MARINE INSURANCE :

ADJUSTMENT OF GENERAL AVERAGE LOSSES

YORK-ANTWERP RULES 2004
CHANGES & CHALLENGES

Tony Fernandez
Average Adjuster, Mediator, Arbitrator & Learning Facilitator

1. Introduction
Hopkins, in an early edition of “Business for the Ship’s Master”, mentions that when he
first heard of General Average, he thought it was the name of an American General!
Most textbooks tell us that General Average was invented by the Greeks in the ninth
century B.C. or so, thereby implying that previous to that time there was no system
prevalent amongst the maritime nations of the world, for equitable distribution of
sacrifices at sea. This simply could not be the case, as every seafaring country must have
followed a system based on equity, for the sharing of sacrifice at sea, in order to
encourage maritime trade.
There are references in ancient Indian literature such as the Rig Veda, the Thirukural and
the writings of Manu about the virtues of sacrifices of a few for the greater good of the
community and hence it is reasonable to believe that ancient maritime India had its own
system of General Average, although details of the system are not to be found in
literature.
In the early days of sailing ships, the adventure comprised of not only the Master and
crew, but also the merchants who sailed on board with their cargoes, which were bartered,
rather than bought and sold. Hence the ship was generally fully laden on both outward
and inward voyages. The Master’s dilemma was how to handle a situation at sea if a
storm arose and a beam sea threatened to capsize the laden ship, cargo and all? His first
choice was to jettison cargo and if that did not work, not to hesitate to cut the mast or
rend the sails. Does he jettison only the required amount of cargo or does he err on the
safer side and carry out a massive jettison – not wisely, but too well? If it were not for
the General Average system, those whose property had been sacrificed for the good of the
whole adventure would have had to bear the entire burden of their sacrifices, all alone.
The Digest of Justinian stated:
“The Rhodian law decrees that if in order to lighten a ship
merchandise is thrown overboard, that which has been given for all
should be replaced by the contribution of all.”

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Marine Insurance: Adjustment of General Average Losses

General Average is based on the principle of equitable distribution of sacrifice at sea by

all those who had benefited from it – what had been sacrificed for the benefit of all,
should be made good by the contribution of all.
This ancient tradition became the common law of all maritime nations and was often
incorporated in the Statutes or Maritime Codes of most Maritime Countries. The laws
governing General Average developed more from local needs than from a global
perspective, since maritime trade was initially restricted to local waters. Certain nations
such as the United Kingdom and the Commonwealth Counties based the allowances in
General Average on the “Common Safety” principle. This Principle took a very narrow
view of the allowances to be allowed in General Average by allowing such allowance
only while the peril lasted. On the other hand, the Continental Countries and the United
States of America took a broader view, and the allowances were based on the “Common
Benefit” principle. These allowances were not restricted to only the time when the peril
was in existence, but included those extraordinary expenses incurred for the safe
prosecution or the prolongation of the voyage, such as the extraordinary expenditure at
the Port of Refuge. It was inevitable therefore that confusion evolved as to which
principle will apply, especially when the Ship was registered in a Country which followed
the Common Safety principle and the Cargo was destined to a Country where the
Common Benefit principle was in vogue. Thus, the need for uniformity for adjustments
of General Average was keenly felt.
2. Uniformity In Adjusting General Average
In May 1860, a meeting of representatives of Shipowners, Average Adjusters and some
Insurers took place in Glasgow, with the purpose of evolving uniformity in the
adjustment of General Average. The result was the “Glasgow Resolutions” being
adopted that year. No law was framed, but four years later in September 1864, a meeting
took place in York, and the “York Rules” were agreed to and framed. The
recommendation to pass legislation was repeated, pending which it was decided that the
York Rules (then comprising of eleven rules), be incorporated into Contracts of Carriage,
on a voluntary basis. This uniformity in adjustment of General Average was thus
achieved without the force of legislation. In 1877 and once again in 1890, the Rules were
revised.
These revisions were aimed at plugging loop-holes and making the system fair to all
parties. In the last century the Rules were revised in 1924, 1950 and 1974. Then in 1990,
consequent to the Salvage Convention 1989, the 1974 Rules were amended and named
York-Antwerp Rules 1974 (Amended 1990).
The final revision in the last century was in 1994 and it was hoped that there would be no
further revisions for at least another 20 years or so, which is generally speaking, the
interval for the York-Antwerp Rules to be revised.
Despite this time honoured principle based on equity, and the fact that the York-Antwerp
Rules are periodically revised to make it fair to all parties, there were some who raised

