gen. Stat. § 20-109.1. The court held that N.C. Gen. Stat. § 20-109.1 applied only to the payment of an actual total loss claim and was not applicable to the purchaser's claim because the loss claim paid was substantially lower.