General average is an ancient form of spreading the risk of sea transport and existed long before marine insurance. General average means “general loss”, as opposed to a particular loss under marine insurance. A general average act is defined in Rule A of the York Antwerp Rules 1994 and Marine Insurance Act as follows:
“There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.”
The five component parts of a general average loss are therefore:
a) an extraordinary sacrifice or expenditure, b) which is intentionally
c) and reasonably made d) against a peril,
1. With reference to marine insurance, write short notes on the following:
(a) Port of refuge (b) Particular average and General average (c) Total loss and Constructive loss
(a) Port of refuge : It is a port on place that a vessel diverts to when her master considers it is unsafe to continue the voyage due to a peril that threatens its safety.
Where such a deviation is for the preservation from peril of the property involved is a common maritime adventure, it will generally constitute a general average act.
Where the ship-owner or carrier is a party to a contract of carriage, discontinuation of the voyage is deviation from the contract.
A deviation to a port of refuge will be regarded as a justifiable deviation if the reasons for the deviation can be shown to be a valid one within the terms of the contract. In such a case all contractual rights will be unaffected.
Valid reasons for deviating to a port of refuge usually include:
(i) Weather, collision or grounding damage affecting the seaworthiness of the ship (ii) A serious Fire
(iii) Dangerous shift of cargo (iv) Serious machinery breakdown
(v) Any other accident causing a serious threat to the vessel on her cargo (vi) Shortage of bunker
Paragraph (a) of Rule X – Expenses at pent of refuge etc – of the York- Antwerp Rules 1994 provides that ‘when a ship shall have entered a port of refuge fro any of the above mentioned reasons, the expenses incurred shall be admitted as General Avg.’
A port or place where a vessel seeks temporary shelter is not a port of refuge (Eg. Due to adverse weather) since running for shelter is ‘ordinary practice and not extraordinary’ in context of Rule A of the York Antwerp Rules.
Particular Average and general Average A marine loss may be
either:-1. A total loss or
2. A partial loss (termed average)
Partial Loss
A partial loss may be either:
1. Particular average (PA) i.e., accidental partial loss or 2.General average (GA) i.e., intentional partial loss 1. Particular Average:
It is a partial loss, proximately caused by a peril insured against and which is not a General average loss. Thus, structural damage proximately caused by collision, grounding, heavy weather etc. (perils of the seas) would normally be caused as a ‘PA’ loss.
2. General Average:
General average is an ancient form of spreading the risk of sea transport and existed long before marine insurance. General average means ‘general loss’, as opposed to a particular loss under marine insurance.
It is a system, in which all interests involved in the adventure, viz., Hull and Machinery, cargo and Freight at risk must contribute to the losses voluntarily incurred to save all interests on board.
The principle is ‘That which has been sacrificed for the benefit of all, shall be made good by the contribution of all, that got the benefit from the General Average Act’ The object of ‘GA’
is to ensure, that the owner of the ship or cargo, who has incurred an expenditure or suffered a sacrifice of his property, in order to extricate the ship (and the cargo) from a perilous position, receives a contribution to his loss, from all those who have benefited from this action A ‘GA’ loss is a partial loss, incurred through a deliberate act performed with the intention of protecting the interests of all involved, in a voyage from a danger, which threatens them all. ‘GA’ losses are shared equally by all parties to the ‘common adventure’ each contributing in proportion to his percentage of Net arrived values.
The five major component of a general average loss are therefore a) an extraordinary sacrifice or expenditure
b) which action taken was intentional or voluntary and not inevitable c) and reasonably made
d) against a peril
e) in order to benefit the common venture
e.g., Damage done when over working a ships engine while afloat to prevent grounding in
‘ordinary’, whereas damage done to engines, when already aground, in attempting to re-float the vessel is a ‘GA’, since this is an extraordinary Act.
Total loss and constructive loss A total loss may be either:
1) An Actual Total Loss (ATL) or 2) A constructive Total Loss (CTL) Actual Total Loss:
There is an Actual Total Loss, where the subject matter of insurance is completely destroyed or so damaged as to cease to be a thing of the kind insured, on where the insured is irretrievably deprived of it or where properly is posted ‘missing’
e.g. when a ship is missing, viz., has not repented for several weeks Constructive Total Loss:
As per the Marine Insurance Act, a Constructive total Loss occurs, when an assured is deprived of possession of his ship on goods by a peril insured against and where the subject matter of insurance is reasonably abandoned by the Insured, on account of its actual loss appearing unavoidable, because it could not be prevented from Actual Total Loss without expenditure that would exceed its value after expenses have been incurred.
