Marine Hull and Machinery Insurance Claims

MARINE HULL & MACHINERY INSURANCE CLAIMS
[CLAIMS PROCESSING, DOCUMENTATION & ADJUSTMENT]

The adjustment of Marine Hull Claims depends largely
on the type of the claim whether General Average,
Particular Average, Total Loss, Constructive Total
Loss etc where the documentations differ from one
class to another.

However, to successfully handle Hull Claims, due to
its complex nature, a Marine Hull Adjuster must have
a sound underwriting knowledge, a sound knowledge of
the provisions of the various Institute Clauses
(Hulls) and an indepth knowledge of the Marine Insurance
Act 1906.

For General Average Claims, a fair knowledge of the YORK TWERP RULES
and the RULES OF PRACTICE OF THE ASSOCIATION OF AVERAGE ADJUSTERS
is required. A General Average Adjustment can run into more than three
Hundred pages, which a Hull Claim official must be able to interpret properly
and ascertain whether the basis of arriving at his Contributory Value and his
Contributions towards a General Average Loss is correct. This is particularly
important in Africa especially where most of the Average Adjustments are
drawn up in Europe or America by Average Adjusters appointed by Ship-owners
and many Underwriters in many instances have paid more than necessary due
to wrong assessment of Contributory Values.

Furthermore, a sound knowledge of the Legal Provisions and
requirements of the Maritime Laws such as the Merchant
Shipping Act, Hague Rules, Hague-Visby Rules and Hamburg
Rules are required.

Finally, Marine Insurance has a universally accepted
practice and therefore both Marine Underwriters and Average
Adjusters must have in addition to their wealth of
experience, a lot of reference books to guide them in their
day to day operations, some of which are the Lloyd's
Registers of Shipping, Lloyd's Maritime Guide, Lloyd's
Daily List, Lloyd's Casualty Index and the Lloyd's Survey
Handbook.

The Assurer is directly responsible to the Assured for the
amount which may be payable in respect of losses. It is
consequently very important that Underwriters should take
care that settlements are made with the proper parties,
otherwise they may be obliged to pay claims twice.
When a person other than the Assured is claiming a payment
under the policy, a prudent Underwriter should ask to have
the policy endorsed by the Assured before making a
settlement with the third person.

Subject to the loss being proximately caused by a peril
expressed in clause 6, the ITC cover both 'actual' total
loss and 'constructive' total loss. Subject to the adequacy
of the sum insured expressed in the policy, the policy pays
the insured value stated in the schedule in settlement of a
claim for total loss, whether it be actual or constructive.
Except where the clauses provide that some other value shall
replace the insured value (eg cl 1.3), the insured value is
deemed to be the value of the ship even if it is subsequently
revealed that the insured value is more than the market value
of the ship (ref. MIA - 1906 - section 27 - 3).

(b) he is deprived of possession of the ship and it is unlikely
he will recover it (if it is irretrievable there are
grounds for an actual total loss - see notes above)

These provisions are made in section 60 of the MIA (1906).
The Act provides, also, that the Assured may abandon the
ship to the Underwriters and claim a constructive total loss
where:

(a) the Assured is deprived of possession of the ship and
the estimated cost of recovering it would exceed its
saved value when recovered.

(b) the ship is damaged and the estimated cost of repairing
it would exceed its repaired value.

One can, of course, combine the costs of recovery and
repair to establish a constructive total loss, but, in
practice, a comparison is made, not with the 'repaired'
value, but with the 'insured' value, to determine a
constructive total loss:

In ascertaining whether the Vessel is a constructive total
loss, the insured value shall be taken as the repaired
value and nothing in respect of the damaged or break-up
value of the Vessel or wreck shall be taken into account.

No claim for constructive total loss based upon the cost of
recovery and/or repair of the Vessel shall be recoverable
hereunder unless such cost would exceed the insured value.
In making this determination, only the cost relating to a
single accident or sequence of damages arising from the same
accident shall be taken into account.

If follows, that, if the cost of recovery and/or repair would
not exceed the insured value, the Assured has no option but
to claim for the reasonable cost of repairing the ship
(unless Underwriters are prepared to negotiate a settlement
for 'compromised' total loss; although no provision is made
for this in the ITC), or to wait until the natural expiry
date of the policy and claim a depreciation allowance in
respect of unrepaired damage.

The definitions of constructive total loss as given in the
Act and the measure of indemnity laid down facilitate
claims on hull and machinery.

It should be remembered that the decision whether to claim
constructive total loss or to treat the claim as a partial
loss rests with the Insured. If he decides to claim a CTL
he may be required to give notice of abandonment, although
this is unnecessary where there would be no possibility of
benefit to the Insurer if notice were given. Moreover, the
Insurer may waive notice of abandonment.

On the other hand, the giving of notice of abandonment when
the fact do not warrant such action does not of itself prejudice
the Insured; he may still recover a partial loss, provided
indemnity against such loss is not excluded by the terms of the
policy.

The main difficulty in dealing with CTL arises rather from
confusion between abandonment and notice of abandonment.

The former is the right inherent in contracts of indemnity
which gives to the Underwriter the right of benefit in
whatever may remain of the subject-matter insured on payment
of the claim on a total loss basis. It applies to actual and
CTL of part of the insured interest (which is particular
average) as well as to the complete loss of the whole interest
insured.

Notice of abandonment on the other hand is the condition
precedent to claims for CTL. In practice, it is normal for
notice to be given when there is an actual total loss as
well as where a CTL is claimed. In fact, as mentioned above,
notice may be unnecessary or may be waived.

Notice of abandonment is always (or almost always) declined
(s.62(6)) since acceptance is irrevocable and admits
liability for the loss.

Reference in this respect may, however, be made to the case
of Norwich Union v. Price (1934) where Insurers had accepted
abandonment and paid in respect of a cargo of lemons sold
short of destination. The information upon which payment had
been made indicated that damage had been by an insured peril.

It was subsequently learned that the sale had arisen because
of damage due to delay. Claim was made for repayment of the
indemnity and judgement given for the plaintiffs despite
their acceptance of notice of abandonment. The reasoning
behind this is that the payment had in the first case been
under a mistake of fact.

The Act provides that there is a CTL of ship where the estimated cost of
repairing the damage would exceed the value of the ship when repaired. In
practice, under the valuation clause the normal policy provides that the value
of the ship when repaired shall be taken to be the insured value.

The Act also provides that in estimating the cost of repair
no deduction is to be made in respect of general average
contributions of those repairs payable by other interests,
but account is to be taken of the expense of future general
average contributions to which the ship would be liable if
repaired'. The actual cost of repair, including operations
necessary to that repair, is in effect to be calculated to
decide whether such repair is a reasonable commercial
proposition without regard to the possibility that some
part of that cost may eventually be borne by other
interest(s) than the Owner.

The definition of particular average must always be borne
in mind. Much difficulty arises because of failure to
appreciate that the first consideration is whether the loss
has been proximately caused by a peril insured against.

This is particularly important in considering claims under
the Inchmaree clause, which provides cover against 'losses
due to latent defect' and does not extend to cover the loss
to the latent defect itself.

The major factor thereafter in dealing with particular
average claims is the franchise or excess applicable to the
policy. The term 'franchise' means the amount which the
claim must reach before it becomes recoverable, but which,
when reached, entitles the assured to recover the full
amount. In certain clauses, countries, and policies,
reference may be made to 'deductible franchises', a term
which is synonymous with 'excess'. Under current clauses,
hull risks generally (but not always) provided for an excess.

