Difference between General Average and Particular Average loss – an introductory idea.

‘General average’ differs from ‘particular average’ losses, so far as the basic features, scope and sharing of ultimate burden of losses are concerned. In a maritime adventure, a loss can either be total or partial and as such any loss other than total loss would be classified as partial. Under marine insurance, the second category of loss i.e. partial loss again includes both the general average & particular average loss.

Particular average loss

This refers specifically to a particular loss or damage caused to any particular cargo or property where the damage is suffered by a particular interest and the loss is to be borne by the persons directly affected by the damage to the said cargo. Thus the burden of loss cannot be shifted to other parties involved in the maritime adventure. In other words, the invariable result of a particular average is that the loss falls on the owner of the particular property who has suffered the damage due to either for a deliberate sacrifice or for an accident.

A marine insurance expert defined “particular average as a loss arising from damage accidentally and proximately caused by the perils insured against to some particular interest, as the ship alone or the cargo alone”.

The Marine Insurance Act, 1906 also interprets – “Particular Average as  a partial loss (any loss other than a total loss) caused by a peril insured against and which is not a general average loss.”

This particular damage or loss may be caused either to the cargo or to the ship. A particular average loss with regard to a cargo may occur due to depreciation of its value for some factors during voyage. For instance if owing to heating, it becomes necessary to sell the cargo at a lower value in an intermediate port before reaching the destination port, the cargo-owner will have to bear the loss arising from such sale. Similarly if some part of cargo out of total consignment is damaged by the sea water during voyage, the loss will be treated as particular and hence the loss is to borne by the persons directly affected by the damage to the said cargo. The same principle applies if the damage is caused to a part  of the ship(hull or machinery) and not a loss to the entire ship. For instance, if owing to bad weather, the propeller of the ship is damaged and consequently the ship has to undergo repairs to ensure continuation of the voyage. The expenses incurred for such repairs will be considered as particular average loss. Hence the expenditure whether it is extraordinary or not, has to be borne by the shipowner. The cargo owner or ship owner’s claim of damage is indemnified / settled by the respective insurance company on the basis of diminished value of property ( cargo or ship) sustained due to damage & the amount of insured value mutually agreed.

General Average

General Average

General average loss

Contrary to particular average, the general average loss refers to a situation where the ship and the cargo are exposed to common danger and some part of the cargo or of the ship is intentionally sacrificed, or extra expenditure is incurred to prevent that danger. Such loss or expenditure is dealt with as an issue of general average contribution.

The basic principle of General Average is that a party who has suffered some extraordinary expenditure or loss in order to save property belonging to others, has the right of compensation for its loss from all parties to the voyage who have benefited from it (e.g. a merchant whose cargo is jettisoned to save a voyage).

Therefore a loss is considered as general average only when it affects two or more interest in a common marine adventure. This loss should be an extraordinary sacrifice which is reasonably made for the sole purpose of preserving adventure from the immediate peril & also common safety of all other interests. Normally the sacrifice include throwing of some cargo over board (jettison), using cargo as fuel and cutting away of wreck or parts of ship etc to avert peril.

The sacrifice can also be in the form of an extraordinary expenditure (general average expenditure) which includes money to be spent for the general safety of ship, cargo and crew with certain expenditures like charges for repairs, expenses incurred in lightening and reloading a vessel etc.  A general average loss requires contributions from all the other interest (cargo owners) involved in the marine adventure to make good the sacrifices or expenses. This is known as general average contribution. An important point is that the voyage must be saved for General Average law to apply.

The following marine casualties / events and corresponding expenditures in the related field are considered, for general average to apply in maritime adventure.

SL No Marine casualties / events Sacrifice or expenditures in the related field
01 Grounding / stranding Damage to vessel and machinery through refloat efforts

 

Loss or damage to cargo through jettison or forced discharge

 

Cost of discharging, storing and reloading of discharged cargo

 

Port of refuge expenses

 

02 Fire Damage to ship or cargo due to efforts to extinguish a fire on board

 

Jettison of cargo

 

Port of refuge expenses

 

03 Cargo shifting in heavy weather Jettison of cargo

 

Port of refuge expenses

 

04 Heavy weather, collision & machinery breakdown Port of refuge expenses

 

 

How adjustment of general average expenditure or contribution is done between all the parties involved in a common maritime adventure, is illustrated through the following example

A)Shipowner’s losses and expenses General Average expenses
 

Cost of repairs of damage to vessel’s
machinery sustained in refloating
operations.

$250,000
 

Cost of discharging, storing in lighters,
and reloading cargo discharged
to lighten vessel.

$100,000
 

Salvage awarded to tugs for
refloating vessel.

$1,150,000
Ship owner’s losses (total of column)  = $1,500,000
 

B) Cargo owner’s losses

Value of cargo jettisoned in: US$500,000
efforts to refloat.
Damage to cargo caused by:  US$ 100,000
forced discharge, storage
and reloading.
                          Sub-total =  US$ 600,000
 

Cargo owner’s losses (total)     =

$600,000
Total GA expenditure (Ship + Cargo)  = $2,100,000
C) Apportioned Expenditure to Ship
Arrived value at destination in:   US$ 6,750,000
damaged condition.
Add allowance in general:          US$    250,000
average for refloating damage.
Total contributory value:            US$ 7,000,000
considered  for  apportionment
 Expenditure payable         =
by ship @ 10% on the contributory values
$700,000
D) Apportioned Expenditure to Cargo
Invoice value after deduction:    US$ 13, 400,000
of loss and damage.
Add allowance in general:                US$ 600,000
average in respect of
jettison and damage
due to forced discharge.
 

contributory value:       =             US$ 14,000,000
considered  for  apportionment

Expenditure payable             =
by cargo owner @10% on the
contributory  values
$1,400,000
 

Total contributory value            =   US$ 21,000,000
(Ship + Cargo) considered
for  apportionment

 

Apportioned expenditure payable          =
by ship owner & cargo owner @10% on the
contributory  values

$2,100,000
 

E) Balance under the adjustment
The Shipowner:

Receives credit for general average losses and expenses. $1,500,000
Pays general average contribution.   (-) $700,000
Balance to receive      = $800,000
 

F) The cargo owner

Pays general average contribution $1,400,000
Receives credit for general average losses.   (-) $600,000
Balance to pay             = $800,000

 

Related Post:

  1. General Average – an overview
  2. Define Maritime Law & highlight the area/subjects dealt by the law
  3. International Maritime Organization-a specialized agency for safety in shipping and sea

 

 

 

 

 

 

 

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