Let’s start with a few definitions and a bit of History—general average was established to regulate the distribution of a maritime loss sustained from voluntary sacrifice. This includes jettisoning cargo to save a ship or crew (or from extraordinary expenses incurred by one of the parties for everyone’s benefit).
When declared, every cargo owner is responsible in part for the cargo of others, as well as the ship itself.
Originally established in The York Antwerp Rules of 1890, the language was later reviewed and amended in 1994 and have been simplified below (by Chief Officer Abhishek Bhanawat):
- A loss is deemed to be considered under general average if and only if the reason of sacrifice is extraordinary or the sacrifice is reasonably made for the purpose of common safety for preserving the property involved .E.g. Capsizing due to inclement weather condition, shifting of cargo leading to excessive listing of vessel
- When two or more vessels are pushing or towing and are involved in a commercial reason, then general average applies if they disconnect from each other in order to preserve the vessel and the cargo
- General average shall be applied only for those losses which are linked directly with the material value of the cargo carried or the vessel. Any claims arising due to the delay, a loss or expense caused due to loss of market or any indirect loss must not be accounted into general average
- Each party’s share in the general average should not be determined by fault based approach. The risk borne by all should be equal in all aspects. Though if one of the parties actions has resulted in the loss, legal actions can be taken against those actions
- Average adjusters are individuals or institutions looking after claims arising due to general average. The parties of a general average claim should send a written notice to them within 12 months from the date of termination of the common maritime agreement between the parties involved. If they do not receive this notice the adjusters are entitled to proceed with all available information with them
- If a vessel or cargo is damaged by water, including damage by beaching or sinking a burning ship in order to extinguish the fire, then that damage shall be countable as general average. Also if a vessel is grounded intentionally for common safety, it excludes damage caused by smoke or heat of fire
- If salvage operations are carried out in order to save or prevent the loss of cargo, or to prevent or reduce an environmental damage, the expenditures involved and the remunerations to salvors should be allowed in general average
- If any vessel has been grounded and the cargo is liable to get damaged, then efforts can be made to refloat the vessel. However if such efforts cause damage to boilers or machinery of the vessel it shall be made as general average
- The procuring expenses of any cargo, fuel or ship’s stores upon being discharged as per general average act shall be admitted into general average
- Loss of freight incurred to the owner by due to loss or damage of cargo should be included in general average , however it is important to deduct from it the expenses which would have incurred by the owner for carriage as they were not actually incurred
- If cargo is sold in damaged condition, the general average amount is the difference between net sound and net damaged value
What are the conditions for general average? Here are the four prerequisites:
- Incurrence of an extraordinary sacrifice or expenditure
- Occurrence of an intentional or voluntary, but not necessarily inevitable, act
- Presence of a real and substantial, but not necessarily imminent, peril
- Resolution must be for the common safety and not merely to salvage part of the property involved.
What does this look like in policy wording?
Claims for General Average, Salvage Charges and those claims for direct physical loss or damage caused by the vessel being stranded, sunk, burnt, on fire or in a collision are payable in full irrespective of insured and contributory values. It is agreed that no right of subrogation, except through General Average, shall lie against any Assured named in this policy.
What does a general average clause look like?
This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice (or, if there is no contract of affreightment, according to Foreign Statement or to York-Antwerp Rules) incurred to avoid or in connection with the avoidance of loss from any cause except those specifically excluded herefrom. For the purpose of claims for general average contributions and salvage charges recoverable hereunder, the subject matter insured shall be deemed to be insured for its full contributory value.
How is a General Average Claim Adjusted?
General average shall be applied only for those losses which are linked directly with the material value of the cargo carried or the vessel. Any claims arising due to the delay, a loss or expense caused due to loss of market or any indirect loss must not be accounted into general average.
Each party’s share in the general average should not be determined by fault-based approach. The risk accepted by all should be equal in all aspects. Though if one of the parties actions has resulted in the loss, legal actions can be taken against those actions