Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

Notes on General Average

Partial loss – When the subject matter of the kind insured is partially
destroyed or damaged or lost it is called partial loss. These losses are of two
types

(A) Particular Average Loss

(B) General Average Loss

(A) Particular Average Loss – When the ship is insured against several
accidents and damages, the insurer is liable to pay successive losses, even
though the total amount of successive losses exceed the amount of the
policy. For instance, a ship is damaged and is repaired, thereafter, it is lost
totally. In such a case the insurer is liable to pay for both the total loss and
the particular average loss.

(B) General Average Loss – The general average loss occurs where the loss in
caused by an extraordinary sacrifice or expenditure voluntarily and
reasonably made or incurred in time of peril for the purpose of preserving the
property imperiled in common adventure.

The following elements are involved in general average.

 There must be a exceptional situation

 The perils must be real and not imaginary
 Loss so voluntarily incurred must have resulted in the preservation of the
ship and the cargo on board the vessel.
 Sacrifice made should be prudently done
 The purpose should be to save the whole adventure i.e. ship, cargo and
freight.
 The loss must be the direct result of general average act. Indirect losses such
as demurrage and market losses are not allowed as general average
 General average must not be due to some default on the part of the person
whose interest has been sacrificed.
Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

Examples of General Average Loss.

1. A ship is overloaded and sinking, some of the cargo is thrown out in the sea
with a purpose to save the ship.

2. Due to fire in ship, water is used to extinguish fire. The water damages the
loaded insured material. The loss of cargo is general average loss.

3. A ship went ashore and it becomes necessary to lighten the ship to get her
off against. Therefore, the cargo was taken out in the boats and put back
again after the ship was floated. The expenses involved in it are reasonable
as general average.

The objective of the principle of general average is to give justice to all concerned
and secondly, to enable the master of the ship, to take such measures as are
necessary / calculated to be in the best interests or the safety of the
adventure without discriminating between sacrifice of ship or of the goods on
board.

Difference between General Average Loss and Particular Average Loss.

1. General average loss insured for the benefit of all interests but the particular
average is in connection with any of the interests.

2. General average is always voluntary and intentional but the particular

average is accidental or fortuitous.

3. General average is shared by all those who are benefitted by the general
average act. Particular average is paid by the insurer.

4. General average may include expenditure and sacrified alongwith the loss
whereas the particular average results from a loss or damage.
Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

Types of General Average Loss

(a) General Average Sacrifice. The general average sacrifices are made for common safety such
as jettison or throwing away of the cargo to lighten the ship or using of cargo as fuel etc.

(b) General Average Expenditure. The general average act involves expenditure. In this case
extra-expenditure is involved for common safety. Here additional charges incurred at the
port the ship is repaired. Expenses may be involved for lightening and reloading of the
cargo.

Provisions of Marine Insurance Act regarding General Average Loss.

1. A general average loss is a loss caused by or directly consequential on a general average act.
It includes a general average expenditure and a general average sacrifice.
2. There is a general average act where any extraordinary sacrifice of expenditure is voluntarily
and reasonably made or incurred in time of peril for the common adventure.
3. Where there is general average loss, the party on whom it falls is entitled to a rateable
contribution from other parties interested and such contribution is called a general average
contribution.
4. The owners of cargoes which are so lost cannot be called upon to contribute.

General Average Contribution

The general average loss is rateable contributed by the parties interested. In contribution of
general average loss the contributory interest amount to be made good and contributory values
are considered.

1. Contributing Interest – The interest saved by the general average act are certain articles
which are not required to contribute towards general average loss. Postal articles, parcel,
crew’s effects and the personal effects of passengers not shipped under a bill or lading.
There are three main contributing interess ships cargo and freight. When a general average
loss occurred among different interest it is of vital importance that the interest which has
Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

been sacrificed must also rateably contribute to the loss, otherwise, it would be in a better
position than the interest saved by general average act.