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their voices against the General Average system itself, since they viewed it as a means by
which Shipowners were enriching themselves to the detriment of cargo interests and
Insurers.
This view mainly emanated from the Insurers of cargo and to a lesser extent by the
Insurers of ships. The debate ranged from “reforming” the system by doing away with
many of the allowances, to simply abolishing and getting rid of the General Average
System itself! This was motivated with the sole objective of reducing the General
Average allowances which were perceived by the reformists, as increasing with each
revision of York-Antwerp Rules.
There is no doubt that the General Average System has been abused by some
unscrupulous Shipowners often aided and abetted by some equally unscrupulous Average
Adjusters; but these instances were exceptions rather than the rule and hence attempts to
throw out the baby with the bath-water, were not based on a deeper reflection of the
indispensability of the General Average system for the common good of all parties of a
maritime adventure. Average Adjusters have by and large upheld their impartiality in
their adjustment of averages.
3. Marine Insurers’ View Point
Let us pause to consider the views of Marine Insurers of Ship and Cargo. These Insurers
perceived that General Average was expanding in its scope and in the quantum of
allowances payable to Shipowners. They hence voiced their concerns and called for a
halt to the “expansion” of the General Average System.
In March 1999, the International Union of Marine Insurers (IUMI), took up the matter
with the Comité Maritime Internationale (the “custodians” of the York-Antwerp Rules),
and expressed the view that a radical look of the General Average system was needed
since Insurers were the “ultimate consumers and financiers of the system”! The list of
recommendations aimed at “pruning” the General Average system, included the
following:
1. Redefinition of General Average
2. Reducing the York-Antwerp Rules to the “common safety” principle
3. Change in the Rule Paramount to emphasise “reasonableness” in all
circumstances
4. Compliance with the ISM Code and STCW Code / Convention
5. Abolition of the concept of “substituted expenses” from General Average
6. Excluding “Salvage” from the purview of General Average
7. Excluding Port of Refuge expenses, unless the adventure is in “grip of peril”
8. Tightening of rules pertaining to repairs for general average sacrifice on ship
9. Abolishing commission and interest on General Average disbursements
10. Issues relating to time bar, free access to surveyors representing cargo insurers
etc.

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The debate continued from March 1999 to June 2004, spear-headed by IUMI whose
proposals for the reforms of York-Antwerp Rules has been aimed at reducing the number
of General Averages situations and also the amounts recoverable in General Average.
IUMI had based its proposals on a statistical analysis of General Average Adjustments,
which was done by Mr. Matthew Marshall of the London Insurance market. His initial
work was up-dated with additional research and statistics and was produced to
substantiate the views of Marine Insurers which were discussed in the CMI Vancouver
Conference.
Not all of the original IUMI proposals were accepted. After several voting sessions
during the Conference, some of the Rules were changed in YAR-2004, which became
effective with effect from 01-Jan-05. These changes will no doubt bring about savings in
allowances allowable in General Average, as compared to the YAR-2004.
4. Changes In The York-Antwerp Rules 2004
In summary, there are six important changes that have been made in the YAR-2004.
These changes relate to (a) Salvage, (b) Time limit, (c) Interest, (d) Commission, (e)
Crew Wages at Port of Refuge, and (f) Temporary Repairs. Unlike previous changes of
YAR, which were always discussed and agreed by Shipowners prior to finalization, the
present changes were brought about without the agreement of Shipowners. The six
changes of YAR-2004, are briefly discussed in the following paragraphs, with comments
on the likely impact of these changes:-
(a) Salvage
This is a major change in YAR-2004. Salvage remuneration will no longer be re-
adjusted in General Average and will lie where it falls, unless one party pays
another's proportion. This reverses the amendment of 1990 and now treats
General Average and Maritime Salvage as mutually exclusive situations, bringing
YAR-2004 in line with English Law, as proposed by IUMI. The apparent impact
of this change is that shipowners will be reluctant in future to make payment on
behalf of cargo interests for their proportion of salvage remuneration.
(b) Time limit
A time limit has now been imposed on claims in General Average. All claims in
General Average will be extinguished, if suit is not brought within six years after
the termination of the common maritime adventure or one year after the
publication of the General Average Adjustment, whichever is earlier. In the past
there was no such time limit. This too was proposed by IUMI, and is a change to
be welcomed by all.

