Posted in Finance, Accounting and Economics Terms, Total Reads: 491
Definition: Abandonment and Salvage
Abandonment and salvage is an expression that is used to indicate relinquishment (or forfeiture) of ownership (or control) over an asset by one party and subsequent transfer of the claim to the second party that is involved. It is generally used as a clause in Insurance contracts. Thus when the owner of the property gives up ownership of a property/asset, the insurance company takes ownership of the abandoned property and may resell it. This clause is widely used in Marine insurance contracts. However, the party abandoning the property must state its intention in writing while doing so.
How it works: Let us understand how the clause works by way of a simple example. Let us say a vessel carrying goods has sunk in an unexpected circumstance. Now the owner of the vessel is not in a great financial condition and feels that the costs of recovering the vessel overweigh the benefit that he might get from recovering the goods. Thus he may wish to let go of the vessel and declare it abandoned. This action transfers the ownership to the insurance company (the Insurance company may refuse to take ownership also) which can now claim right of ownership to the salvage of the sunken ship and may decide to resell it.
Since a lot of technological advancements have been taking place, it is now possible to reclaim salvage from places considered not worthy before and hence has become highly lucrative for the salvaging party (most often an insurance company). Due to this, these claims are most often contested by numerous parties resulting in legal tussles.