After ‘valid’ abandonment, the Insurer is entitled to take over the interests of the Assured in whatever remains of the insured property including proprietary rights viz.
The right to any freight, that was in the course of being earned when the casualty occurred The right to take over the ship or its goods
The right to dispose of the ship or its goods as they think fit and to retain all the proceedings (even if this is more than the claim actually paid)
Why does a ship require Marine Insurance cover? Explain Hull Claims and Cargo Claims related with Marine Insurance. State the related documents and
information required from the ship in this regard highlighting their validity.
Ans. Marine Insurance is a method where by one party called assuror or underwriter, agrees for a stated consideration known as a premium, to indemnify another party, called the insured or assured, against loss, damage or expense in connection with the commodities at risk if caused by perils enumerated in the contract known as a policy of insurance. The policy pledge to compensate the insured by does not guarantee the continued existence or the replacement of the good itself.
Insurance provides individuals and organisations with financial protection against the outcome of events which involve monetary loss or liabilities which could not be predicted or anticipated and over which they have no effective control. In the case of ship-owner or ship manager insurance is usually confined to financial consequences of damage to its own ship, damage to the people’s property or death or injury to people all ship-owner and shipping merchants should insure this property against the loss or damage. They are not legally bound to insure except for liability of oil pollution claim. However the modern methods of financing trade and shipping makes it essential that they do so. The capital exposed to loss in modern ship is so huge that no company can afford to bear the liability incurred. Besides most of the tonnage is mortgaged to banks and other financial institutions and they require insurance as collateral security.
Hull Insurance claims:
Following any cases of Hull damage e.g. collision, grounding etc. ship owner/managers insurance dept. will normally immediately inform H & M lead
underwriter via broker. As per clause 49 of IHC 1.11.02, lead underwriter will instruct a surveyor to ascertain the nature, cost and extent of the damage, necessary repairs and fair and reasonable cost there of and any other matter which leading underwriter or surveyor considers relevant. The lead underwriter will make decision in respect of any claim within 28 days of receipt by them of the appointed average adjusters final adjustment or, if no adjuster is appointed, a full document claim presentation
sufficient to enable the underwriter to determine their liability in relation coverage and quantum. The underwriter all discharged from the liabilities of the claim if it is not notified within 180 days of the assured becoming aware of accident or occurrence.
Documents and information required from the ship.
In addition to copies of the relevant insurance policies (which will be supplied by the owner), documents and information listed below may be required to accompany a claim lodged by owners against underwriters
Deck and E/R logbooks covering the casualty and the repair period.
Master’s and / or chief engineers detailed report (as appropriate)
Relevant letters of protest.
Protest and extended protests.
Underwriter’s surveyor’s report
class surveyor’s report
Owner’s superintendent’s report.
Receipt and account for repairs.
Accounts covering and dry-docking & general expenses.
Details of E/R stores and spares consumed.
Cargo Claims:
1) When cargo loss or damage is discovered a delivery note or consignment note will be claused with a note of the loss or damage.
2) The cargo owners will immediately inform his insured if it is outside UK, this is done thro’ the local Lloyds’ agent in case of Lloyds’ policy.
3) If loss or damage is extensive underwriters will normally ask for a survey report. This is arranged by Lloyd’s agent, who can appoint surveyor and pay small claims locally.
4) After the claim is quantified and documented the underwriter settles the claim thro Lloyd’s agents,
5) Underwriter then decides (under the doctrine of subrogation) whether or not claim is worth pursuing against carrier.
6) If he decides to pursue the claim be immediately makes a written claim on the carrier, failure to claim may prejudice his right of recovery.
7) The claim (including surveyor’s fee) is settled by the carrier in the currency stated in the policy or on the certificate of insurance.
8) The carrier if a PI member then claims on his club policy.
Documents usually required are:
Bill of landing / Airway bill, commercial invoice, insurance certificate, copy of Notice of claim reported against carrier, Documentation related to outturn / receipt of goods, local carrier’s way bill where applicable, copy of temperature records, where available copy of instructions to carrier regarding carriage temperature, where applicable invoices to confirm salvage / sale price.
