The principles of general average are fully supported by BIMCO. All new and revised BIMCO charter parties and bills of lading now refer to adjustments being settled in accordance with the updated York-Antwerp Rules (YAR) 2016.
However, there will be occasions when, according to circumstances and usually for financial and administrative convenience, a shipowner may not wish to claim general average contributions from other parties. The solution is to include a “general average absorption clause” in the hull insurance policy whereby the insured shipowner’s claim in general average is “absorbed” by underwriters up to an agreed amount. Absorption clauses are widely used, especially in container trades where the involvement of hundreds, and often thousands, of cargo interests makes the cost of collecting contributions uneconomic. They also provide a cost-effective response to small, low value claims.
In order to provide the market with a standard absorption provision BIMCO, working with representatives of insurance underwriters, average adjusters, shipowners and the P&I clubs, published a specialist clause in 2002. It was updated in 2017 to reflect the YAR 2016. Further minor improvements have recently been made.
The clause is for incorporation in a marine insurance policy. When agreeing to use the clause, shipowners and their underwriters must decide on the upper monetary limit which insurers will pay in respect of general average, salvage and special charges. In order to avoid small or low value vessels defeating the objective of the provision, a threshold figure of US$250,000 has been incorporated although this can be amended by party agreement.
Owners operating a number of ships are likely to wish to agree per vessel absorption limits in the marine insurance policy. In order to provide coverage for two or more ships, the “single vessel” basis set out in the clause can easily be addressed by parties agreeing an amendment to Clause 1, to list all vessels covered with a stated absorption limit for each one.
The clause is triggered if a shipowner decides (without the need to give formal notice to that effect) not to claim general average, salvage or special charges for an amount up to and including the limit agreed under the clause. If the total of the losses exceeds this limit, the policy pays up to the limit but the shipowner cannot recover any excess.
The clause covers cargo, freight, bunkers’ and containers’ proportion of general average and salvage. Insurers are responsible for paying the reasonable fees of the average adjuster for calculating claims under the clause. Claims are to be adjusted in accordance with the York-Antwerp Rules 2016 (irrespective of any other general average provision, such as YAR 1974, 1994 or 2004, in a contract of carriage) and, as is normal in absorption clauses, with the express exclusion of interest.
The clause prohibits the shipowner from making duplicate claims for general average. It also provides that claims are payable without application of any deductible; requires insurers to waive any defence available to cargo (although insurers may still invoke any defence for breach of policy by the shipowner); and includes a waiver of subrogation against property interests unless the payment has arisen due to property interests’ fault.
The Clause, with full supporting explanatory notes, is available from the BIMCO website (www.bimco.org).