Import and export traffic in our globalized world generally runs quite smoothly, but occasionally, the very real risks associated with the natural elements at sea or simple human error impact transportation adversely. Severe weather including wind, rain, swells and lightning storms can create a recipe for disaster for traveling ships. Less violent, but still serious issues can arise when technology fails or a mistake is made by a crewman which puts the ship and cargo in peril. General Average (GA) is the legal principle in maritime law that permits the ship-owner to voluntarily sacrifice part of the ship or cargo to save the rest or majority of the vessel and cargo. The term “average” in this case should be understood to mean “loss”. When an event is declared as a General Average, the ocean carrier is fully relieved of the liability of loss; that burden is instead, distributed collectively to each cargo owner who’s goods were on that ship.
The most common instance of GA is when crews jettison cargo to lighten a threatened ship; other bases for GA claims include stranding, fires and collisions that may occur either in international waters or on the high seas. These partial losses may be small or reflect millions of dollars in damage. An insurance policy with a General Average protection can, in these instances, protect cargo owners from thousands in out of pocket costs for these claims. It is important to note that there is a difference between General Average protection and Particular Average protection which is covered under a marine insurance policy.
To have a valid General Average claim, the sacrifice must be a voluntary, rather than inevitable decision, necessary for common interests, not merely a part of the property involved, and successful. When a GA claim is made, landed cargo will be detained until a cash bond or security deposit is provided prior to release. Until such bond or security is made, ship-owners hold a lien on the cargo (see our recent post about liens by clicking here). If the General Average claim is small, and the cargo is insured, ship-owners may release the cargo under a General Average Guarantee. This guarantee is a simple form that states the insurers agree to pay the ship owner the owed contribution for the General Average, salvage and any other incurred charges. This guarantee form should include the:
- Ship/ vessel name
- Date
- Brief description of goods insured
Note that you may be required to also place an Average Bond along with the Guarantee if the insured amount of the cargo is less than its contributory value. Please click here for more detail
The General Average claim will be assessed by a general average surveyor who is responsible for determining and reporting the official loss amount. This process can take years and the fee for the adjuster is also billed across the cargo owners. Once all the fees have been applied and totaled with the damages, billing is typically split by percentage according to the amount and value you had on the vessel. The ultimate goal of the General Average Principle is to place the carrier who incurred the loss in as close to a financial position as the carriers for whom the sacrifice was made.
If you are facing legal action with regard to a General Average claim or have any further questions, please contact us.
Other useful links:
http://www.shapiro.com/resource-center/resources/cargo-insurance-what-is-general-average/
