PARTICULAR AVERAGE CLAIMS

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1 PARTICULAR AVERAGE CLAIMS by Dr Nicholas G. Berketis

2 Section 64(1) of the Marine Insurance Act 1906 "Particular Average loss is a partial loss of the subject matter insured caused by a peril insured against, and which is not a General Average loss".

3 Principal Features A partial loss of the vessel insured. Caused by a peril insured against. Not a General Average loss.

4 Principal Features (cont d) The M.I.A. tells us, at section 56(1) that any loss other than a total loss is a partial loss. So, a partial loss is effectively any loss which does not totally destroy the vessel or place her beyond recovery. It should be noted that even though the cost of repairing the vessel may exceed her insured value, the assured may elect to repair and claim up to 100% (less deductible) under his hull and machinery policy, and this would constitute a partial loss. It is sufficient to say here that the loss must be fortuitous or accidental to fall within the risks covered by the policy. A General Average loss has one feature that distinguishes it above all others from a Particular Average loss. That is the voluntary nature of the General Average act that has brought about the loss. This should be contrasted with the accidental character of a Particular Average loss. This is an important distinction.

5 EXAMPLES Heavy weather damage to the ship is a Particular Average loss. Damage caused by striking a floating object is a Particular Average loss. Damage caused by stranding is an accident, it is therefore a Particular Average loss, though damage caused by efforts to refloat is voluntary, and it is therefore a General Average loss. Similarly, fire damage is a Particular Average loss (accidental) but damage caused by efforts to extinguish the fire (voluntary) is a General Average loss. Machinery damage caused by negligence of the crew or of the repairers is a Particular Average loss. Damage received in a collision is a Particular Average loss.

6 Measure of Indemnity Where a vessel is repaired the measure of indemnity for a claim of Particular Average is defined by section 69(1) of the Marine Insurance Act as follows: "The assured is entitled to the reasonable cost of repairs, less the customary deductions, but not exceeding the sum insured in respect any one casualty".

7 Measure of Indemnity (cont d) Underwriters exercise a measure of control over the level over repair costs through the application of the Tender Clause the main features of which are as follows: Prompt notice to underwriters in the event of a casualty likely to give rise to a claim. Underwriters entitled to decide on the port of repair and have the right of veto in this respect. Underwriters may take tenders or ask for further tenders to be taken; provision for allowance of 30% p.a. on insured value for the period of time lost as a result. Provision for 15% deduction from the ascertained claim in the event of failure to comply.

8 Temporary Repairs Temporary repairs are a provisional reinstatement of the vessel and have no lasting value. Hence temporary repairs are not automatically part of cost of repairs and consideration must be given to the benefits achieved. Assuming that General Average is not involved temporary repairs will only be recoverable as part of the reasonable cost of repairs where: There is no alternative (i.e. permanent repairs cannot be effected). There is a saving to the overall costs of repairs.

9 Temporary Repairs (Example) On arriving at Jacksonville, Florida to discharge cargo a vessel struck the cargo berth and sustained damage to her side shell plating. With the approval of the Classification Society surveyor the shipowners undertook minimal temporary repairs it being agreed with the surveyor that permanent repairs could be deferred until the following year when permanent repairs would be carried out at a routine drydocking. This duly took place in China.

10 Temporary Repairs (Example) Permanent repairs had they been effected at Jacksonville would have cost US$ 150,000 Add incidental costs and superintendency 30,000 TOTAL US$ 180,000 Temporary repairs necessary for continued trading US$ 40,000 Permanent repairs in China 75,000 Add incidental costs and superintendency 15,000 TOTAL US$ 130,000