Salvage Clause
The salvage clause governs the rights and obligations of insurer and policyholder in dealing with damaged but still valuable property following a loss, in particular regarding the recovery, preservation and disposal of the residual value.
- Clause type
- Condition
- Origin/Market
- International programme
- Favours
- Neutral
- Negotiability
- Market standard
Purpose
Following a property loss, part of the damaged property often retains some economic residual value (salvage), such as machine parts, raw materials or stock. The salvage clause determines who is entitled to this residual value, who is responsible for its preservation, recovery and disposal, and how it affects the amount of indemnity. It thereby serves both to mitigate the loss and to prevent overcompensation of the policyholder.
Effect and limits
The insurer typically has the right, but not the obligation, to take possession of the damaged property and dispose of it itself; if it does not exercise this right, ownership remains with the policyholder, who must nevertheless allow the assessed residual value to be set off against the indemnity. The clause also typically provides that the policyholder bears, or is reimbursed for, reasonable and necessary salvage costs incurred to avoid further loss or preserve the residual value, and that both parties cooperate in assessing the residual value (for example, through a tender process or expert appraisal).
Negotiation and practice
For losses involving goods and stock, the precise design of the valuation method for the residual value is practically significant, since it materially affects the amount of indemnity ultimately paid. Policyholders should also clarify whether, and to what extent, their own salvage and clean-up costs are separately covered, for example under a debris removal clause, in order to avoid overlaps or gaps in cover.