“GENERAL AVERAGE”

Greymouth Evening Star, 12 October 1928, Page 2

“GENERAL AVERAGE”

NOTABLE INSURANCE CASE.

“General average.” What is it? If ten business men in Auckland were confronted with the above query (stated the “Star”) it is safe to say that nine of them would give a reply something like this: “General average! Oh, yes. Of course. It’s an insurance term.” “Yes, but what does it mean?” And the persistent questioner will elicit the fact that the average business representative could not give a satisfactory answer. If a typical commercial man whose daily routine keeps him in fairly close touch with matters affecting the insurance of goods does not understand the phrase, it is scarcely reasonable to expect that that nondescript entity, the man in the street, would possess greater knowledge. Yet any person who travels by sea may be brought up with a round turn to find himself or herself affected by the insurance term known as “general average.” When a person in ordinary commerce insures £2OO worth of goods and pays £1 premium, he expects in the event of loss to collect £2OO without any bother or further call on his funds. In shipping affairs the position is not quite so simple. The £1 he pays gives a cover which is limited by the clause designated “general average.” Before he can collect his goods or the monetary equivalent he must satisfy the conditions of that clause. This, as will be seen, severely curtails the scope of his covei’ should the carrying vessel meet disaster or threatened disaster.

Actually the term “general average” is indefinite and has been arbitrarily brought into use to describe a usage whereby persons who conjointly use a ship to carry their goods agree to pool the risk of loss at sea. Thus a ship may be chartered and loaded with £5OOO worth of timber on the deck and £5OOO worth of general cargo under the hatches. A storm at sea threatens the loss of the vessel with all hands and all cargo. The captain, using his judgment for the benefit of all, jettisons the timber and is then able to struggle to port with the balance of the cargo undamaged. In that event under the principle of “general average,” the consignees of the cargo 'that was saved pay a pro rata share of the portion that was sacrificed for the general good. In formal language, but with rare clarity and completeness, Maclachlan’s Law of Merchant Shipping states the position thus: — COM BINED ADVENTURE. “The law relating to general average regards ship and cargo together as one combined adventure, comprising a variety of interests all exposed to the perils of the sea, and equally concerning under a common danger in the awarding of a total loss; and it prescribes, in case of sacrifice of part of the common adventure, that the loss accruing by reason of the sacrifice shall be assessed upon the value of what remains, together with the value of the thing sacrificed in order to recoup the loser and place him once more on a footing with his co-adven-turers.” And again: —

“General average is an indefinite phrase used in practical life to denote three things which are very distinguishable each from the other, namely, the act of making the sacrifice, the loss sustained as the direct, consequence of that act and the contribution levied on the adventure to recoup the loser.”

The recent, damage which accrued to the s.s. Port. Napier when a. few hours from Pago Pago has brought home to large numbers of Aucklanders, if not the meaning of the term “general average,” lit any rate the manner in which

it operates. The explosion of some ammonia cylinders on board threatened the vessel with total destruction, and to prevent total loss, the captain ordered the pumps to be used. Thousands of tons of water were hurled into the shelter deck. The vessel was saved, tut of the contents of the five ■hatches, comprising the main, cargo, ■those in No. 4 were badly damaged, and those in No. 5 partially so. Numbers 1,2, and 3 escaped almost entirely. ' Much to the surprise of hundreds of consignees who had not studied their marine insurance policy conditions, they found it impossible to get delivery of their goods until they had given a satisfactory bond to meet a pro rata claim based on the genei al average cluse.” As the total loss approaches £30,000, the allocation is approximately 30 per cent, of c.i.f. and e. cost of their goods. To many this has come as a great ■shock, and particularly to private persons, who may have had luggage insured as a special precaution, but who possessed no knowledge of maritime customs. A passenger carrying a few trunks iu his cabin does not come under the operation of the caluse, but once his ■goods find a place on the ship’s manifest, whether insured or not, they are subject to the provisions of “general -average.” He has to pay the thirty per cent, already referred to before he can obtain his property or even have it

inspected by the Customs officers! True, there may be a refund later on. It may be that when the “average ad* justers have completed then - *investigations, it will be found that a 20 per cent, levy will cover tile total loss, in which case a 10 per cent, rebate will be made. That final adjustment may, however, not be made for twelve months or eighteen months hence, as the work of investigation is extraordinary involving inquiries in various parts of the world, and final accounts after innumerable realisations. It only remains to be added that the usage of general average in maritime business has the force of law in Great Britain, Europe, and the United States. Moreover, those who have had an unpleasant reminder of the existence of this obligation may find some consolation in learning that the practice has the sanction of thousands of years. As far back as the time of the Romans, the principle was first adopted. Introduced and justified by expediency, it is unknown except in connection with, seafaring adventure. Its ultimate justification is that no insurance or shipping organisation could, by the application of ordinary business principles, accept full liability for all the losses that may occur at sea. In connection with the necessary formulas that have to be gone through in the assessment of “general average” Lloyd’s forms are virtually in universal use.