The current common hull clauses usually provide that excess
shall apply to all claims other than total or constructive
total loss and in addition, that claims under the running
down or sue and labour clauses shall also be subject to the
excess provision. Only one deduction, however, is made in
respect of all the claims, whether Particular Average (PA),
General Average (GA), Running Down Clause (RDC), or Salvage
Loss (S/L), arising from a single casualty.

A total loss of part is 'particular average', unless the
part lost forms the whole of an apportionable part. An
apportionable part must form a 'species' of itself; one or
more of a hundred similar packages of goods is not an
apportionable part nor, of course, is a single item of gear
or equipment in a vessel, even though that be the only one
needed for that vessel.

The measure of indemnity for particular average on hull is based upon the
reasonable cost of repair (s.69). The Act provides for 'new for old' deductions
'unless the policy otherwise provides', but in practice, a clause providing for
payment without such deductions is the rule rather than the exception.

The Act allows claims on the basis of unrepaired
damage but also provides that where an unrepaired
partial loss is followed by a total loss under the
same policy, the insured can only recover for the
latter. It follows that unrepaired damage claims
can be made only after expiry of the policy (s.77).

The Insured has the right to claim for unrepaired
damage if the vessel suffers further damage to the
same part, or even becomes a total loss under a new
policy, and this is so even though the subsequent
renewal policy is on the same terms and has the same
insured value.

The case of Wilson S.S. Co., Ltd, v. British and
Foreign Marine Insurance Co. Ltd, (1921) may also be
mentioned.

It held that partial loss by perils insured against which
was followed by a total loss from perils not insured against,
was not recoverable.

The measure of indemnity for unrepaired damage, whether the
whole or only part of the damage is unrepaired, is the
reasonable depreciation arising form the unrepaired damage
not exceeding the reasonable cost of repair. The reasonable
depreciation may be assessed by comparing sound and damaged
values on expiry of the policy. Should this percentage or
ratios be applied to the insured value or not, to give the
maximum amount for which underwriters may be liable ?

In the case of the Armar, Astra v. Archdale (1954),
an American court held that it should.

Thus, under this judgement, if, as an example, the following
figures are considered:

the indemnity payable by Underwriters will be US $50,000,
provided that is not greater than the reasonable cost of repairs.

The position in British law is less certain; it may be
that, using the above figures, liability would be limited
to #40,000 provided that sum was not greater than the
reasonable cost of repairs. The relevant British cases are:
Elcock v. Thompson (1949), Irvin v. Hine (1950), and
Pitman v. Universal (1882).

But I personally considered the above more equitable,
as the Ship-owner paid the premium on the insurance of the
Hull based on the Sum Assured of US $100,000.

The last mentioned (and earliest) (British Law Cases)
supported the American view in the court of first instance
but was less conclusive on appeal. The first case approved
the basis, but the latest case referred to the Act and the
provision that in a valued policy the value fixed by the
policy is conclusive (s.27(4)). It was held, therefore,
that the deprecation should be assessed by deducting the
damaged value of the vessel from the notional undamaged
value, that is, the insured value. If the figure thus
obtained is greater than the reasonably estimated cost of
repair, the latter is the limit of Underwriter's liability;
if not, the former is the amount payable.

It must be added that this difficulty is not often
encountered in practice. Where a decision is made to defer
repairs indefinitely or, more frequently, where the owner
considers the particular vessel might better be sold in an
unrepaired state, the liability of Underwriters for
unrepaired damage is usually compromised at a variable
percentage of the estimated cost of repair.

Section 58 of the M. I. A. provides that where the ship
concerned in the adventure is missing, and after the lapse
of a reasonable time no news of her has been received, an
actual total loss may be presumed.

It is in the interest of all parties that loss be averted
or minimised where-ever possible, and the Assured and his
servants and representatives are in the best position to
take measures to this end.

'It is the duty of the Assured and his agents, in all cases,
to take such measures as may be reasonable for the purpose of
averting or minimising a loss.'

The attention of the Assured is directed to this duty by
clause 13.1, which relates the duty, solely, to loss which
would be recoverable under the policy:

In case of any loss or misfortune it is the duty of the
Assured and their servants and agents to take such
measures as may be reasonable for the purpose of averting
or minimising a loss which would be recoverable under this
insurance.

The MIA (1906) relates the, above quoted, duty to the 'sue
& labour' clause in the SG policy form, and provides that
charges reasonably incurred by the Assured pursuant to the
clause shall be recoverable under the policy. Therefore,
such charges became known, in practice, as 'sue & labour'
charges. There is no sue & labour clause in the MAR policy
form, nor in the ITC, but the spirit of the sue and labour
clause is retained in clause 13.

A 'sue & labour' charges is an expense incurred by the Assured, their
servants or agents, with the intention of preventing or minimising any loss or
damage that would be recoverable under the policy.

The term does not embrace general average expenditure,
general average contributions or payments for salvage awards.
Legal costs incurred in connection with collision (attack or
defence) are not sue & labour; nor are expenses incurred in
connection with the cost of repairs (eg adjusters' fees, dry
dock dues etc.)

The policy pays sue & labour charges, properly incurred, to
prevent or minimise a loss that is recoverable under the
policy, in addition to any other claim under the policy,
even in addition to a total loss. Provided the measures taken
are reasonable, the Assured can claim for sue & labour charges,
even if the measures prove to be unsuccessful. Where a sue &
labour charge is incurred properly, but the amount is more than
is reasonable in the circumstances, the assured can claim for
the charges up to the amount that is reasonable (subject to any
reduction under clause 13.2 or 13.6).

Subject to the provisions below and to Clause 12 the Underwriters
will contribute to charges properly and reasonably incurred by
the Assured their servants or agents for such measures. General
average, salvage charges (except as provided for in Clause 13.5)
and collision defence or attack costs are not recoverable under
this Clause 13.

It will be noted that cover is subject to the deductible
specified in clause 12, but reference should be made to
clause 12.1, in the event of a total loss:

This Clause 12.1 shall not apply to a claim for total or
constructive total loss of the Vessel or, in the event of such a claim,
to any associated claim under Clause 13 arising from the same accident
or occurrence.

It is unlikely that costs incurred would be considered
'reasonable' if they exceed the amount insured in respect
of this ship. Nevertheless, to protect underwriters'
interests in the event that the amount insured is less
than the actual sound value of the ship, two
clauses (cl. 13.6 and cl. 13.4) appear in the ITC.

Clause 13.6 limits the Underwriters' liability for sue &
labour charges to the amount insured by the policy :

The sum recoverable under this Claim 13 shall be in addition
to the loss otherwise recoverable under this insurance but
shall in no circumstances exceed the amount insured under
this insurance in respect of the Vessel.

Clause 13.4 limits Underwriters' liability for sue & labour
charges where the ship is insured for less than her actual
sound value at the time the sue & labour charges are
incurred:

13.4 When expenses are incurred pursuant to the Clause 13 the
liability under this insurance shall not exceed the
proportion of such expenses that the amount insured hereunder
bears to the value of the Vessel as stated herein, or to the
sound value of the Vessel at the time of the occurrence
giving rise to the expenditure if the sound value exceeds that
value. Where the Underwriters have admitted a claim for total
loss and property insured by this insurance is saved, the
foregoing provisions shall not apply unless the expenses of
suing and labouring exceed the value of such property saved and
then shall apply only to the amount of the expenses which is in
excess of such value.