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(c) Interest
Instead of the fixed rate of interest of 7% on the GA disbursements made by the
Shipowner, which was payable under the earlier Rules, the rate of interest will
now be subject to the rate fixed by the CMI each year in accordance with certain
guidelines. CMI will publish the rate on their website. IUMI had proposed that
interest be abolished completely. This is a reasonable change and is to be
welcomed.
(d) Commission
Commission of 2% which was paid on the GA disbursements made by
Shipowners in the past, has now been done away with completely (as per the
proposal of IUMI), and will no longer be paid under YAR-2004. There was no
logic to this change except to curb the allowances of the past. The apparent
impact of this change like the one on salvage, is that shipowners will be reluctant
in future to make payments on behalf of cargo interests such as for their
proportion of salvage remuneration.
(e) Crew wages at Port of Refuge
Wages of master, officers and crew during detention of the ship at the Port of
Refuge which was payable under the earlier Rules, will no longer be allowed in
General Average, bringing the YAR-2004 in line with the principle of the
“Common Safety” principle of English Law. IUMI’s proposal to disallow crew
wages was accepted. This has made the York-Antwerp Rules 2004 most identical
with the Common Safety Principle of English Law. Therefore, the York-Antwerp
Rules can no longer be said to be a “compromise” between the “Common Safety”
and “Common Benefit” principles, as it was since its very inception!
(f) Temporary Repairs
The cost of temporary repairs of accidental damage at a port of refuge, which was
allowed in the past as a substituted expense, will under YAR-2004 be restricted,
as compared to the earlier Rules. IUMI had proposed that temporary repairs be
disallowed in full, however the proposal was not accepted although some
restrictions have been now been placed. These changes may lead to Shipowners
carrying out permanent repairs at the Port of Refuge itself, to the detriment of
Cargo Owners who will have to bear the brunt of the delay with regard to the
delivery of their cargoes.
Impact of the changes of YAR-2004

YAR-2004 is now almost identical to the Common Safety principle (which is the
basis of English Law of General Average). The present Rules have lessened the

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scope of General Average allowances. It is estimated that the revised Rules