2. Amount to be made Good – the amount to be made good in general average differs from
adventure to adventure.

(a) Ship. The amount to be made good in general average in respect of a ship is measured
by reasonable cost or repairs less the actual deduction new for old. The cost of repairs
are taken into account as they have been actually effected either at a port of refuge or
at destination.

(b) Cargo. The amount of general average, in case of goods, is their net value which is
calculated taken into account the value of goods sacrificed at their safe arrival and from
this the expenses (i.e., freight unpaid, duty and landing charges) which could have been
incurred had the goods arrived safely are deducted. Thus, the net value of goods is
obtained. The remaining cargo arrives damaged from causes which would have actually
affected the sacrificed goods.

(c) Freight. When the freight is to be paid at destination in respect of a cargo which is used
for general average act, the ship owner will lose it and it would be made good in general
average. The ship owner is entitled for the gross freight which he would have earned
had the goods not been sacrificed less the charges which he would have incurred to
earn such freight during the reminder of the voyage but which he has not incurred as a
result of sacrifice.

(d) Expenses. All the extra ordinary expenses property incurred by the ship owner in time of
peril for the common safety of all the interests are also made under the general average
contribution.

3. Contributory Value – The third process is to determine what are the bases to contribute to
general average. The interest contributes on their not value at the place where the voyage
ends, i.e., at destination or at intermediate part if the voyage be abandoned there. There
values are contributory values. It may be of three types.

(i) Ship. The ship owner will contribute on the ships value as saved by the sacrifice. The
value is the amount for which the ship owner as a reasonable man would be willing
Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

to sell her on arrival at her destination. Any amount that may have been contributed
in respect of general average damages is added to this value to arrive at
contributory value.

(ii) Cargo. The cargo owner will contribute on the market value of goods saved at the
place where the voyage ends. To arrive at the value the expenses incidental to the
safe arrival of the cargo are deducted from the selling price of the cargo.

(iii) Freight. It the freight has been paid in advance it would have been included in the
value of separate interest. The goods arrived safely at destination will have to
contribute on the basis of net value of freight saved if the freight was not paid in
advance.

(4) Charges – The charges are of two types

(A) Salvage charge
(B) Particular charge

(A) Salvage Charge – the salvage charge means the cost of saving property exposed to
peril. When the property and life are in danger at sea, another person or ship any
save or help to save such loss. Such person is known as salvor. The remuneration
payable to him is as salvage. The salvor has a lien on the property saved and may
keep it is security till this reward is paid.

Under marine insurance policy, salvage charges can be recovered from the
insurance company. However, the services must have been rendered by third
parties i.e., persons who are strangers to the adventure. The salvage should be
apportioned over the values on which it was assessed.

When the insured value is less than the contributory value the amount recoverable
is reduced proportionately in the same manner as is done in case of general average
contribution.

The following are the condition in order to make a claim for salvage charges.

(i) The salvor should be a third party and not a party in any way who has
interest in the property.

(ii) The expenses can be claimed for the services rendered in saving the
maritime property e.g., ship and cargo.
Badal Chandra Rajbangshi ACA, FCS Company Secretary, UICL

(iii) The salvage services should be wholly or partially successful.

(B) Particular Charges – Where the policy contains a Sue and Labour Clause, the
engagement thereby entered into is deemed to be supplementary to the contract of
insurance and the assured may recover from the insurer any expenses property
incurred pursuant to the clause. The clause requires the insurers to pay any expenses
properly incurred by the assured or his agents in preventing or minimizing loss or
damage to the subject matter by an insured peril. The essential features of the clause
are as under
(i) The expense must be incurred for the benefit of the subject matter insured.
The expenses incurred for the common benefit will be a part of general
average.
(ii) The expenses must be reasonable and be incurred by the assured, his
factors, his servants or assigns and this provision effectively excludes
salvage charges.
(iii) They are recoverable only when incurred to avert or minimize a loss from a
peril covered by the policy.