The first part of clause 13.4 is concerned with a policy
where the sum insured is less than the insured value
expressed in the policy; thereby ensuring that each policy
bears its proportion of the sue & labour charges, or where
part of the insurance is covered by a policy that does not
cover sue & labour, the Assured bears part of the charges.

The second part of clause 13.4 is concerned with circumstances where a
claim for total loss is admitted under the policy, and the ship or part thereof
is saved. Although this is not made clear in the clause, it is assumed that the
Underwriters enjoy the proceeds of the disposal of the wreck. In this case the
reduction in liability resulting from the under-valuation, as above, applies only
to the difference between the proceeds and the sue & labour charge, if the
latter exceeds the proceeds.

Ship becomes a total loss, despite the attempt to save her.
Underwriters pay $10,000,000 in respect of the total loss, and
exercise their subrogation rights to recover and dispose of the
wreck; realising net proceeds of $6,000.

The documents required in the event of claim should always
include the policy. In the case of a total loss (actual or
constructive) this will normally be retained by the
Underwriter, but where, under a hull policy for instance,
there may be another claim under the RDC the Insured is
entitled to demand its return. In any case, the policy will
be endorsed to show the payment made.

Where the owner is resident aboard a 'payment order' will
be required authorising the Insurer to pay the Broker.
If there is a note of any assignment or mortgage endorsed
on the policy, the Insurer should satisfy himself that
payment is being made to the right party.

Where the policy contains a disbursements warranty, a
certified list of all insurances must be furnished by
the owner in order to enable the Insurer to satisfy
himself that the warranty has been complied with.

As a preliminary to a claim for CTL there must be notice
of abandonment given by the Insured to the Underwriters
except where no benefit could arise to the Underwriters
from so doing, or in the case of reinsurance (s.62)

Where Underwriters accept abandonment and pay, or agree to
pay, a CTL the transfer of the ownership of the vessel to
them or their nominees (e.g., the Salvage Association) will
need to be certified. In practice, this is avoided as far
as possible by arranging that the owner shall seek offers
for the vessel through those nominees. If transfer of
owner-ship is required, however, there is not other legal
method. A wreck, however, does not require such a transfer
of ownership.

In practically all cases involving commercial vessels the
PA claim on ship is stated by an Average Adjuster. Such
statement is supported by documentation, but the preparation
of the statement is far more than a dissection and
co-ordination of the accounts. The Adjuster, while generally
instructed by the ship-owner or manager, is a highly skilled
professional bound to deal with the case on its merits.

In certain cases the master of a vessel (or others having
knowledge of the circumstances) must (and in other cases
may) make a sworn statement before a Notary Public or
Consul as soon as is reasonably possible after the incident
detailing the facts as known to them. Normally, a protest
reserves the right to extend the protest, if it is necessary,
at a later time and place. It is of value in that it sets down
the relevant facts at the time of the loss.

As a rule, the materials entries from both the deck and
engine room log books are incorporated in the adjustment.
These log books are invaluable as they contain details of
all material events relating to the ship, entered in the
log at the time of their occurrence. For instance, in the
engine room log, all the movements of the engines will be
recorded. If any of the bearings run hot, or any minor
irregularity occurs in connection with their running, it
will be recorded in the log.

Where loss has occurred to a vessel the Underwriters will
normally appoint a Surveyor, the owner's marine superintendent
will attend or send somebody else to represent the
ship-owner's interest, and if the vessel is classed and
unless the damage is of insignificant proportions, the
ship-owner will also need to advise his classification
society, whose Surveyor will also attend to ensure that
the vessel is fit to maintain her class or will be required
to that standard. Generally the Surveyors co-operate to
decide the scope and extent of the damage and the repair needed.

A specification showing the repairs required is drawn up
and agreed. The repairs may be deferred if that is suitable
to the particular case, or quotations for repair may be
obtained.

Underwriters always reserve their right to call for tenders
but there is no point in doing so except in serious cases
since the cost of moving the vessel with attendant expenses,
and possibly preliminary temporary repairs, will nullify any
saving in cost.

When tenders are sought, however, they are based on the
agreed specification, advertised to suitable repairers who,
under the terms laid down, deposit sealed bids which are
opened at a stated time and place.

It is usually provided that acceptance of any tender rests
with the parties seeking the repair.

Generally, the lowest tender is accepted, but Underwriters
seek to ensure that the yard chosen is capable of the work
and that is shall be performed with reasonable dispatch.
They also, in the tender clause, make all allowance for
tine lost by calling for tenders.

As a rule, repair accounts should be receipted, but it is
doubtful if the insurers can insist on payment of the
accounts before they settle the claim, especially if the
Insured is unable to make the disbursements. The
Underwriters' Surveyor must approve the account and
invariably he does so subject to Underwriters' liability
and adjustment. If he does not approve the whole account
he must say how much is agreed.

While in port, vessels usually require assistance in
shifting and, whenever these shifts are in connection with
the repair of the damage, the cost forms part of the claim
and there is a voucher for the tug assistance amongst the
documents.

Similarly, when a vessel is removed to another port,
pilot-age may be one of the expenses and there must be a
voucher for same.

The portage account gives particulars of the wages and
provisions of the crew and, if they are in connection with
the crew's services in shifting for repairs, they are
recoverable in lieu of riggers. If any of the crew are
retained to assist in the repairs, where otherwise they
would be paid off, the cost is part of the cost of repairs.
It must be remembered that ITC provides that:

No claim shall be allowed in particular average for wages
and maintenance of the Master, Officers and Crew, or any
member thereof, except when incurred solely for the necessary
removal of the Vessel from one port to another for repairs or
for trial for average repairs and then only for such wages and
maintenance as are incurred whilst the Vessels is under way.

To this extent no claim is recoverable under the policy,
but there can be recovery for wages and maintenance of crew
for work done in repairing general average damage, both in
port and under way.

The fuel and engine stores account is a statement given by the chief
engineer as to the consumption of fuel and engine stores and, in so far as
the repairs have necessitated their consumption, they are recoverable.

As previously stated claims on hull are normally dealt with in a settlement
by an average adjuster. He is bound by Rules of Practice agreed by his
association. Such an adjustment provides strictly for the proper presentation
of the claim and inclusion of all relevant factors.

For freight claims, it is necessary to show insurable
interest and, therefore, to supply the contract under which
freight is payable. This will, in most cases, be the
charter-party but sometimes the loss of freight will relate
to shipments carried under bills of lading when those
documents will be required instead.

There are also occasions where the charter-party requires
that an advance of freight may be required by the master to
defray ship's disbursements at port of loading. Such advances
are usually limited to a small percentage of the total
freight, and any such advance 'is to be endorsed on the bills
of lading', Despite the general provision that freight is
payable at destination, such advances may by custom or
contract be irrecoverable by the charterer from the ship-owner
even though the cargo be lost. In such cases of freight loss
both charter-party and bill(s) of lading would be required.

Once a survey report has been prepared it is the duty of the
Assured to invite tenders for the repair work from several
firms. These will be examined, on behalf of the underwriters,
by their appointed representatives to consider acceptance.
Underwriters retain the right to reject any or all the tenders
invited by the assured, at their option; this being implied in
clause 10.2.

Clause 10.3 provides that the Underwriters may take tenders,
in addition to the assured, if they wish; and they may
request the Assured to invite further tenders, at their
option. However, it should not be implied that, because
Underwriters invite their own tenders, or request the
Assured to invite further tenders, they are restricted to
accepting such tenders. They may, if they wish, revert to
one of the earlier tenders, and would do this if none of the
subsequent tenders are satisfactory.