would reduce the allowances in General Average between 13% to 17%, as
compared to the earlier Rules. Will there be a corresponding decrease in
premium to shipowners for the reduced coverage for General Average liability in
a Hull & Machinery Policy? If there is no decrease in premium proportionate to
the reduced coverage, it is unfair and inequitable. On the other hand if there is
indeed a decrease in the premium, then it is logical that some Insurers may be
willing to provide cover under YAR-1994 or YAR-1974 (Amended 1990), for an
additional premium, as compared to the reduced premium that is likely to be
charged for the reduced cover under YAR-2004.
5. WHAT HAS BEEN ACHIEVED AND WHAT HAS NOT
5.1 Redefinition of General Average
Marine Insurers had proposed that the definition of General Average as given in the
York-Antwerp Rules 1994 (YAR-1994) and the earlier Rules, should be amended to
include only extraordinary sacrifice or expenditure intentionally and reasonably made in
time of peril for the purpose of preserving the property from that peril. The Insurers thus
hoped that the costs of transshipment to destination, expenses such as wages,
maintenance, fuel and stores incurred at the port or place of refuge (after the adventure
had attained safety), and temporary repairs, could be excluded from the scope of General
Average expenditure. By this proposal, Insurers had wished to do away with certain of
the lettered YAR-1994 that related to the “common benefit” principle. The definition of
General Average has not been changed as proposed by IUMI, and remains as in YAR-
1994, although other changes have been made.
5.2 Reducing the York-Antwerp Rules to the “Common Safety” Principle
This proposal was to re-define General Average by replacing the phrase “common
maritime adventure” by “common safety”. This was apparently proposed on the
assumption that the phrase “common maritime adventure” was synonymous with the
“common safety” principle, which is not the case. This proposal was not accepted and
the definition of General Average has been left untouched in the revised YAR-2004. By
not changing the definition of General Average, further confusion has been avoided and
therefore it is to be welcomed that the status quo has been maintained.
In any case, the deletion from the scope of General Average of certain expenses
previously allowed, makes YAR-2004 fall in line with English Law. This has defeated
the very purpose of uniformity of practice, which the Rules had achieved over the years.
A simpler approach perhaps would have been for Insurers to specify in Marine Insurance
Policies covering General Average for ship and cargo, that the General Average would be
adjusted in accordance with English Law – namely on the basis of the Common Safety

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principle, and not in accordance with the York-Antwerp Rules despite reference to in the
contract of carriage. For an additional premium the cover could be “bought back”.
5.3 Change in the Rule Paramount to emphasise “reasonableness” in all circumstances
This proposal was aimed at making the test of reasonableness applicable not only to the
circumstances giving rise to General Average (as given in the Rule Paramount) but also
to all the amounts claimed in General Average. It was submitted by most Average
Adjusters that there was no need for this change, since the Rule Paramount was
introduced in YAR-1994 for this very purpose! In any case, a Professional Average
Adjuster would not submit a Statement of Adjustment if there was any reason to believe
that certain of the expenses were in fact unreasonable. The definition of General Average
as found in Rule “A” of the York-Antwerp Rules clearly mentions that the sacrifice or
expenditure must be “reasonably made or incurred”. If the sacrifice or expenditure was
unreasonably made or incurred, then there would be no General Average act as defined in
the York-Antwerp Rules. The apprehension caused by the decision in the “Alpha” was
allayed by the introduction of the Rule Paramount in the YAR-1994 and nothing further
was required.
This proposal too was not accepted and the definition of General Average has been left
untouched in the revised YAR-2004.
5.4 Compliance with the ISM Code and STCW Code / Convention
It was proposed that the liability to contribute in General Average must be dependent on
the Shipowner complying with the requirements of the International Safety Management
(ISM) Code and the Seafarers Training, Certification and Watchkeeping (STCW)
Convention / Code. This proposal was meant to curtail General Average on unseaworthy
ships, and was welcomed by all. However, it was submitted that the interpretation of
“compliance” was subjective and would be perhaps be misinterpreted if left to Cargo
Interests or their representatives to construe. Hull & Machinery Insurers would have no
worry on this score, since they already specify express warranties relating to
Classification, ISM Code, etc.
This proposal too was not accepted and no separate stipulation made in the Rules
regarding compliance with the ISM Code or the STCW Convention / Code in the revised
YAR-2004. This is so because Insurers can insert express warranties in the Policies of
Insurance issued by them covering Hull & Machinery and / or Cargo interests, if they so
desire.
5.5 Abolition of the concept of “substituted expenses” from General Average.
The concept of “substituted expenses” is not to be found in English Law – whether
relating to Particular Average or General Average, although it is followed in practice. So
once again, Insurers wished to bring the York-Antwerp Rules in line with English Law.

