Marine Cargo: Jettison, General Average and Delay Loss
An Indian exporter ships 40 containers of machine parts from Nhava Sheva to Rotterdam on CIF terms. The CIF value is US$2.4 million; the cargo policy insures 110% of CIF value and incorporates Institute Cargo Clauses (A). During the voyage the vessel grounds; the master jettisons six containers to refloat, and two of the jettisoned containers belong to the insured. Heavy seas also damage one of the insured's remaining containers; repair cost is US$48,000 against a sound CIF value of US$60,000 for that container. The same container is delivered 25 days late, causing the buyer to claim US$60,000 for lost production. General average is declared. Salvage is US$180,000 and port-of-refuge expenses are US$90,000. The carrier denies liability, relying on a package limitation. The insured submits a claim for US$300,000, including the delay loss.
1. Identify which losses are covered and calculate the indemnity for the damaged container.
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Covered losses
- Damage to the remaining container caused by heavy seas is a physical loss under ICC(A).
- Jettison of the insured's two containers is a general average sacrifice and is covered.
- The insured's general average contribution on saved cargo is covered.
- Delay loss of US$60,000 is excluded; ICC(A) does not cover loss caused by delay, even where the delay follows a covered peril.
Damaged container calculation
Total insured value = US$2.4 million × 110% = US$2.64 million.
Insured value per container = US$2.64 million ÷ 40 = US$66,000.
Partial loss = (repair cost ÷ sound value) × insured value
= (US$48,000 ÷ US$60,000) × US$66,000
= US$52,800.
The two jettisoned containers are valued at 2 × US$66,000 = US$132,000 as a general average sacrifice, subject to the average adjustment. The delay claim is rejected. The insured's total recovery therefore includes US$52,800 for damage, US$132,000 for the sacrifice, and the insured's GA contribution, less any deductible.
2. Explain the general average contribution and how the insurer should handle it.
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General average is a principle of maritime law: extraordinary sacrifice or expenditure intentionally incurred for the common safety of ship, cargo and freight is shared by the parties whose property is saved, in proportion to their saved values. The jettison of six containers and the salvage and port-of-refuge expenses (US$180,000 + US$90,000 = US$270,000) form the general average fund, subject to adjustment.
The insured's cargo that was saved must contribute to that fund. The insured's two jettisoned containers are themselves a GA sacrifice and are allowed in the adjustment. The insurer should:
- Provide a general average guarantee or bond so the cargo can be released.
- Appoint or cooperate with the average adjuster.
- Pay the insured's GA contribution as a covered loss, and pay the sacrifice value of the jettisoned containers.
- Treat payments as without prejudice pending the final adjustment.
The insured cannot simply claim the full value of the jettisoned containers without accounting for its contribution on the saved cargo. The net position depends on the adjuster's apportionment.
3. What subrogation and documentation issues arise?
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After payment, the insurer is subrogated to the insured's rights against the carrier or other responsible parties. The carrier's package limitation may cap recovery, so the insurer should preserve all rights promptly: notice of claim, survey report, clean bill of lading, commercial invoice, packing list, insurance certificate and correspondence with the carrier.
The insurer should also:
- Obtain the general average adjustment and all salvage and port-expense documents.
- Verify the CIF value and the 110% insured value from the invoice and freight documents.
- Arrange a joint survey of the damaged container before repair or disposal.
- Check whether the loss was caused by unseaworthiness or carrier negligence, which may affect recovery.
- Confirm that the delay claim is excluded and explain this to the insured.
Subrogation recovery may be limited by the carrier's limitation, but payment should not be delayed on that ground. The insurer pays the covered loss and then pursues recovery.