Marine losses can come in all shapes and sizes
We recently had a claim for a client that called into play the ancient law of “General Average.” The concept traces its origins to maritime law, Lex Rhodia circa 800 B.C., and states that “if merchandise is thrown overboard for the purpose of lightening a ship, the loss is made good by the assessment of all which is made for the benefit of all” (Roman Law Opinions of Julius Paulus circa 235). In more common terms, it means that upon arrival in port, all crew members share proportionally in the claim for the greater good.
It should be noted that in the expression “general average” , the term “average” should be read as “loss” since the idea relates to the common proportionate liability of all who contribute to the loss of one or a few, made to save the ship in distress. Furthermore, the concept is divided into two classes: those “losses which arise from sacrifices of part in order to save the whole adventure from perishing,” and “losses which arise out of extraordinary expenses incurred for the joint benefit of ship and cargo.” These extraordinary expenses include mechanical breakdowns, or needing to be towed into port.
At WGA, two of our clients experienced an incident involving General Average when one of their freighters broke down in the Pacific and was waylaid for six weeks while repairs were completed to one of the ship’s boilers. Once the ship finally reached its destination, a General Average claim was submitted and each of the crew members with cargo on board were required to post bond for their proportion of the loss. In the coming weeks, a General Average Adjuster will be appointed, and the facts will be collected and reviewed before a ruling is made. This is fortunate, since these types of events sometimes take two years to complete.
For Global Risk Management firms like CV Starr, the company’s Claims department currently averages five such incidents a year, and expects that to increase along with the average age of U.S. fleets.
In light of this, as well as the rise of imports, we think it is critical that companies review their ocean cargo policy to make sure that their carrier will provide coverage for such an event. In addition, make sure to check and see if there is an exclusion for ships over a particular age and amend if possible.
After 25 years of insuring ocean cargo and never having experienced a General Average claim, this serves as a reminder that you never know when it could impact your company. Therefore, it’s more important than ever to be vigilant about your coverage as well as being diligent on the age and seaworthiness of the vessels used in shipping your goods.
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty group at WGA and leader of the Private Client Group. His responsibilities at WGA include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.