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It may seem ironical but it is true, that Hull & Machinery Insurers do not shy away from
the “substituted expenses” of overtime working to save time in dry-dock in the case of
Particular Average claims; yet they wish to do away with the concept of “substituted
expenses” enshrined in the York-Antwerp Rules! If the concept of “substantiated
expenses” can be applied to Particular Average claims in practice, why cannot it be
applied to General Average claims as well, since the principle to minimize the claim is
common to both? The concept of substituted expenses in a “win-win” approach and ought
not to have been jettisoned in the revised Rules.
5.6 Excluding “Salvage” from the purview of General Average
The proposal to exclude “salvage” from General Average was to two fold. Firstly, to
ensure that the basis of contribution of the salvage remuneration would be on the “salved
values” of ship and cargo at the port or place of safe delivery to the Shipowners and not
the “contributory values” of the ship and cargo at port of destination. This proposal too
was aimed at bringing the York-Antwerp Rules in line with English Law.
It must be emphasised that if a salvage award is clearly based on salved values of ship
and cargo, then the practice of most Average Adjusters has been to apportion the cost of
salvage on the basis of the salved values. It is only when the Shipowner pays the entire
salvage award on behalf of the Ship as well as Cargo, does the Shipowner seek to recover
the latter through the General Average system. This must be compared and contrasted
with the situation of the Salvor seeking directly from Cargo Interests their proportion of
salvage remuneration. In such a situation if the Cargo Interests fail to pay, the Salvor
would take steps to arrest the cargo. Would Shipowners continue to pay Salvage
remuneration on behalf of Cargo Interests under YAR-2004? It is unlikely that they will!
The proposal of IUMI was accepted. Salvage remuneration can no longer be claimed
through the General Average system unless incurred by one Party on behalf on another.
This puts back the YAR-2004 to the pre-existing position prior to the change made in
1990, after the enactment of the Salvage Convention 1989.
5.7 Port of Refuge expenses to be excluded, unless the adventure is in “grip of peril”
Rules IX, X, XI and XII of the York-Antwerp Rules pertain to port of refuge expenses –
incurred even after safety has been obtained. These were the few Rules which were
based on the “common benefit” principle. YAR-2004 now excludes crew wages at the
Port of Refuge. By abolishing these expenses, YAR-2004 now almost fully reflects
English Law on General Average. Only time will tell the impact of this change on freight
rates and risk transfer options in contracts of carriage.
5.8 Tightening of rules pertaining to repairs for general average sacrifice on ship
The Insurers had wished to see that the “new for old” provision of Rule XII and the
“temporary repairs”, as a substituted expense as given in Rule XIV were removed. Hull
& Machinery Insurers cover “new for old” when it comes to Particular Average claims.

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Why do they then wish to do away with the same concept of “new for old” enshrined in
the York-Antwerp Rules, for all General Average sacrifices? IUMI’s proposal in this
regard was not accepted and YAR-2004 has not changed the “new for old” provision of
the earlier Rules.
5.9 Abolishing commission and interest on General Average disbursements
Rules XX and XXI of the York-Antwerp Rules relate to commission and interest on
disbursements. This was another attempt by Insurers to bring the York-Antwerp Rules in
line with English Law on General Average. Insurers under English Polices of Hull &
Machinery Insurance compensate the Assured with a handsome 30% per annum rate of
interest on the sum-insured for delay caused due to Insurers taking tenders for repairs (as
for example in the Institute Time Clauses – Hulls 1/10/83).
Why then their reluctance to pay a mere 2% commission and 7% interest on the
disbursements of General Average?
This proposal has been partly accepted with the abolition of the 2% commission. The
rate of interest will be fixed periodically and promulgated by the CMI, as per the revised
YAR-2004. While the abolition of 2% commission is not logical, a sliding rate of interest
which is reflective of the fiscal market makes sense and is therefore to be welcomed.
5.10 Issues relating to time bar, free access to surveyors representing insurers etc.
There were some “General Issues” which the Insurers wished to see changed, according
to their proposals. These included introduction of a time bar, bringing some regulation
with regard to legal proceedings, the right of the parties to have their interests represented
from the very beginning by allowing free access of the Ship and provisions of documents
to the Surveyors representing Cargo.
This proposal was aimed at assisting cargo interests to collect evidence to enable them to
refuse to contribute in General Average on the grounds of lack of due diligence on the
part of the Shipowner in providing a seaworthy ship.
The revised Rules have only addressed the aspect of a time bar. No changes relating to
legal proceedings, the right of the parties to have their interests represented from the very
beginning by allowing free access of the Ship and the provisions of documents to the
Surveyors representing Cargo has been made. Introduction of a time bar is welcome.
6. Impact On Shipowners
Shipowners will now have to manage the risk of certain General Average expenditure in
case they had opted for YAR-2004 in their contracts of carriage. In a booming freight
market, complacency can easily set in and Shipowners may consider this threat
insignificant, taking into consideration that they do not have to necessarily incorporate

