JLT Insurance group focused on the phrase of ‘General Average’ and its meaning. The phrase is commonly used in the shipping sector covering marine energy policies including mobile offshore drilling fleets and offshore construction projects.
Specifically, Average in a marine insurance policy is the term for a loss; This is where the term Average Adjuster comes from which is another term often used in marine insurance for a Loss Adjuster.
On the contrary, the average in non marine policies is where the loss is reduced if the amount insured is less than the full replacement value of a property; In marine insurance this is called ‘under insurance’ or ‘co-insurance’ by the Insured.
Moreover, Average in marine insurance policy is divided in:
- Particular: is the partial loss of the subject matter insured (as defined in the Marine Insurance Act 1906 section 64);
- General: is the loss, sometimes a policy that covers only the total loss of the subject matter may be referred to as ‘free of particular average’.
General Average is incorporated into contracts of carriage whereby all parties to an adventure who benefit from the sacrifice or expenditure must contribute to make good the amount sacrificed or the expenditure incurred.
ection 66 of the Marine Insurance Act 1906 defines as
Where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in the time of peril for the purposes of preserving the property imperilled in the common adventure.
For a General Average to apply, the above should occur:
- The whole adventure must be in peril
- The peril must be factual and imminent
- The act must be intentional and voluntary
- The act must be reasonable and prudent
- The sacrifice or expenditure must be extraordinary in nature
Concluding, a General Average Guarantee or Average Bond is often issued by a consignee of goods, or by his insurer, to a marine carrier to release goods prior to the General Average adjustment being made.
General Average applies to maritime adventures so it can not arise in connection with goods in transit overland.