In addition to allowing Underwriters to invite tenders etc.
as above, clause 10.3 provides for an allowance to be paid to
the Assured who suffers as a result of delay in awaiting
Underwriters' acceptance of certain tenders:

10.3 The Underwriters may also take tenders or may require further
tenders to be taken for the repair of the Vessel. Where such
a tender has been taken and a tender is accepted with the
approval of the Underwriters, an allowance shall be made at
the rate of 30% per annum on the insured value for time lost
between the despatch of the invitations to tender required by
Underwriters and the acceptance of a tender to the extent that
such time is lost solely as the result of tenders having been
taken and provided that the tender is accepted without delay
after receipt of the Underwriters' approval.

It is important to note that the allowance applies, solely
to the period of time relating to tenders invited by
Underwriters, or further tenders invited by the Assured at
Underwriters' request. No allowance will be paid in respect
of time lost awaiting tenders invited by the Assured, other
than at the request of Underwriters who were unable to
accept an earlier tender. Where the Underwriters invite
tenders themselves, or request the Assured to invite further
tenders, but change their minds and accept an earlier tender,
this does not prejudice the Assured's right to compensation
for time lost in respect of the later tenders. It is a
condition of the compensation that the Assured must accept a
tender without delay on receipt of Underwriters' approval.

The compensation for loss of time is based on the insured
value of the ship, rather than the actual loss of use suffered
by the Assured:

          Period of time from despatch of invitations to tender
            to acceptance of successful tender = 100 days.
            Compensation based on $4,110 x 100 = $411,000

However, the Assured must credit to the allowance any amounts
saved which he would have expended in running the ship whilst
it was out of use awaiting tenders, plus any recoveries from
general average or from third parties in respect of loss of
use during the relevant period:

Due credit shall be given against the allowance as above for
any amounts recovered in respect of fuel and stores and wages
and maintenance of the Master Officers and Crew or any member
thereof, including amounts allowed in general average, and for
any amounts recovered from third parties in respect of damages
for detention and/or loss of profit and/or running expenses,
for the period covered by the tender allowance or any part thereof.

The compensation allowance calculated in the above examples
assumes that all the repairs relating to the tenders are for
the account of Underwriters, except for the part the
assured bears in relation to the deductible in clause 12.
However, where repairs are to be carried out for the assured's
account at the same time as Underwriters's repairs, a pro
rata reduction in the compensation allowance takes place.

It is important that Underwriters are informed as soon as
possible following an accident, if there is any likelihood
that a claim may attach to the policy. In the case of a
constructive total loss it is a condition precedent to the
claim that Underwriters are given notice of abandonment,
as provided in the MIA (1906), section 62(3); but the MIA
makes no provision regarding notice in respect of other
types of loss. However, the ITC make the following
provision for any accident whereby a claim may arise under
the policy:

10.1 In the event of accident whereby loss or damage may result
in a claim under this insurance, notice shall be given to
the Underwriters prior to survey and also, if the Vessel is
abroad, to the nearest Lloyd's Agent so that a surveyor may
be appointed to represent the Underwriters should they so
desire.

In accordance with clause 10.1, notice must be given to
Underwriters prior to any survey being carried out. It is
expected that such notice will be given with reasonable
diligence as soon as the Assured is aware of the accident,
but a reasonable amount of time will be allowed for the
Assured to verify the reliability of the information.
Where several Underwriters subscribe the same policy, it is
not, usually, necessary for all the subscribing Underwriters
to be notified immediately to conform with the terms of
clause 10.1; notification to the leading Underwriter being
sufficient in most cases, because the leading Underwriter can
initiate any preventive measures on behalf of all the
subscribing Underwriters.

In the event that the Assured fails to give notice of an
accident to the Underwriters, and to the nearest Lloyd’s
agent, as applicable, clause 10.4 comes into effect:

10.4 In the event of failure to comply with the conditions
of this Clause 10 a deduction of 15% shall be made form
the amount of the ascertained claim.

The penalty deduction from the claim applies, also, if the
Assured or his representative carries out a survey prior to
notifying the Underwriters, and the Lloyd’s agent if
applicable; also to failure to comply with any of the other
requirements of clause 10.

Clause 10.4 is intended to apply to each separate accident,
so that an Assured who persistently ignores its requirements
could find the penalty applied to each claim. Nevertheless,
only one deduction is made from a claim where the Assured
fails to comply with more than one of the conditions in
clause 10, in respect of a single accident.

The policy covers the 'reasonable' cost of repairing the
ship, subject only to the limit of the amount insured in
respect of any one casualty and the policy deductible
expressed in clause 12. No guidance is given regarding
the term 'reasonable', so the Underwriters reserve the
right to veto the place where the repairs are to be carried
out and the firm that is to carry out the repair work:

10.2 The Underwriters shall be entitled to decide the port to
which the Vessel shall proceed for docking or repair
(the actual additional expense of the voyage arising from
compliance with the Underwriters' requirements being
refunded to the Assured) and shall have right of veto
concerning a place of repair or a repairing firm.

It will be noted that clause 10.2 allows Underwriters to
decide, also, the place where the ship shall proceed for
docking; this may be necessary whilst the ship waits to
be removed to the place of repair.

The MIA (1906) section 69 allows the Assured to claim a
depreciation allowance for unrepaired damage, where the
ship is only partially repaired, or not repaired at all.
This may occur when repairs are deferred, and the policy
expires before the repairs are carried out. The MIA refers
only to circumstances where the ship is not sold in her
damaged condition; but, in practice, underwriters do not
draw this distinction. No guidance is given in the MIA as
to the method of determining the depreciation allowance,
other than to limit it to the reasonable cost of repairing
the ship. The ITC specify the measure of indemnity for the
depreciation allowance in clause 18.1.

18.1 The measure of indemnity in respect of claims for
unrepaired damaged shall be the reasonable depreciation
in the market value of the Vessel at the time this
insurance terminates arising from such unrepaired damage,
but not exceeding the reasonable cost of repairs.

The MIA section 69 provides that the measure of indemnity
for a depreciation allowance applies only when the ship has
not become a total loss during the currency of the policy.
This embraces both actual and constructive total loss, and
is supported by clause 18.2 :

18.2 In no case shall the Underwriters be liable for unrepaired
damage in the event of a subsequent total loss (whether or
not covered under this insurance) sustained during the
period covered by this insurance or any extension thereof.

Although the MIA does not make this clear, the intention is
that any total loss expunges the right to a depreciation
allowance; which means that the Assured cannot claim such
allowance following a total loss of the insured ship, even
if Underwriters are not liable for the total loss.

Clause 18.2 emphasises this point. Thus, no claim for a
depreciation allowance will be entertained until the policy
expires, or is terminated in accordance with clause 4. Where
the continuation clause (cl 2) is invoked, the policy is not
deemed to have expired until the extension granted under
clause 2 has terminated.

Clause 18.3 specifies that Underwriters' liability for a
depreciation allowance shall not exceed the insured value of
the ship at the time the policy terminates:

18.3 The Underwriters shall not be liable in respect of unrepaired
damage for more than the insured value at the time this insurance
terminates.

In this respect, attention is directed to the provisions of
clause 1.3, regarding break-up voyages. In such
circumstances the insured value of the damaged ship may be
reduced and this would be the value 'at the time the
insurance terminates', as specified in clause 18.3.