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YAR-2004 in their contracts of carriage, and can continue to incorporate the earlier Rules
such as YAR-1994 or YAR-1974 (Amended 1990).
Aware of this possibility, discussions are taking place among Insurers to restrict their GA
contributions in H&M Policies covering Ship’s proportion of GA contributions, only to
the extent allowable in YAR-2004. In such an eventuality, Shipowners would not be able
to recover crew wages, commission of 2% etc., even if they incorporate YAR-1974
(Amended 1990) or YAR-1994 in their contracts of carriage, if there is a provision in the
H&M Policy restricting GA Contributions allowable under the Policy to those allowable
under YAR-2004, irrespective of what YAR have been incorporated in the contracts of
carriage.
7. Shipowners’ Proactive Options
What then are the options that a Shipowner has to counter the situation caused by the
revised YAR-2004? These are some of the proactive options which require to be
reflected upon:-
1. “Prevention is better than cure”. The ideal situation is to make efforts to
avoid GA situations. This can be done by empowering Professionalism
among Shipowners, Seafarers and other interested Parties through
competence and credibility.
2. Keeping in view Customer Relationship Management of valued Cargo
Clients, Shipowners must purchase a General Average Absorption Clause
that would respond to cargo’s contribution of GA rather than rely on
provisions in the contract of carriage. While the London Insurance Market
may be reluctant to issue such cover (since it goes against the grain of
thinking of IUMI), there may be Insurers in other Insurance Markets
especially in counties which advocate the “Common Benefit” principle, who
may be willing to underwrite such business. Insurance Brokers could help in
ascertaining the possibility of such cover.

3. Shipowners should initiate discussions with their P&I Clubs to develop

innovative cover for GA Contributions both for Ship’s as well as Cargo’s
proportion of GA Contribution. If this type of risk transfer mechanism is
sought, it will be congruent with concepts of Safety and Quality incorporated
in the Vision and Missions Statements of Professional Shipping Companies.
It would further demonstrate the Company’s total commitment to Quality and
Safety, because in mutual insurance, the Shipowner is both the Insured and
Insurer. The flip side to this is the adverse impact of claims resulting in
Supplementary Calls or an enhanced initial Call at the time of renewal.

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4. Speed is the essence in any loss minimization exercise. Contingency Plans

should include a proactive approach to casualty situations at sea. In this
regard, strategic alliances with Towage Companies for use of their Tugs in
emergency situations can keep to a minimum the costs of loss minimization
at sea. Empowerment of Ship’s Masters by emphasizing their overriding
authority, should also be done.

5. Last but not the least Shipowners should realize that they alone have to
manage their risk exposure, notwithstanding the manner in which they
transfer their risks through contracts and / or through insurance. Risk
Management is an on-going exercise and a situation such as the YAR-2004
must be a signal for a re-assessment of the risk exposure of Shipowners in
loss minimization efforts at sea.

8. Impact On Marine Insurers

Marine Insurers who spear-headed the changes in YAR-2004 may not feel that sense of
achievement they would have felt, had all their recommendations been incorporated in
YAR-2004. However, it must be emphasised that if is for the first time that the YAR was
revised without the agreement of Shipowners. Reduction in General Average claims with
no corresponding reduction in premium may seem to be good news for Insurers– but for
how long? Sooner or later, Shipowners would find ways and means of transferring their
risk of General Average. The cargo owner is the most suitable candidate for this. None
of the International Conventions prohibit transfer of risks of General Average or
contracting out of the liability of General Average contributions. This will throw the
burden on cargo interests for obtaining insurance coverage for the enhanced risk exposure
that they may have to bear if Shipowners wish to reduce their liability for General
Average contributions.

