General Average is one of the oldest of all maritime laws, with roots dating as far back as 1000 BC.
In this post we will briefly explain what General Average means in maritime law and explore the Maritime Insurance implications.
What is the General Average Principal?
The General Average principal mandates that all stakeholders proportionately share any losses resulting from situations where crew members voluntarily jettison part of the ship or cargo to save the whole.
Where Does the General Average Principal Come From?
General Average law can trace its roots back to the island of Rhodes. The Rhodian law, established in approximately 1000 BC, outlines certain rules for stakeholders following emergencies at sea.
Certain hazards may force crew members to jettison certain items of cargo, or parts of the ship itself. In these scenarios, it is unreasonable to expect crew members to take the time to carefully choose precisely which items of cargo they voluntarily sacrifice.
General Average Laws Today
In the late 19th century, maritime companies still respected the General Average principles of mutual benefit and common security. However, different countries followed different systems for calculating losses, expenses, and contributions. These discrepancies inevitably caused some issues.
The York-Antwerp Rules (YAR) were first established in 1877 with the intention of standardising loss calculations and procedures across the world. YAR has undergone numerous amendments over the years, with the most recent revisions having been made in 2016.
Rule A of YAR states that:
“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.”
How Does the General Average Affect Maritime Insurance?
Maritime Insurance policies will usually include some cover for certain expenses associated with General Average principles:
- Jettisoned Cargo – Cover for cargo that crewmembers deliberately throw overboard to prevent the ship from sinking or capsizing during storms. Policies may also include cover for retrieving this cargo.
- Damage to Ship or Cargo – Crewmembers may be forced to take on some water to extinguish a fire. In doing so, they may voluntarily damage some of their cargo so as to save the ship, or the rest of the consignment.
- Docking Expenses – Ships may need to shelter in a port to allow for severe weather to pass, incurring unexpected extra expenses in the process.
- Legal Costs – There are often legal costs associated with General Average situations. Stakeholders may disagree on the value of lost cargo, for example, which could lead to a court case. Stakeholders may also have to appoint General Average Adjusters to assess the shared costs and allocate them accordingly.
Why You Need General Average Cover
If you do not have Maritime Insurance and your ship experiences an emergency at sea resulting in a General Average Declaration, then you may struggle to manage the resulting financial obligations:
- Contribution to the value of the cargo jettisoned or damaged.
- Expenses associated with retrieving jettisoned cargo, along with the business interruption, lost sales, and storage fees that may result from the salvage operation.
- Legal expenses that may arise from disagreements over the value of the lost cargo, or the fairness of the shared contributions.
Instances of lost or damaged cargo can be disruptive enough already. If you add the considerable shared financial responsibility that can arise from a General Average Declaration, without adequate cover in place, your maritime business could face a potentially devastating financial loss.
Get Comprehensive Maritime Insurance Cover From James Hallam
Everard Insurance Brokers are the specialist marine trading division of James Hallam Limited who are accredited Lloyd’s brokers. We have a dedicated team of experienced insurance professionals who are committed to protecting your business.
We specialise in offering tailored marine insurance cover. As we deal with a wide range of niche insurance providers, we can arrange the cover you need, whether you are looking to cover a single vessel or an entire marine trade supply chain.
Find out more about our specialist marine insurance services.