Where a ship is out of commission following an accident, the
Assured might find it expedient, or necessary, to retain the
master, officers and crew, or any of them; thereby being
responsible for their wages and upkeep. Except where such
costs are included in general average, no claim for wages
or maintenance falls on the policy, irrespective of the
fact that the ship may out of commission as the result of
an insured peril. The only exception applies to
circumstances where the services of the master, officers
and crew are necessary to remove the ship to a place for
Underwriters' repairs, or to operate the ship during trial
trips in connection with such repairs :

No claim shall be allowed, other than in general average,
for wages and maintenance of the Master, Officers and
Crew, or any member thereof, except when incurred solely
for the necessary removal of the Vessel from one port to
another for the repair of damage covered by the Underwriters,
or for trial trips for such repairs, and then only for such
wages and maintenance as are incurred whilst the Vessel is
under way.

It will be noted, however, that Underwriters limit their
liability under clause 16 to, only, such wages and
maintenance as are incurred by the Assured during the time
the ship is actually moving (i.e underway). If the Assured
incurs such costs during the time the ship is waiting to
be moved, or during the time repairs are being carried out,
he must bear such costs himself.

When a ship runs aground it is desirable that her bottom be
examined as soon as possible to see if any damage has been
caused. This applies, particularly, when the ship has been
'stranded'. The term 'Stranded' applies to circumstances
where the ship has run aground and remained hard and fast
for an 'appreciable' period of time (a ship that remained
ashore for 15 to 20 minutes was held to be stranded -
Baker v Towry, 1816). 'Stranding' does not include
circumstances where the ship rests on the bed of river,
harbour, etc, due to the fall of the tide.

Underwriters are prepared to bear the cost of 'sighting the
bottom' of the ship following stranding, even if no damage
is found. Provision for this is made in clause 12.1, which
provides, also that such costs shall not be subject to the
deductible expressed in clause 12:

Nevertheless the expense of sighting the bottom after stranding,
if reasonably incurred specially for that purpose, shall be paid
even if no damage be found.

It should be noted that this extension of cover applies only
where the ship has 'stranded', not being applicable to any
other form of grounding; also, only in respect of expenses
'reasonably and specially' incurred for that purpose.
Prior to the introduction of the 1983 clauses, it was the
practice to exclude grounding in certain locations from
this extension of cover. The 'suez canal' clause, which
specified these areas, no longer appears in the ITC.

Attention is directed to clause 15 (analysed earlier
herein) regarding the costs of scraping and painting the
ship's bottom; such not being covered by underwriters,
even in connection with sighting the bottom.

A Ship's bottom becomes fouled with marine growth over a
period of time. This will retard the progress of the ship if
steps are not taken to remove the growth. Periodically, the
bottom of the ship is scraped to remove the growth; and this
necessitates repainting the bottom. Average adjusters,
following the rules of practice, do not allow the cost of
cleaning or painting the ship's bottom, if the bottom has
not been painted within six months before the accident.

Although the ITC have provided, in the past, that
Underwriters should not be liable for the costs incurred in
scraping and/or painting the ship’s bottom, it has been the
practice, for some time, for Underwriters to follow rules of
practice which allow for certain of these costs to be borne
by the policy. The ITC (1983) set out, in detail, the costs
so allowed; but it is mphasized that no claim for the cost of
scraping the ship’s bottom shall be allowed, even when this
is necessary to discover the extent of bottom damage :

In no case shall a claim be allowed in respect of scraping
gritblasting and/or other surface preparation or painting of
the Vessel’s bottom except that

15.1 gritblasting and/or other surface preparation of new
bottom plates ashore and supplying and applying and “shop”
primer thereto,

15.2 gritblasting and/or other preparation of :
the butts or area of plating immediately adjacent to any
renewed or refitted plating damaged during the course of
welding and/or repairs areas of plating damaged during the
course of fairing, either in place or ashore,

15.3 supplying and applying the first coat of primer/anti-corrosive
to those particular areas mentioned in 15.1 and 15.2 above,
shall be allowed as part of the reasonable cost of repairs in
respect of bottom plating damaged by an insured peril.

Plates taken from stock are usually rusted, and require
grit-blasting so that they can be given a primer cost prior
to being used for repairs to the ship. clause 15.1 allows
the cost of this preparation as part of the reasonable cost
of repairs. In order to carry out effective repairs, the
area of the bottom immediately adjacent to the repair work
needs to be cleaned. This involves grit-blasting or other
surface preparation, which is allowed as part of the cost of
repairs under clause 15.2. The same clause allows the cost
of cleaning any plating damaged during the repair work. Where
plates are in need of surface preparation because primer has
been damaged during fairing (shaping) the plates, the cost
of repairing such damage is covered by clause 15.2

If the Assured takes the opportunity to scrape and repaint
the bottom of the ship, during the course of repairs for
Underwriters’ account, he must bear such costs himself, but
can recover under the policy for the first coat only of
primer or anti-corrosive materials where this is painted
onto the areas covered by clauses 15.1 and 15.2. It is
emphasized that the policy pay the costs of bottom
preparation in any circumstances other than as above,
irrespective of when the bottom was last painted. No
exception is made for general average sacrifice, involving
bottom damage, insofar as a direct claim is made on
underwriters for such repair; but this does not effect
underwriters’ liability for general average contribution.

Clause 10.2 provides that underwriters will bear the
‘actual additional’ expense of removing the ship to comply
with Underwriters’ requirements.

Where a claim is payable under the ITC in respect of
collision liability incurred by the Assured, Underwriters
will pay three fourths of the legal costs incurred by the
Assured in limiting liability or in contesting the
liability; provided such legal action is taken with the
Underwriters’ consent in writing:

8.3 The Underwriters will also pay three-fourths of the legal
costs incurred by the Assured or which the Assured may be
compelled to pay in contesting liability or taking
proceedings to limit liability, with the prior written
consent of the Underwriters.

It should be noted that liability under clause 8.3 is in
addition to any other liability under the policy, but is
subject to the policy deductible expressed in clause 12.
Clause 8.2.2, restricting Underwriters liability in respect
of collision liability to three fourths of the Insured value,
does not apply to clause 13; although this is not a
significant point, since legal costs are unlikely to exceed
such limit in practice.

The MIA (1906) section 69(2) allows the Underwriters to
deduct an amount from any claim for cost of repairs (usually
termed 'thirds) to allow for betterment enjoyed by the
Assured where new materials or parts replace old material or
parts in the repairs. It has long been the practice for hull
Underwriters to waive their right to such deductions from
claims, and this practice continues in the ITC clause 14:

It must be remembered that the measure of indemnity is
intended to place the Assured in the position he enjoyed
prior to the accident, and it must not be assumed, from
clause 14, that Underwriters are obliged to replace old
materials or part of the same age, the Assured is not
entitled to the difference between the value of the old
part and the value of a new part in addition to the cost of
repairs.

Although Underwriters waive new for old deductions, Average
Adjusters are not permitted to waive the deductions where a
ship is older than 15 years. Accordingly, Underwriters
paying under the policy for GA sacrifice repairs to an old
ship will find that the amount made good in their recovery
from the GA fund will be less than the claim paid under
policy.