Que: What are the principles of modern salvage law? What is general average? With context to G.A. explain (i) Entitlement (ii) Artificial (iii) Adjustment (iv) contestation
Ans: Salvage can be described as a service rendered to save maritime property in danger. Salvage can be characterized by the following:
1. Salvage service must be voluntary
2. Salvage property must be recognized maritime property 3. Subject must be in danger
4. Salvage must be successful.
Let us look at above … in
detail-1) Vessel crew pilot cannot claim salvage as they are bounded by contract to protect the vessel and its cargo from danger. Tugs arranged previously for to wage cannot claim salvage. However tugs called in an emergency can claim salvage.
2) Subject can be vessel cargo special equipment on board ship boundaries as any other maritime property out risk of being lost if salvage is not rendered. Provisions crews effect etc are not qualify for salvage
3) Dangers must be identified at commencement of salvage. However it might not be immediately present or imminent e.g., a vessel which has lost its propeller is not if any immediate danger, if it is at sea however, if may take lead to grounding.
4) Salvage claim is paid out of the value of the property saved hence salvage must be successful (at least partly). Hence the term ‘No cure No pay’ viz if salvage operation is unsuccessful there can be no value to effect payment.
Beneficiaries of salvage are liable to pay salvage These includes
1. Owner of vessel
2. Owner of any special equipment fitted on board 3. Charters of vessel
4. Owners of ‘salved’ cargo 5. Owners of bankers on board GENERAL AVERAGE ACT:
General average is an ancient form of spreading the risk of sea transport and existed long before marine insurance. General average means “general loss”, as opposed to a particular loss under marine insurance. A general average act is defined in Rule A of the York Antwerp Rules 1994 and Marine Insurance Act as follows:
“There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.”
The five component parts of a general average loss are therefore:
a) an extraordinary sacrifice or expenditure, b) which is intentionally
c) and reasonably made d) against a peril,
“A common maritime adventure” is a voyage in which several parties have some financial interest. The policies to a common maritime adventure would include the ship owner.
(i) Entitlement to G.A.: A claimant is entitled to obtain contribution from other parties to the common venture (cargo as the ship). But a carrier is not entitled to obtain
contribution in GA from cargo if the peril arises as a result of his actionable faults as negligence in law as that of his employees
(ii) Artificial G.A: is the granting of a claim for G.A. when even when one of the fine basic principle found in Rule A of the York Antwerp Rules is not present
claims for G.A. were originally for .. of cargo cutting away of anchor cables etc.
carried out for the common safety in order to avoid imminent ship wreck caused by a peril of sea
The creation of artificial G.A was part of slow evolution favouring ship owners
If peril was an essential ingredient of G.A if was reduced in importance by “Safe prosecution” rule and peril did not have to be immediate provided that it was real and not imaginary.
Some numbered rules and do not retain interpretation rule of Rule paramount.
Thus it is not dear weather the principles in act 193 have precedence over the rules in out 194 or vice versa. Articles 203allows particles to opt out of changes 10 by agreeing to a different set of rules.
Because there was no specific peril read. In rule x (b) and x1(b) claims may be made for there is no peril. This is G/a by agreement as artificial G.A.
(iii) General Average Adjustment
Assessment of each party’s contribution is caused on average adjustment
Governed by York Antwerp Rules 1974
The rules ensure that all the average adjustments. To as international standard
The adjustment is made by an average adjuster
The average adjuster is appointed by the ship owner to collect all the facts surroundings the incident to collect various parameters from various policies before the cargo is discharged and to ensure payment of contribution
The adjuster … have all the facts and figures at his disposal
In addition to calculating contributions due from each party he will be frequently requested to adjust any types of claim.
The declaration of G-A is normally made by ship-owner, but in criteria countries any one of the interest parties may initiate an adjustment
A declaration must be made before cargo is discharged and to ensure payment of contribution
Ship owners will usually allow the discharge of cargo when owner interested parties to the ventures provided suitable security.
(iv) Contestation to GA: GA has been in subject to dissatisfaction for the following main 6 reasons
1. Exoneration of carriers for the faults of master and crew under the Hague rules, carrier is exampled from liability for the negligence of its employee
2. interpretation of rules: Numbered Rules are preferred over lettered rules 3. emergency of marine insurance has made GA reluctant
4. Expenses and delay in adjustments
5. Problems in collision of G A contribution 6. Small G A
Que: Write short notes on the following.
(i) Lloyd’s open form (ii)General average and particular average (iii) Bill of lading (iv)Treaty convention and protocol