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Lighthouse - May, 2019.

GENERAL AVERAGE AND THE IMPORTANCE OF MARINE CARGO INSURANCE

General Average is a principle of maritime law, whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.

The principle underlying General Average is generally regarded as having been first codified, in the Rhodian Law sometime in the 9th century B.C based on the principle “That which has been sacrificed for the benefit of all shall be made good by the contribution of all”.

In recent times, recognizing the need to formulate the principle to create uniformity across seafaring nations, a set of rules were laid down following conferences in York and Antwerp in the late 19th century, resulting in the York-Antwerp Rules, which is the standard rules relating to General Average in modern times.

The one crucial element that makes all the difference, when a General Average is declared is whether the cargo is insured or not and whether such insurance cover General Average and Salvage Claims. Marine Cargo Insurance can make all the difference in a General Average. The importance of Marine Cargo Insurance is twofold. The same not only indemnifies the policyholder for loss or damage to the cargo, but will also respond to General Average and Salvage Claims.

When a General Average is declared, an Average Adjuster is appointed to co-ordinate the claims, who formulate the extent of the loss which can include repairs to the vessel, salvage and towage costs, loss or damage to cargo survey costs etc. These costs, whilst not impacting directly on some parties, needs to be shared. The Average Adjuster approaches the parties to the voyage for contribution towards these costs in line with the principle of General Average.

If the cargo is insured, the insurers will deal with the Average Adjuster and provide a Guarantee to satisfy the claims of the General Average; leading to the release of the undamaged goods to the owner.

On the other hand, if the cargo is not insured, the Average Adjuster will request a cash deposit from the owner before releasing the undamaged goods. In certain circumstances, this can be a significant amount of money, which can put a great strain on the cargo owner.

It is therefore of paramount importance that the cargo is insured, prior to the shipment and special care should be taken to ensure that such insurance covers General Average and Salvage Claims. This will not only protect you for loss or damage to the cargo themselves, but will deal with any General Average and Salvage Claims, should such a situation arise.

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