In order to claim a constructive total loss the Assured must
abandon the ship to the Underwriter by giving a 'notice of
abandonment'. The notice may be given verbally, or in writing.
It is customary to give notice in writing. Failure to give
notice means that the Assured can claim only for the reasonable
cost of recovering and/or repairing the ship up to the amount
insured by the policy, unless he can prove that the notice
would not have been of benefit to the underwriters, or prove
an 'actual' total loss has occurred. It is customary for the
Underwriter to reject the notice when tendered, because to
accept it would mean an admission of liability under the
policy and formal acceptance of the wreck, with its attendant
liabilities, if any.

It is in the interest of all concerned that remedial action,
if possible, should be taken to minimise the loss; so clause
13.3 appears in the ITC to protect the interest of both
Underwriter and the Assured in respect of such remedial action:

Measures taken by the Assured or the Underwriters with the
object of saving, protecting or recovering the subject-matter
insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.

This clause allows the Assured to comply with the
requirement of clause 13.1, without prejudice to any claim
he may have under the policy. It, also, allows the
Underwriter to take practical steps to minimise the loss
without this being construed as a waiver of the obligation
of the assured to give notice of abandonment, should such
measures be taken before the notice is given. Further, such
action taken by, or on behalf of, the Underwriter is not to
be construed as an acceptance of abandonment.

In the event that the Underwriter accepts the abandonment
and takes over the wreck, he becomes the owner of the ship.
This entitles him to dispose of it at his discretion, and
to retain the proceeds in full, even if these exceed the
claim paid under the policy. In addition, the Underwriter is
entitled to any freight being earned at the time of the
accident, and subsequently (MIA-1906-section 63). In practice,
the Underwriter waives his right to such freight:

In the event of total or constructive total loss no
claim to be made by the Underwriters for freight whether
notice of abandonment has been given or not.

When a vessel is lying damaged at a port where repairs are
not practicable and temporary repairs have to be effected
to make her seaworthy to sail to a repair port, they are
properly recoverable as part of the reasonable cost of
repairs. They are not so recoverable when repairs could be
effected but the owners effect temporary repairs only to
suit their own convenience. There is an exception to this
rule where liners running on regular schedule are concerned.

Temporary repairs are also allowed if this results in a
saving in the cost of permanent repairs, this is, the
temporary repairs enable the vessel to defer permanent
repairs until a place for cheaper repairs can be arranged.
If they are incurred at a port of refuge, however, they may
well be allowed in GA under Rule XIV of the York-Antwerp
Rules.

A similar provision applies in this case also . It will be
noticed that the cost of returning the vessel to the
original port is also included as part of the cost of
repair if the vessel returns immediately, but net freight
earned and expenses saved thereby are deducted from the
expenses of the removal and/or return.

Where overtime is incurred and, as a result, the cost of
repair is reduced, the cost, up to the saving, is included
in the reasonable cost of repair. However, where it is
incurred for the benefit of the ship-owner, it is not allowed,
save in the case of liners where the cost of overtime is
admitted in the same way as with temporary repairs.

It is, in fact, doubtful whether liner owners have any
greater rights than have other ship-owners, but, as a matter
of practice, the system which has grown up much to commend
it, and it would be unusual to find advantage of the
practice being taken by ship-owners. In these days repairers
may well have to provide a certain amount of overtime for
their employees. When compulsory overtime is involved,
Underwriters usually accept this position.

The expense of drydocking (or slipping in the case of
smaller vessels) is part of the cost of repair. In practice,
a number of repairs all requiring drydocking, either for
owners' or Underwriters' accounts, may be effected at one
time and there will be the need to consider the effect upon
the individual items of the saving thus made.

Similarly, it may be essential for safety or in order to
comply with local rules at the port or place of repair, for
a vessel's holds or tanks to be cleaned and made free of
danger from flammable vapours before repair is reasonably
possible. The expense involved is also part of the cost of
repair, and as with drydocking, apportionment may be
necessary where more than two or more repairs are affected
concurrently.

It is understandable that a shipowner will seek to keep his
vessel in service while she is fit to encounter normal
perils. There will be the need for maintenance and servicing,
but this work may not be sufficiently extensive to give
facilities for effecting outstanding repairs for underwriters'
accounts.

Equally however, the tendency over many years has been for
the cost of repairs to rise more or less steadily. It
follows, therefore, that a casualty which remains unrepaired
possibly for some years will eventually cost much more than
would have been the case had repair been effected at or
shortly after the time of the occurrence. Such additional
cost of deferred repairs is not recoverable under the policy;
the additional cost is comparable to overtime incurred for the
owner's convenience. Again, there may well be special
consideration given to liners.

Sometimes the deferment of repairs will actually benefit the
Underwriter. If the work can be effected in drydock at the same
time as owners' repairs, Underwriters will often be liable for
only 50% of the docking and undocking charges and of the common
dues.

Vessels operating internationally will need to have repairs done
in foreign yards where the currency required to pay for repair is
different from that stated in the policy. It may be necessary for
the shipowner to pay for repairs from balances he holds in that
currency, or to buy the amount required from balances he holds in
other currencies.

The general rule of insurance is that claims shall be in the
currency shown in the policy, which is also the currency used
for payment of the premium. In practice, the British marine
markets normally carry sterling, US, and Canadian dollar
balances, with other currencies being sold and payment of
premiums being normally made for the sterling equivalent.
Where claims are due, the underwriters are permitted to pay in
the currency actually expended, but in practice the claim
will generally be stated in the currency of the policy.

It can happen, however, that, for instance, a claim on a
sterling policy will be stated in US dollars. The insurance
companies can, and do, pay such claims in the latter
currency. For internal reasons, Lloyd's underwriters
normally pay such claims in dollars but do so by buying
dollars from settling balances.

When there are substantial alterations in rates of exchange
the Ship-owner will have paid the cost of repair with an
expenditure equivalent to a rate of exchange much different
from that which applies at the time the claim is presented
to and paid by his underwriters. This can be of major
concern when there are large fluctuations in exchange rates.
Since underwriters are due to pay the reasonable cost of
repair they, therefore, reimburse the ship-owner by a payment
of, or equivalent to, the amount he expended at the time he
paid the various repair and ancillary accounts. The rate
used will not necessarily be that which operates at the
times the claim is adjusted, settled, or paid. Thus, if a
vessel insured in sterling was repaired in a US port at a
time when the exchange rate was 2.80 and account for $10,000
was paid at the time, the liability of the underwriters is
for the sterling equivalent at a rate of 2.80; and this will
be so whether the insured bought the dollars at this rate or
utilised dollar balances which he then had available. The
adjustment itself may not be completed until a later date,
at which time the sterling/dollar exchange rate may have
altered to the detriment of underwriters. The measure of
indemnity of the loss is the amount of sterling required to
reimburse the owner for the dollars he has utilised, or
expended, at the rate ruling at the date of payment by him.
Thus, the claim is for $10,000 at 2.80 = Sterling Pounds 3571.43.

It may be that the sterling amount will no longer be the
equivalent of $10,000 since the exchange rate has
deteriorated but, under a sterling policy, the insured has
no claim for a loss resulting from this factor.

It will be seen, however, that if payment of repairs is made
after the date of devaluation, the liability of underwriters
is increased by factors outside their and their insured's
control.

The deductible was introduced to the ITC in 1969, replacing
the franchise system that had, previously, applied to
particular average claims. The amount of the deductible is
agreed at the time the contract is negotiated, and is
inserted in the space provided in clause 12.1:

12.1 No claim arising from a peril insured against shall
be payable under this insurance unless the aggregate
of all such claims arising out of each separate accident
or occurrence (including claims under Clauses 8, 11 and 13)
exceeds......................................
in which case this sum shall be deducted.

