Why It’s Important to Know How General Average Works

Hopefully, you haven’t had to experience cargo loss, at any level. There have been several recent instances of cargo ships getting hit by storms or rough waters, and losing containers overboard. If you haven’t gone through this, you may not know the liability that follows. This is where the rules of “General Average” can come into play – and if it is declared, then everyone who has cargo on board will have a prorated share of the total loss.

The York-Antwerp Rules of 1994 present the detailed guidelines of General Average, and defines how loss is distributed when cargo is lost, or is intentionally jettisoned in order to save the ship, crew, or even remaining cargo. General Average was prompted by incidents where a ship’s crew had to make a difficult decision to take extreme measures, so to ensure the safety, recovery, and survival of those involved. Given that, the rule was instituted to eliminate bias.

This means that, if you don’t have marine insurance included in your policy, or don’t take it at the time of the shipment, you could be liable for a portion of the total loss declared. Additionally, even if your cargo is undamaged and ready to be delivered, the timely release of your shipment may be dependent upon your ability to post a security in the form of cash, bank guarantee, or bond for the amount owed.

General Average was originally introduced in the York-Antwerp Rules of 1890, and later, amended in 1994. Some of the main points are:

• Loss is covered under General Average only if the sacrifice of cargo is needed in order to avoid capsizing, thus ensuring safety and preservation of property.
• General Average applies if two ships that are connected have to disconnect from each other in order for the preservation of vessel and cargo.
• General Average is only applied to direct losses from the incident.
• According to General Average, each party’s share is not determined based on fault. However, if one party’s actions resulted in the loss, there can be legal action taken.
• There are particular insurance adjusters dedicated to General Average. Involved parties have 12 months to send written notice to them. If they do not receive this, they are permitted to proceed with any available information on the event.
• General Average also covers vessel or cargo damage arising from water, beaching or sinking to extinguish a burning ship, or if a ship is intentionally grounded for common safety. It does not include any damage caused by heat or smoke from a fire.
• If salvage operations are needed, General Average allows for costs accumulated from, and remunerations to, salvage companies.
• If attempts are made to refloat a grounded vessel, and it results in mechanical damages to the vessel, then General Average is applied.
• Expenses for the procurement of any cargo, fuel, or storage in relation to the rules of General Average can also be admitted into General Average.
• If cargo is sold as damaged, the General Average amount is the net difference between its sound value (replacement cost) and damaged value (accrued depreciation).

To get clarification on General Average, and to learn about available marine insurance options, consult with your Aeronet Worldwide representative, or you can contact our home office.