In a booming insurance market, complacency can easily set in and Marine Insurers may
consider the present “windfall” of YAR-2004 as a bonanza. Such an approach would be
a short-sighted one. The need for covering General Average risks will be ever present as
long as maritime trade continues. There will therefore be an opportunity for some
Insurers to cover such risks – but on a professional basis of prudent underwriting rather
than as is at present being generally done. Risk Assessment is the need of the hour and
those Insurers who use such techniques can ensure underwriting profits on a “win-win”
basis.

9. Marine Insurers’ Proactive Options

What then are the options that Marine Insurers have, to accept the challenges that the
changes in YAR-2004 have posed? These are some of the proactive options which

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require to be reflected upon by Insures who should concentrate on the opportunities that
have arisen, without being distracted with some of the threats that have apparently
vanished:-

1. There is no substitute for “prudent underwriting”. In a “tariff protected market”

as in the past, there was hardly any incentive for prudent underwriting and
“turnover” rather than “profitability” was the priority of most Insurers. This has
now changed and opportunity must be taken by those Insurers who do not wish to
walk the beaten track, to effectively assess the risk prior to covering General
Average risks both for shipowners and cargo owners. This can be achieved by
exposing Underwriting Personnel to shipping operations including training
programmes, visits to ships and ports etc., to give a practical insight into risk
assessment of carriage of goods by sea. Taking an active interest from the
moment of Claim intimation till the settlement of Claim, would give an insight
into the subtleties and nuances of General Average Claims. Too much reliance
on Insurance Intermediaries only tends to dilute the expertise within Insurance
Companies.

2. In order to encourage the concept of “partnering” (which is going beyond the

Customer to the “Customer’s Customer”), it is necessary that General Average
Absorption Clauses be developed and marketed. This would enable Shipowner
to look to his Underwriter rather than the cargo interest for cargo’s contribution
of GA. If this risk is properly rated with suitable checks and balances (such as
express warranties), the underwriting of such risk could be profitable.

3. Speed is of the essence in any loss minimization exercise. The present approach
of Underwriters to advice their Assured to “act as a prudent uninsured owner”
and take a “watch and wait” attitude only results in complicating the problem by
enhancing the quantum of claims and consequent delayed claim settlements.
Taking a pro-active stance once a loss has been reported, by determining aspects
of liability at the earlier possible time, and then taking charge of the claim if there
is liability under the Policy, often results in a “win-win” situation to both
Underwriters and Assureds. Approving in advance contractual arrangements with
Towage Companies having Tugs stationed in strategic locations within easy
reach of the trading routes in which the Assured’s fleet ply, can keep to a
minimum the costs of loss minimization at sea.

4. Insurers may encourage Shipowners to form a Mutual which could then be re-
insured on an “excess of loss” basis, again using prudent underwriting principles.

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10. The Position Of Average Adjusting

YAR-2004 must also be a wake-up call to all practicing Average Adjusters like me. We
too must look within and ask ourselves to what extent have we contributed to the real
threat of unscrupulous Shipowners abusing the General Average System by being a party
to such abuse, through our acts of omission or commission, whether by silence or muted
protests. We must resolve that we shall never be a party to anything that will be
detrimental to the principle of equity – on which the General Average System is based. It
is high time for Average Adjusters to evolve innovative solutions based on effective and
correct presentation of General Average Claims, without succumbing to commercial
pressures, despite the fact that Average Adjusting work has drastically reduced due to
very high deductibles and the shrinkage of cover under H&M Policies, (the YAR-2004
only adding to the adverse impact).