The measure of indemnity under the ITC for cost of repairs
is subject to the principle of 'successive losses', whereby
the Assured may claim the reasonable cost of repairs up to
the sum insured by the policy in respect of each separate
casualty.

Nevertheless, the deductible expressed in clause 12.1 is
applied to each casualty, irrespective of the fact that
repairs for more than one casualty may take place at the
same time.

Thus, although the repairs are carried out at the same time,
one does not total the repair costs and apply double the
deductible; but applies the deductible to the repairs in
respect of each casualty, separately. In this example we
have used ‘casualty’ in place of ‘each accident or
occurrence’. Basically, the deductible is applied to each
accident, but, if the Assured can show that more than one
accident is embraced within a single occurrence, the
deductible is applied only once to the cost of repairs
resulting from those accidents.

It is impossible to determine the term ‘each accident’ in
relation to heavy weather damage, where such damage results
from a series of incidents during the same period of heavy
weather; or where the heavy weather abates for a while, then
returns. Accordingly, any heavy weather occurring during a
single passage is deemed to be ‘one occurrence’, and the
deductible is applied only once to cost of repairing such
damage:

12.2 Claims for damage by heavy weather occurring during a
single sea passage between two successive ports shall
be treated as being due to one accident. In the case
of such heavy weather extending over a period not wholly
covered by this insurance the deductible to be applied to
the claim recoverable hereunder shall be the proportion
of the above deductible that the number of days of such
heavy weather during the single sea passage.

The expression “heavy weather” in this Clause 12.2 shall
be deemed to include contact with floating ice.

Where the period of heavy weather overlaps two policy periods,
or relating partly to a period not covered by the policy, the
deductible is applied in proportion to the heavy weather
period applied to the policy.

Period of heavy weather - noon 26 December 1995 to noon
5 January 1996 (10 days)

Policy A (deductible $10,000)-apply period 26 December
(n) to 1 January (n) = 5 days

Policy B (deductible $20,000)-apply period 1 January (n)
to 5 January (n) = 5 days

In the event of no succeeding policy (B), the same
calculation, as above is, is applied to policy A, as though
policy B exists. In the unlikely event that policy B
attaches during a period of heavy weather not covered by an
expiring policy (A), the calculation, as above, still
applies to policy B.

Clause 12.1 applies the policy deductible to all partial
losses covered by the policy. Thus, it is applied to
particular average, general average sacrifice, general
average contribution, salvage awards, contribution to
salvage awards, sue & labour charges, expenses incurred for
services in the nature of salvage and claims under the
collision liability clause (including costs in relation
thereto). Nevertheless, the deductible is applied once only
in respect of each accident or occurrence, so any loss in
relation to the above is aggregated for the purpose of
applying the deductible.

Claims for total loss (actual or constructive) are not
subject to the policy deductible:

Claims for total or constructive total loss of the Vessel or,
in the event of such a claim, to any associated claim under
Clause 13 arising from the same accident or occurrence.

This provision appears in clause 12.1, and, it will be noted
that, where an expense is incurred under clause 13 (sue &
labour), but a total loss results despite the attempt to
save the ship, the deductible is not applied to the sue and
labour charge; nor to the expense of services in the nature
of salvage incurred under clause 13.5. this exception does
not apply to claims under the collision clause, even though
the insured ship be totally lost in the collision. One may
wonder why the exception is not applied to general average
or salvage, until one recalls that these do not arise where
the ship becomes a total loss.

Cost of sighting the bottom, recoverable under clause 12.1,
is not subject to the policy deductible.

General Average is a maritime institution which virtually
affects the whole of the shipping community, whether insured
or not. The principle underlying the law of general average
is that all parties shall contribute to general average
sacrifices to such an extent that the owner of the property
sacrificed is placed in the same position as if another man's
property were sacrificed instead of his. It is only reasonable
that, if by reason of a sacrifice having been made, the ship
and cargo safely reach port, the person suffering the loss
should be placed in the same position as all other parties
in the adventure.
The M.I.A Sect. 66 States that :-
(i) "A general average loss is a loss caused by or
directly consequential on a general average act. It
includes a general average expenditure as well as a
general average sacrifice.

ii] Where there is a general average loss, the party on
whom it falls is entitled, subject to the conditions
imposed by maritime law, to a rateable contribution
from the other parties interested and such a
contribution is called a general average contribution.

"There is a general average act, when and only when,
any extraordinary sacrifice or expenditure is
voluntarily, intentionally and reasonably made or
incurred for the common safety for the purpose of
preserving from peril the property involved in a common
maritime adventure"

The danger must be 'real' and it must be 'imminent'.
The imminence and degree of danger must be a fact, and
where a vessel is stranded, unless she is in danger of
or peril is imminent, sacrifices or expenses made or
incurred in trying to lighten and refloat the vessel
will not be admitted as general average.

(2) The General Average Act must be Voluntary and
Intentional not Inevitable - (all accidental loss or
damage is excluded - i.e. throwing overboard of cargo
to lighter a water logged vessel).

(i) "The loss of ship's gear, when used for the purpose
for which it is intended, can in no circumstances be
considered an extraordinary ;

(ii) But damage to a ship's engines and the ship's store
burnt as fuel when the ship is ashore in position of
perils, caused in trying to force her off the ground is
certainly an "extraordinary" damage.

Losses incurred for the benefit of individual interest
are not general average: i.e. specie removed from the
vessel for its own safety and forwarded to destination
by another vessel: no expense attaches to general average.

i.e. If cargo is sacrificed by jettison to prevent a
total loss of the vessel which is eventually destroyed
by fire with all the remaining cargo on board, there is
no general average.

For the same reason, if further general average act
should become necessary on the voyage, the second
general average must be adjusted first; without it, the
first would have proved abortive.

Demurrage and loss of Market are consequential losses
which are not a direct result of general average act and
are not admitted. Later general average sacrifices or
expenditures rank for payment before earlier ones, on
the assumption that, but for the last general average
act, the venture could not have been completed or saved.

General average should be adjusted on the completion of
the voyage, and is usually undertaken at the final port
of discharge, i.e the destination of the vessel.

The adjustment may, however, be drawn up anywhere at the
Ship-owner's discretion, provided that it is properly
prepared. It is the ship-owner's duty to see that an
adjustment is prepared and to enforce contributions from
the interests involved. The Ship-owner has a particular
lien on the cargo as security for the due payment of
contribution in respect of it, and also has a common law
right to sue for the collection of such contributions.

Similarly, the owners of cargo may together sue the
ship-owner, or each other, for the recovery of
contributions to make good a general average sacrifice
of their goods, and they may force the ship-owner to
have a proper statement of general average prepared,
but an owner of goods has no lien on the ship or cargo.
The ship-owner may forgo his lien, but this does not
affect his rights at common law.

2A(v) Consecutive General Average
The principle of adjustment to be adopted in these cases
is that the second general average must be adjusted first.
The contributions must form a deduction from the arrived
values in order to obtain the contributory values for
the first general average. This is simply the
application of the principle that, in order to arrive
at the contributory values, all charges must be
deducted which the owner would not have incurred had
the property been a total loss at the time of the
general average act.

2A(iii) Interests that do not contribute in General Average
(i) The mails do not contribute in general average.
For this reason valuable goods are often dispatched by
registered post to avoid contribution.

