A maritime adventure is a risky undertaking. Ship owners, loaders, and charterers that use ships for maritime transportation face risks that are common to all of them, and may occur with certain likelihood. General Average embodies the principle of shared adversity, where all parties commit to prioritizing the collective good over individual interests in the face of challenges.
General Average coverage can be found both in Hull and Machinery policies, as well as in Cargo policies.
When is General Average declared? Considering the various situations that might threaten a ship and cargo during transport, General Average refers to a voluntary, reasonable, and deliberate act by the captain, in which goods are sacrificed or extraordinary expenses are incurred in order to protect the common safety of the ship and its cargo, the result of which must be essentially useful. The danger must be real, substantial, and pose a risk to the community of interest.
Unlike General Average, Particular Average is the loss or damage to a specific part of the cargo or ship. In other words, the key difference is precisely the lack of a community of interest.
Once the captain or ship owner has reported or declared the General Average, regardless of which interest is affected (ship or cargo), it is essential to quickly designate an appraiser to investigate the cause and assess the damage. Normally, guarantees and deposits are requested to release the cargo, take measures to minimize damage and help rescue of the goods, and achieve the best possible cooperation with other parties involved and the competent authorities.
Once the claim has occurred and the General Average has been declared, although the basic documentation needed for the processing will depend on the insured interest rate, the usual documentation (invoices, expert’s reports, etc.) regarding the claim in question will be required.
When focusing on Cargo policies and a claim declared under General Average coverage, there is very specific and necessary documentation: Average Bond and Average Guarantee. Average Bond is a guarantee granted by the owner of the cargo regarding its condition. Average Guarantee is a guarantee provided by the Insurance Company indicating that the goods are insured. To establish these guarantees, it’s important to note that sales invoices, packing lists, and bills of lading are requested, without excluding the possibility of requesting any additional documentation.
Both guarantees are essential for the ship owner and those interested in the goods, as their absence could affect the release of the cargo, which could be held up by the ship owner. As the ship owner is entitled to a lien on the goods, it’s normal for them to require a deposit before releasing it, thereby ensuring that the goods contribute to the General Average when the time comes.
Lastly, an additional matter: when the General Average is declared, the ship owner appoints the General Average Liquidator, who is responsible for collecting the necessary information, determining which costs and amounts are included in the General Average loss, and how this loss will be distributed so that each party contributes proportionally to their interest. It’s important not to confuse the General Average liquidator with the appraiser appointed by the parties to assess the damage.
Another point to note: the rules that govern the General Average principle are the York-Antwerp Rules, with the latest version being from 2016.
As shown, this concept—easy in theory, but complex in practice—requires a broad perspective, aiming to achieve necessary cooperation with other stakeholders and professionals involved. Implementing swift and effective management for our insured party in the initial stages is crucial for accurately establishing the budgets that will later be used to resolve the General Average.
Author: Marta Quiza Pardo – Transportation Handler. Claims Area
