11/11/2023

INTERNATIONAL TRANSPORT
AND INSURANCE

PHAN VŨ NGỌC LAN – MDE

International Business
Administration Department
lanpvn@huflit.edu.vn

CHAPTER 7 (cont)

LOSS IN CARGO INSURANCE

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Content
1. Definition of Loss
2. Classification of Loss
3. Calculation of General Average (GA) &
Particular Average (PA)

1. DEFINITION OF LOSS
 Loss means Damage, Defects or Missing of
the Subject matter insured, which are caused
by insured risks.
 External vs Internal Loss
 Loss in liability towards other parties
 Loss vs Damage

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2. CLASSIFICATION OF LOSS
Based on the Scale of Loss:
 Partial loss

 Total Loss

- Actual Total Loss

- Constructive Total Loss
Based on the Feature of Loss / Liability and
Rights toward Loss:
 Particular Average - PA

 General Average - GA

2.1. Based on the Scale of

Loss
 Partial loss: means the partial
(incomplete) loss or damage of the
Subject matter insured under an insurance
policy.
Forms: Reduction in value, quantity,
capacity, weight, …

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2.1. Based on the Scale of

Loss
 Total Loss: means losing 100% of value or operational
value of subject matter insured.
+ Actual Total Loss: the Loss in the situation, in which the
Subject matter insured is completely destroyed, seriously
damaged or the Insured’s ownership toward such subject is
taken away.
Forms: Fire, Explosion, Sinking, Arrogation, Missing, Full
value loss.
+ Constructive Total Loss: the Loss in the situation, in
which Actual Loss is unavoidable, or the cost to recover
and bring the subject to its destination is equal to or more
than its value or insurance value.

Abandonment
 In order to be considered as the case of
Constructive Total Loss, the Insured must
abandon the goods.
 What is Abandonment?
 An action of the Insured, in which he/she
waive all of his/her rights towards the cargo
for the Insurer, in the case of Constructive
Total Loss, in order for a full compensation.

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2.2. Based on the Liability and

Rights toward Loss
 Particular Average (PA): loss borne by a
particular party.
 General Average (GA): loss of one or more
than one interest (i.e. party who has interest)
who has sacrificed for the safety of the whole
voyage, saving the others (interest) from a
common danger.

When to consider “General

Average”?
 Availability of certain danger, and the fact that the ship
is in danger (e.g. storm,…)
 In order to avoid such danger, there should be
intentional sacrifices to save common interest.
 Such sacrifices must be beneficial, i.e. save the
common interest.
 Loss, damage and cost should be the direct
consequence for such action.
 Occurrence in the sea.

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Content of General Average

Including 2 sections:
 General average sacrifices: material loss or
cost for ship and cargo, loss of carrier’s
freight due to direct consequence of general
average action.
 General average cost: cost of a third party
to save the ship and goods from danger, in
case of general average.

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Rules for GA
York-Antwerp rules 1924

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Procedure and Documentation

relating to General Average
In case of General Average, Ship owner/ ship master
must:
 Issue Notice of GA

 Invite surveyors to examine the loss of ship and cargo.

 Send each cargo owner an Average Bond, and

Average Guarantee to fill in when receiving the
goods.
 Appoint a GA Adjuster.

 Issue a Seaprotest if necessary.

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Procedure and Documentation

relating to General Average
Cargo owners must:
 Declare the cargo value.

 Contact the insurer immediately.

 Fill in the Average Bond, and Average

Guarantee and send to the insurer. (The
Average Guarantee will be signed and
returned by the insurer then so that the cargo
owners can get the goods).
 If the goods are not under any insurance
cover, what should the cargo owners do to
receive the goods?
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General Average Allocation

1. Define GA loss (L): all the asset value and cost
sacrificing for General average.
2. Defining Contributory Value (CV): asset value
available on the ship of all interest before General
average incident.
3. Defining GA proportion (P)

GA loss (L)
GA = x 100%
Proportion Contributory Value (CV)
(P)

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General Average Allocation

4. Contribution of each interest
C=PxV
By which:
- C: Contribution of each interest
- P: GA Proportion
- V: Contributory value of each interest

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General Average Allocation

5. Accounting financial results: the amount
of money collected or given out of each cargo
owner or shipowner after deducting the asset
value and cost which they suffered in GA.

 Amount of money collected or given out =

Amount of money contributed to GA – Asset
value and cost suffered in GA.

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Calculation of General
Average (GA) & Particular
Average (PA)
 Rate of contribution = GA loss / Contributory
value = L/CV

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Example
 Allocate the General average and Particular
average for the problem hereunder.
 Calculate the contribution of each party.

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A ship of US$ 9,150,000 carried 5 consignments A, B, C, D, E valued at US$

600,000; 2,500,000; 3,000,000; 2,000,000 and US$ 500,000 and the unpaid
freight of the shipowner is US$ 50,000.

During her journey, the ship got stuck, causing some holes in the hull and
water to flow in. In order to save ships and cargo, the master decides to:

 - Temporarily seal the holes with the means and goods on board;
 - Throw away some goods on board to lighten the ship;
 Overload vessel’s engine to take the ship out of the endangered zone;

The master declares general average. The losses and costs are as follows:
 - The broken shell of the ship to be repaired for $ 200,000;
 - The damaged engine due to overloading to be repaired for $ 50,000;
 - Lot A gets flooded with 100% loss in commercial value;
 - Lot E was thrown into the sea to make the ship light.
 - Damage caused by the use of articles on the ship to save the ship and
expenses for sailors in saving the ship cost 45,000 USD.

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Ship (1): 9,150,000  -200,000

A: 600,000  -600,000
B: 2,500,000
C: 3,000,000
D: 2,000,000
E: 500,000
Ship (2) (damaged engine repair): 50,000
Ship (3) unpaid freight: 50,000
Other costs & expenses): 45,000
1/ Particular average:
- Ship (1) Broken shell of the ship: 200,000
- A: 600,000
General average:
- Ship (2) Damaged engine repair: 50,000
- E: 500,000
- Other costs and expenses to save the ship: 45,000
2/ GA Loss: 50,000 + 500,000 + 45,000 = 595,000
Contributory value: (9,150,000 – 200,000) + (600,000 – 600,000) + 2,500,000
+ 3,000,000 + 2,000,000 + 500,000 + 50,000 (ship (3)) = 17,000,000
3/ GA Proportion (Contribution rate): 595,000 / 17,000,000 = 0.035
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4/ Value contributed/Payment for each interest:

- Ship (1): (9,150,000 – 200,000) x 0.035 = 313,250
- Ship (3) (Shipowner’s freight): 50,000 x 0.035 = 1,750
- A: (600,000 – 600,000) x 0.035 = 0
- B: 2,500,000 x 0.035 = 87,500
- C: 3,000,000 x 0.035 = 105,000
- D: 2,000,000 x 0.035 = 70,000
- E: 500,000 x 0.035 = 17,500
5/ Final contribution of each party:
- Ship (1) to contribute 313,250
- Ship (3) to contribute 1,750
- A does not have to contribute
- B to contribute: 87,500
- C to contribute: 105,000
- D to contribute: 70,000
- E: 17,500 – 500,000 = -482,500  E to receive: 482,500
- Ship (2) to receive 50,000
- Other costs and expenses to receive 45,000

6/ Balancing: Total contribution = 313,250+1,750+ 87,500 +105,000+70,000

= Total receipt = 482,500 + 50,000 + 45,000 = 577,500
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THANK YOU FOR LISTENING

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