Maritime Law: Capt. Alfred Illenberger Faculty (LIMA)

MARITIME LAW
Capt. Alfred Illenberger

Faculty (LIMA)
Capitol Site, Batangas City Tel : +6343 723.0706 / 2441 Fax : +6343 723.0595
www.lpubatangas.edu.ph
Topic 23 – General Average and Marine Insurance
Learning Outcomes
1. Define general average in the maritime context
2. Discuss how marine insurance works in the event of loss or damage
What is General Average?
General Average is a principle of maritime law that essentially establishes that all sea cargo
stakeholders (owner, shipper, etc.) evenly share any damage or losses that may occur as a result
of voluntary sacrifice of part of the vessel or cargo to save the whole in an emergency. The basis
behind this principle is that a party who has suffered extreme financial loss in order to save
property belonging to others has the right to be compensated for such loss.
The origins of General Average date back to the York-Antwerp Rules of 1890, but have obviously
been modified numerous times since to adapt to modern supply chain conditions, most recently
in 2016.
The York-Antwerp Rule states “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.”
Once a vessel owner declares General Average, a neutral third-party (the General Average
adjuster) appointed by the vessel owner, will determine the applicable costs owed to and by each
stakeholder involved in the vessel voyage. The adjuster will determine which losses qualify for
General Average, total costs of the incident, as well as the amount each party owes, etc.
After the maritime incident, stakeholders with cargo/cargoes aboard the ship will need to provide
General Average guarantees. Any affected cargo will not be released to the cargo owner until the
General Average guarantee has been provided.
Cargo owners carrying cargo insurance should notify their Underwriters immediately so the
guarantee is paid by the Insurance Company or will be faced with making payment on their own.
What is Marine Insurance?
A simple definition of the word insurance would be “Protection

against future loss.” Marine insurance is another variant of the
general term ‘insurance’ and as the name suggests is provided to
ships, boats and most importantly, the cargo that is carried in
them.
Marine insurance is very important because through marine

insurance, ship owners and transporters can be sure of claiming
damages especially considering the mode of transportation used.
Of the four modes of transport – road, rail, air and water – it is the
latter most which cause a lot of worry to the transporters not only
because there are natural occurrences which have the potential to
harm the cargo and the vessel but also other incidents and
attributes which could cause a huge loss in the financial casket of
the transporter and the shipping corporation.
Incidents like piracy and possibilities like cross-border shoot-outs

also pose a major threat when it comes to water transportation
and therefore in order to avoid any loss because of such events
and happenings, in the interest of the corporation and the
transporter, it is always beneficial to have a back-up like marine
insurance.
Another important aspect of having marine insurance is that a

transporter can choose the insurance plan as per the size of his
ship, the routes that are taken by his ship to transport the cargo
and many such minor points which could go a great length in
affecting the transporter majorly.
Also, since there are various plans and policies which indicate
covering not just the cargo but also the vessel, the transporter can
choose and avail of the best policy that suits his business the best.
However, as much as marine insurance provides a fair claim to

transporters and corporations, it has to be understood that marine
insurance is also one of the trickiest and strictest insurance areas
right from the time the concept of marine insurance commenced –
i.e. from the 17th century onwards.
While dealing with the scope and range of marine insurance, it is

very important that a ship’s captain follows a rigid protocol in
terms of the route taken and the time taken for the cargo and the
vessel to reach the intended port of destination.
Because if there is any discrepancy or violation in terms of the

route taken, i.e. if the captain varies or digresses in his route from
the one originally intended as a part of the ship’s course, then
even if there is any mishap occurring to the vessel or the cargo,
the insurance claim will be rejected completely without any
possibility of the claim being reimbursed to the claimant at some
future date after a few tough negotiations.
Therefore it becomes very important that a ship’s captain takes

due consideration about the prescribed routes so as to avoid a
failed insurance contract because of an unplanned loss due to the
deviation in the route. This would bring about not just caution on
the part of the captain but would also reduce the possibility of
losing important insurance claims because of inadvertence and
negligence.
Marine insurance is a safe haven for shipping corporations and

