Discover the history of the law of General Average

Written on the 11th of August 2009 by Famous Logistics

We all insure our cars, homes, businesses and our life for peace of mind. If you are hauling cargo across the Atlantic, the Pacific or the Indian, wouldn't you too want peace of mind to know that if any loss or damage occurred you could be repaid the value of the goods? What about cover for someone else's loss, do you need it?

Cargo Insurance covers goods in transit, while they move. If you don't have insurance then you risk losing your goods and your money. Cargo Insurance pays based on the protection you buy. If you insure goods for half their real value, you will only be reimbursed for half a claim. Just be sure you have insured goods for their full value.

You may be aware of insuring cargo for damage or loss of goods, but even if your goods arrive safely, you could be forced to pay for someone else's loss. This is a concept called General Average and is a form of cost sharing or mutual insurance amongst parties involved in maritime adventure. Imagine a fully laden vessel is sinking, the master has to make a quick decision in order to save the vessel and her cargo. He orders that the vessel be lightened by tossing some of the cargo overboard. Cargo that is jettisoned overboard to prevent the ship and remaining cargo from sinking in heavy weather is regarded as a loss, and it is held that all should contribute towards reimbursement. If you are a shipowner and your cargo remained on the vessel, you benefited through the safe arrival of your property and so it is believed that you should make a contribution to the owner of the lost cargo. It seems natural that the most equitable solution will be to allocate loss among the many parties that benefit from the intentional sacrifice.

If you are faced with a General Average claim, contributions payable by both the shipowner and cargo interests are invariably insured under hull and cargo insurance policies, but uninsured interests still have an obligation to settle their contributions as General Average exists independently of insurance. As an example of potential contributions, if the total General Average Claim is $1m, the contributions would be adjusted as follows based on net values of the ship and 4 cargo interests:

Contributions are more or less determined by comparing the value of an individual's interest onboard a vessel (such as the value of your cargo) with the overall valuation of the marine adventure (ship and all her cargo, bunkers, freight etc).

General Average is not just limited to jettison cargo. There are many other intentional sacrifices of an extraordinary nature that may give rise to general average contributions, these could include, a vessel in danger of sinking is intentionally grounded. The hull damage arising out of the grounding is General Average. Everyone would be required to pay their fair share of the hull damage.

The law of General Average is very old. It has a historical basis in the ancient sea codes of the early Mediterranean civilisations. It is part of the maritime law of virtually every seafaring nation.

If you have any further need for information regarding General Average please find out more on our Famous Logistics website.

Copyright Famous Pacific Shipping Pty Ltd. 2009. All Rights Reserved. This article may not be used without the prior written consent from the author.