(ii) Passengers' luggage, not shipped under Bills of lading,
their jewels and personal effects, or those of the crew,
also do not contribute as long as they are intended for
personal use and not for the purpose of trade. Similarly,
according to English law (Brown v. Stapleton, 1927),
provisions provided for consumption on board are not
included in the adjustment of general average, but
interests specially excluded must contribute if made good.

(iii) Although salvors are entitled to reward for saving life,
nothing is contributed in general average by the lives that
are saved. Thus, if nothing material is saved, the salvors
have no lien and obtain no compensation, even if they have
saved lives.

(iv) Interests that are lost subsequent to the general
average act but before completion of the voyage do not
contribute; similarly, cargo discharged before, or
loaded subsequent to, the general average act is not
liable for contribution.

ii) Losses not directly consequential on the general average
act, e.g. damage to cargo while stored ashore during
repairs at the port of refuge.

iii) Where no loss is sustained by general average act, e.g.
water poured on burning goods because the goods are
already potentially lost by fire.

iv) Loss of cargo through the wrongful act of the shippers,
e.g. hemp shipped in a damp condition which heats and
has to be jettisoned to prevent fire.

v) Any expense incurred by the Ship-owner in performing his
obligations under the contract of affreightment,
although the expense may be enhanced.

vi) Losses attributable to the fault of the Ship-owner,
unless he is protected by the contract of affreightment.
Similarly, losses brought about by the negligence of the
master or crew are not admissible unless there is a
negligence clause in the contract of affreightment.

Basically, the law under which general average is assessed is
that of the country of the port(s) of destination; or, if the
voyages is abandoned, the law of the port of abandonment. This
can create difficulty when there are ports of destination in
two or more countries. In such cases, apart from difficulties
of law there may also be different contributory values to the
common interest of the ship and, thus, complications in adjustment.

Moreover, while primarily general average is not affected by
whether or not the loss is covered by insurance, the need for
insurance cover became widely recognised. The law governing the
policies, however, was not necessarily that applying to the
general average adjustment and dispute could, and did, arise
where the understanding of general average by the insurer was
less favourable than that governing the adjustment.

To a degree the situation was regularised by the agreement
of the Insurers to accept adjustment a per Foreign Statement',
but it became desirable to introduce an internationally agreed
concept of general average.

As a result of conferences attended by ship-owners,
merchants, Average Adjusters, Lawyers, and Underwriters at
Glasgow, London, York, Antwerp, Liverpool, and Genoa, a code
was evolved which has since been amended. The two important
conferences in York and Antwerp gave the name to the Rules
in 1890, since when they have been rewritten in 1924, 1950,
and 1974.

The York-Antwerp Rules are a voluntary code designed to
maintain world-wide uniformity on the treatment of general
average. While they are intended to provide a complete and
self-contained international code, however, it must be
stressed that no international body has been created to
resolve disputes on the construction of the wording.
Consequently, individual nations interpret the Rules
according to their own law so that over a period of time
divergences of practice began to arise. It was partly for
this reason that the opportunity was taken in 1974 to
revise the 1950 Rules. Nevertheless, apart from maintaining
uniformity, certain alterations were made in the interests
of simplification and clarification.

It was agreed at Hamburg in 1974 that the York-Antwerp Rules
1974 should be applied to the adjustment of general average
claims as soon as practicable after 1st July, 1974, that is,
by incorporation in bills of lading or charterparties. While
more and more frequently the common forms of charterparty and
the individual ship-owners' bills of lading will provide for
the use of the 1974 Rules, reference must be made to the
appropriate documents to ascertain which code must be
applied, and a note will accordingly be inserted by the
average adjuster in his statement.

The 1950 and 1974 Rules consist of a preliminary Rule of
Interpretation which provides that the Rules constitute a
complete code in themselves and that the seven lettered
Rules immediately thereafter, and which indicated the
general principles, shall not be taken to override the
later twenty-three numbered Rules.

The York-Antwerp Rule XVII and the Rules of Practice 31 to
33 deal with this subject. The rule is that contributions
are based on the net values of the property saved at the
termination of the venture.

In connection with Rule of Practice 33 the situation could
be ummarized as follows :

When a vessel is in ballast and under charter – irrespective
of whether it be a voyage or time charter – the contributing
interests in general average are the ship and the ship-owner’s
charter hire (i.e. remuneration payable to the ship-owner for
the use of his ship for the voyage or period of time, as the
case may be.)

(a) Vessel in ballast and under voyage charter entered into by
the shipowner: The vessel and the shipowner’s chartered
freight and such items of stores, etc., as do not belonging
to the shipowner all contribute in general average.

(c) Vessel in ballast under time charter or time charter
and a voyage charter entered into by the time charterer:
Only the vessel itself and such items of stores, etc.,
as do not belong to the shipowner contribute in general
average (i.e., neither shipowner’s time charter hire
nor charterer’s voyage charter freight contribute in G/A.

2A(vi) Amounts Made Good (Hull): The object of levying
contribution, and in fact, of the whole of general average
practice, is to make good general average loss. The sum
which is devoted to this purpose is termed the “amount made
good” or just “made good”. The amount made good must itself
contribute to the general average.

Customary deductions(Hull): If, after a general
average sacrifice to ship, the "made good" were to be
based on the actual cost of repairing the damage, the
shipowner would gain by reason of receiving new
material in place of old. In order that the equities
shall be observed in adjusting claims for general
average damage to ship, certain "customary deductions"
are made. (Rule XIII of the York-Antwerp Rules, 1950)

Temporary repairs (Hull): Rule XIV of the York-Antwerp
Rules, 1924, has been slightly modified by the
York-Antwerp Rules, 1950. Rule F and Rule XIV provide
that substituted expenses generally, except those
dealt with in Rule X(d), and temporary repairs allowed
in general average in certain circumstances, shall be
allowed as a first charge to general average, up to the
amount of general average expenses saved, without regard
to the saving to other interests. No "new for old" deductions shall be made from the
cost of temporary repairs allowable as general average.

Hull, etc., sacrifices.: The amount made good is the
actual cost of repairing and replacing the damage,
less customary deductions "new for old".

In Henderson v. Shankland (1986), it was held that,
where a general average act follows particular average
damage and the ship is subsequently condemned, the
amount to be made good in respect of the general
average damage is to be determined by deducting from
the vessel's value immediately before the general
before the general average act the estimated cost of
repairing the particular average together with the
proceeds of sale of the remains of the vessel.

The subject of "Marine Hull & Machinery Insurance Claim
(Presentations, Documentations, & Adjustment)" though being a
very technical subject is quite interesting and challenging.
The era has now come in Nigeria that we cannot continue to
neglect this area of potential business with so many fleet of
Fishing trawlers; Passengers and General Gargo Vessels
operating on the West Africa sea routes and virtually all of
which are now being registered under the Nigerian Flag.

We have to start encourage our Marine Underwriters to start
venturing into marine hull risks to improve their portfolios
on the class of business as we need to generate large number
of risks to allow the rule of probability act in our favour.

re stimulating enough to encourage more interests and
researches in the marine insurance field. After all, insurance
is about risks-taking.

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Copyright © 2004 - 2011, Institute of Loss Adjusters of Nigeria. All Rights Reserved.
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PAPERS

Send mail to the webmaster@nigeriailan.org with questions or comments about this web site. Copyright © 2004 - 2011, Institute of Loss Adjusters of Nigeria. All Rights Reserved. Council Rights

Send mail to the webmaster@nigeriailan.org with questions or comments about this web site.
Copyright © 2004 - 2011, Institute of Loss Adjusters of Nigeria. All Rights Reserved.
Council Rights