General Average is a principle in marine insurance whereby all parties involved in a sea venture share losses proportionally. This principle applies specifically to losses that result from voluntary sacrifices made to save the entire voyage during emergencies. This concept ensures that the financial burden of such decisions is equitably distributed among all beneficiaries of the venture.
Definition and Legal Standing
In the realm of marine insurance, General Average refers to a legal doctrine under which any extraordinary sacrifice or expenditure deliberately made to protect the ship and cargo during a perilous voyage is shared proportionately by all stakeholders. This is codified in maritime law and is crucial in ensuring that the costs of saving a venture are not unfairly borne by a single party.
Historical Context
The principle of General Average dates back to ancient maritime trade and is believed to have its origins in the Rhodian Sea Law. Over centuries, it became an integral part of maritime law through the York-Antwerp Rules, which standardize the application and procedures related to General Average.
Key Aspects of General Average
Voluntary Sacrifice
To invoke General Average, the action taken must be voluntary and reasonable. This includes deliberate actions such as jettisoning cargo, flooding compartments to douse a fire, or cutting away wreckage. These measures must be aimed at preserving the remaining property onboard.
Common Maritime Peril
The threat must be common to the whole adventure, implying that the danger affects the entire venture, not just individual interests. This includes instances like severe storms, ship collisions, or other emergent sea dangers.
Successful Outcome
The sacrifice or expenditure must contribute to the successful salvation of the ship and remaining cargo. If the voyage is nonetheless lost, the claim of General Average may not hold.
Application and Adjustments
Calculation and Distribution
General Average is calculated by apportioning the total expenditure or loss over the saved value of the ship and cargo. For instance, if cargo worth $200,000 is jettisoned to save $800,000 worth of ship and remaining cargo, the total saved value is $800,000. The loss ‘($200,000)’ is then distributed among the interests proportional to their saved values.
Involvement of Adjusters
An average adjuster, typically a specialist in maritime claims, is often engaged to determine and allocate the General Average contributions. Their expertise ensures fair and accurate settlement among parties.
Security and Contributions
To ensure contributions, shipowners often seek security through deposits or guarantees from cargo owners before delivering the salvaged goods. This binding ensures that all parties uphold their financial responsibilities.
Examples of General Average
- Example 1: Cargo Jettison: During a storm, the captain decides to jettison a portion of the cargo to lighten the ship and prevent capsizing. The costs of the jettisoned cargo are then shared by all owning interests proportionally.
- Example 2: Fire Extinguishing: A fire breaks out, and sea water is used to extinguish it. The water damages both the cargo and the ship. The cost of the damaged goods due to the firefighting effort is shared under General Average.
Related Terms
- Marine Insurance: Insurance covering the loss or damage of ships, cargo, and other maritime properties.
- Particular Average: Losses borne individually and not shared by all interests in the venture.
- York-Antwerp Rules: A set of rules providing the international standards governing General Average.
FAQs
What are the York-Antwerp Rules?
How is General Average different from Particular Average?
Who covers General Average contributions?
References
- York-Antwerp Rules, International Convention
- Marine Insurance Act 1906, UK Legislation
- Principles of Maritime Law, Maritime Academy Publication
Summary
General Average is a foundational principle in marine insurance aimed at equitably distributing the financial impact of voluntary sacrifices made to preserve the entire maritime venture. Originating in ancient maritime trade, it ensures fair sharing of losses among all stakeholders, governed by standardized rules like the York-Antwerp Rules. This practice exemplifies the collective responsibility inherent in marine ventures, fostering fairness and shared risk management.
