The document discusses the implications of general average in maritime insurance, particularly in relation to piracy ransoms and their legality under international law. It highlights the increasing concerns about piracy off the Somali coast and the complexities surrounding ransom payments, influenced by recent U.S. executive orders. Additionally, the piece emphasizes the importance of cargo insurance and the evolving challenges in the maritime industry, including the impact of slow steaming on vessel safety and operational costs.

1. SPOTCHECKINSURANCE
General Average
It is generally agreed that piracy ransoms
fall within the scope of General Average.
Here a US Coast Guard maritime safety and
security team board a Somali skiff.
USCG
– an ancient concept taking on new exposures
V
absorb a proportionate share of the loss to
While General Average is a term with which most transportation compensate the owner of the vessel and/or
professionals are familiar, it is a subject worth reviewing in light cargo that was singled out for the sacrifice. All
of new exposures that may fall within it, writes Rick Bridges. participants in the maritime adventure
contribute to offset the losses incurred, at an
amount set forth by the average adjusters.
essels on the high seas are subject to Most General Averages are caused by The object of a General Average
the General Average concept, which stranding, fires, collisions, or when a vessel is adjustment is to place the parties to the
dates back to the ancient mariners. engaging in salvage assistance, or putting into adventure in the same positions, regardless of
Under these terms, not only are a port of refuge due to an accident during the which of them initially sustained the loss or
ocean carriers not liable for loss or voyage. incurred the expenditure. The basis for
damage to cargo, but the cargo owner is When General Average is declared, the General Average adjustment is customarily
actually responsible, in part, for the cargo of owners of the vessel and cargo are required to established in the contract of affreightment,
others, as well as the ship itself. which usually states that adjustment will be
General Average arises when a sacrifice or made according to the rules of a certain port,
expenditure is intentionally made or incurred The object of a General Average or if that port or country lacks jurisdiction,
in time of peril by one of the parties to the adjustment is to place the parties according to the York-Antwerp Rules.
adventure, not for his own benefit, but for the The potential financial loss from General
benefit of all concerned in the enterprise, to the adventure in the same Average exemplifies the importance of cargo
including the ship, cargo and freight. positions, regardless of which of insurance, even for shippers of low-value
The classic example of a General Average them initially sustained the loss merchandise. Without All Risks or free of
sacrifice is jettison to lighten a stranded vessel. particular average (FPA) cargo insurance,
Jettison is the throwing overboard of cargo or or incurred the expenditure. cargo owners would be forced to post a cash
ship’s material, equipment or stores. deposit with the vessel owner to have the
www.heavyliftpfi.com May/June 2010 45

2. SPOTCHECKINSURANCE
reports that piracy attacks increased from 114
Piracy continues to escalate off the
Somali coast. Here members of a US in just the first six months of 2008 to 240
Coast Guard maritime safety and during the first six months in 2009.
security team visit a suspicious vessel. While most cargo insurance policies will
cover loss or damage to cargo stemming from
piracy, there is concern as to whether ransom
payments made to pirates are illegal, and
moreover whether the vessel and cargo
insurers contribute to an ‘illegal’ activity.
Worldwide, anti-terrorism laws prohibit
payments to groups tied to terrorism, and
while there is no link between piracy and
terrorism now, this continues to be an open
question.
On April 13, 2010, President Obama
issued an executive order preventing US
citizens and entities from making payments to
certain named individuals, and there is also
the potential to prevent any payments to
individuals or groups involved in or
supporting piracy in Somalia. This executive
order has spurred several questions and the
USCG
Lloyd’s of London Joint Underwriting
Committee is seeking clarification. While it is
generally agreed that piracy ransoms fall
cargo released. This deposit would likely be October 2009 – The general cargo vessel within the scope of General Average, the
tied up for two or more years until the Kimon A suffered a main engine breakdown debate over ransom legality will ultimately be
General Average adjustment was completed. between Texas and Bari and was towed to Las the deciding factor in how insurers will
Every shipper should have cargo insurance, Palmas. respond.
even if they think their cargo does not have a So while General Average may seem like
value worth covering. The liability for August 2009 – The 6,300 gt bulk carrier an antiquated piece of maritime law, it is a
General Average makes purchasing cargo Harns ran aground on a reef off the dynamic vehicle that allows for a fair and
HLPFI
insurance an essential business decision. Dominican Republic. equitable division of costs attributable to
The American Institute for Marine saving a voyage.
Underwriters reports a decline in total loss A few issues facing the industry have
figures in 2009, compared with 2008, and that placed General Average back in the spotlight,
is probably attributable to the continued slack one of which is the trend to slow steaming. Richard Bridges is vice-president of Roanoke Trade
Services, Inc. located in its Boston, MA office. Rick is a
volume overall. According to the International Many carriers are leaving no stone unturned graduate of the University of Rhode Island where he
Union of Marine Insurers (IUMI), the in an effort to reduce vessel-operating costs, completed a BA in marine affairs and went on to complete
number of losses is likely to rise as the year and slow steaming can save five to an honours degree in maritime business and law at the
progresses. seven percent on operating costs for some University of Plymouth in England. Rick was one of the
youngest insurance brokers to become tribunalised with
Below is a partial list of recent vessel long-haul carriers. Lloyd’s of London and he holds full underwriting privileges
casualties that have resulted in General IUMI warns that slow steaming has on cargo insurance risks. Rick specialises in the
Average claims: prompted concerns about damage to main customisation of supply-chain insurance and surety
engines which are not designed to run within solutions backed by major international insurance
companies. He currently manages cargo insurance and bond
March 2010 – The 37,709 gt bulk carrier these new parameters, and although slow programmes for various shipper associations and
Giant Pescadores collided with the 5,993 gt steaming upgrade kits are available from many manufacturing groups; Rick also works closely with freight
bulk carrier Bora in the Istanbul Straits. engine manufacturers, it is questionable forwarders and customs brokers to design programmes that
whether upgrades are being made. A concern best suit their clients’ needs. Notable achievements include
providing cargo insurance to the United Nations on the first
December 2009 – The 39,941 gt container in the industry is that main engine failures due democratic election ballots shipped into Iraq, customising
vessel CSCL Hamburg ran aground off to slow steaming may increase the number of delay coverage for various project shippers, and
Sharma El Sheik, requiring a 65 percent General Average claims. management of cargo insurance programmes for several
salvage security to be posted by cargo owners Some underwriters have also voiced Fortune 1,000 companies.
onboard. concern about ‘cold’ lay-up of vessels, and the Roanoke Trade is a member of Munich Re and the Watkins
possibility that this may give rise to equipment Syndicate at Lloyd’s of London. An underwriting agency and
November 2009 – The 14,431 gt bulk carrier failure when those vessels re-enter service. broker with 12 US locations and resources worldwide,
Filitsa was hijacked by Somali pirates off the Another issue that continues to escalate is Roanoke Trade has been providing transportation-related
insurance solutions since 1935.
Seychelles and the owners declared General piracy, and in particular piracy off the Somali
Average. coast. The International Maritime Bureau www.roanoketrade.com
www.heavyliftpfi.com May/June 2010 47