transporters because it helps to reduce the aspect of financial loss
due to loss of important cargo. Also, it helps to bring about to the
transporting companies and to the receiving parties, the duty,
dedication and the straightforwardness of the insurance
companies.
Types of Marine Insurance
1. Hull Insurance: Hull insurance mainly caters to the torso and

hull of the vessel along with all the articles and pieces of furniture
on the ship. This type of marine insurance is mostly taken out by
the owner of the ship to avoid any loss to the vessel in case of any
mishaps occurring.
2. Machinery Insurance: All the essential machinery are covered

under this insurance and in case of any operational damages,
claims can be compensated (post-survey and approval by the
surveyor).
The above two insurances also come as one under Hull &
Machinery (H&M) Insurance. The H&M insurance can also be
extended to cover war risk covers and strike cover (strike in port
may lead to delay and increase in costs)
3. Protection & Indemnity (P&I) Insurance: This insurance is

provided by the P&I club, which is ship owners mutual insurance
covering the liabilities to the third party and risks which are not
covered elsewhere in standard H & M and other policies.
Protection: Risks that are connected with ownership of the vessel.

E.g. Crew related claims.
Indemnity: Risks that are related to the hiring of the ship. E.g.
Cargo-related claims.
4. Liability Insurance: Liability insurance is that type of marine

insurance where compensation is sought to be provided to any
liability occurring on account of a ship crashing or colliding and on
account of any other induced attacks.
5. Freight, Demurrage and Defense (FD&D) Insurance: Often referred to

as “FD&D” or simply “Defense,” this insurance provides claims for handling
assistance and legal costs for a wide range of disputes which are not
covered under H&M or P&I insurance.
6. Freight Insurance: Freight insurance offers and provides protection to

merchant vessels’ corporations which stand a chance of losing money in
the form of freight in case the cargo is lost due to the ship meeting with an
accident. This type of marine insurance solves the problem of companies
losing money because of a few unprecedented events and accidents
occurring.
7. Marine Cargo Insurance: Cargo insurance caters specifically to the

marine cargo carried by ship and also pertains to the belongings of a ship’s
voyages. It protects the cargo owner against damage or loss of cargo due to
ship accident or due to delay in the voyage or unloading. Marine cargo
insurance has third-party liability covering the damage to the port, ship or
other transport forms (rail or truck) resulted from the dangerous cargo
carried by them
Marine Insurance in the event of loss or
damage
damage
damage
CIF – COST, INSURANCE & FREIGHT
damage
damage
GA Claim Amount does not include the value of the loss property not related to saving the ship
from peril
damage
damage
damage
damage
Examples of GA Cases
*TRG – an insurance company

SUMMARY
References:
• https://cultofsea.com/maritime-law/marine-
insurance-purpose-principle-general-average/
• https://www.youtube.com/watch?v=pND0gn3
mi2g
• https://www.youtube.com/watch?v=TiZaH-
Yl03s
THANK YOU FOR
LISTENING!
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MARITIME LAW

Capt. Alfred Illenberger

A simple definition of the word insurance would be “Protection

Marine insurance is very important because through marine

Incidents like piracy and possibilities like cross-border shoot-outs

Another important aspect of having marine insurance is that a

However, as much as marine insurance provides a fair claim to

While dealing with the scope and range of marine insurance, it is

Because if there is any discrepancy or violation in terms of the

Therefore it becomes very important that a ship’s captain takes

Marine insurance is a safe haven for shipping corporations and

1. Hull Insurance: Hull insurance mainly caters to the torso and

2. Machinery Insurance: All the essential machinery are covered

3. Protection & Indemnity (P&I) Insurance: This insurance is

Protection: Risks that are connected with ownership of the vessel.

4. Liability Insurance: Liability insurance is that type of marine

5. Freight, Demurrage and Defense (FD&D) Insurance: Often referred to

6. Freight Insurance: Freight insurance offers and provides protection to

7. Marine Cargo Insurance: Cargo insurance caters specifically to the

CIF – COST, INSURANCE & FREIGHT

*TRG – an insurance company

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