Such innovative solutions should be in the areas of quicker preparation and presentation
of Adjustments of Averages, greater transparency in the Statements of Adjustment and
the courage to refuse work which would question our competence or credibility. We
should not forget the words of an eminent Jurist who called us “Judges at first instance”,
and that the very foundation of General Average is equity! Shipbrokers, Ship Masters
and Average Adjusters would no doubt continue to support the General Average system –
because without it, maritime commerce will not work as smoothly as it does now.

This is a good opportunity to discuss a myth about Average Adjusters. The concept of a
“qualified” Average Adjuster to adjust Averages – Particular or General, has been
propagated by some, who have conveniently forgotten that there is no such concept either
in English Law or Indian Law. For some Indians to seek to justify “qualifications” of
foreign countries then advocate that such “qualifications” are a pre-requisite for Average
Adjusters practicing in India has commercial motivations rather than legal concerns. It is
a fact that membership of the Association of Average Adjuster of the United Kingdom
was offered on a “one-time” basis to some without taking the examination, and indeed
some availed of this “facility”! Today there are more Average Adjusters practicing in the
UK who are not Full Members of the UK Association of Average Adjusters, than those
who are.

As far as the Association of Average Adjusters of the United States of America is

concerned, only US Citizens are eligible to take their examination.
Moreover the two Average Associations of UK and US do not recognize each other’s
examinations. Efforts to form an Indian Association of Average Adjusters some years
ago were thwarted by some who wished to propagate the myth of the “qualified Average
Adjuster”!

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Marine Insurance: Adjustment of General Average Losses

A glaring lacuna as far as Average Adjusters in India are concerned, is the fact that IRDA
has not even mentioned Average Adjusters in any of the Regulations. What is more, no
difference has been made between Marine and Non-marine Insurance Claims adjusting.

Surveyors are expected to comment on aspects of liability and the quantum thereof in all
types of Claims. This really means that both Particular Average Claims as well as
General Average Claims are to be “adjusted” by Surveyors! In the light of this situation,
those so-called “qualified” Average Adjusters who cry “wolf” at the so-called
“unqualified” Average Adjusters must see the writing on the wall, and remember that
people in glass houses should not throw stones!

11. Conclusion

YAR-2004 is here to stay. The extent to which the revised Rules will achieve the
objectives, for which they were introduced, can only be judged with the passage of time.
However, an immediate proactive approach is required both by Shipowners (to manage
their risk exposure consequent to the changes that the YAR-2004 has brought in its wake)
and by Marine Insurers to take up challenges of opportunity that changes have brought.
Such an opportunity should also be taken by Insurers to reflect on whether the changes
that they have advocated through YAR-2000 will bring about a situation of “win-win”,
“win-lose” or a “lose-lose”. Average Adjusters must also look within and reflect whether
Marine Insurer’s perception of the General Average System has been brought about by
some Shipowners who have abused the system through the help and assistance of
Average Adjusters who have succumbed to commercial pressure in order to keep their
heads above water! Average Adjuster must practice equity and not only preach it, for
equity is the foundation of the General Average system. There need be no fear that
General Average would be jettisoned, since its continued presence is for the Common
Good!

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 Marine Insurance: Adjustment of General Average Losses

An Average Adjuster’s Prayer

Dear Lord,

Enlighten my mind with wisdom

To comprehend the predicament
And appreciate the views of all interests:

Give me the humility to accept my ignorance

And learn continually all that I should know,

Give me the sensitivity to feel

The pain and anguish of all Parties
Who have suffered in a Maritime Adventure…

Rid me of apathy, complacency,

Indifference and carelessness:

May I not be passive or unresponsive,

Nor procrastinate for tomorrow
What I can do today.

With dedication may I adjust

Every Claim in an impartial manner:

Grant me the Gifts of Commitment,

Communication, Concern and Conviction:
To enable me to convince or be convinced….

And with the courage of such conviction,

Convince all Parties of the Adjustment;

And should I fall short

Of anyone’s expectations, may I bear
Criticism with equanimity and patience;

May I always strive for perfection,

For equity, justice and goodwill.

Amen (As I pray, so may it be).

Tony Fernandez, Average Adjuster

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