BIMCO RECOMMENDS STANDARD GENERAL AVERAGE “ABSORPTION CLAUSE”
BIMCO RECOMMENDS STANDARD GENERAL AVERAGE “ABSORPTION CLAUSE”
The Baltic and International Maritime Council has urged the international shipping community to adopt a standard general average “absorption clause” that it has defined.
A general average absorption clause is a provision, inserted into a hull insurance policy, that requires the insurance underwriters to “absorb” up to an agreed amount, a claim in general average that the insured shipowner has against another party, most commonly cargo interests.
“Such clauses are frequently found in hull policies in a wide variety of forms, some better worded than others,” BIMCO said. General average is the long-established maritime practice that apportions losses caused by marine incidents between the shipowner and all a vessel’s cargo owners.
“Regardless of whether general average is viewed as an outdated concept, BIMCO believes that the abolition of the system would create uncertainty in the shipping industry,” the Denmark-based shipping associated said.
“Consequently, BIMCO would prefer to see general average preserved, but would provide shipowners with a solid contractual mechanism to allow them, if they so choose, to claim for the other parties’ contributions under their hull insurance policy,” it added.
BIMCO hopes that its standard clause initiative will help to promote a broad move away from declaring general average for small and uneconomic claims in all sectors of the industry.
“The Standard Absorption Clause is designed to be of benefit both to shipowners and insurers by avoiding the time and expense associated with pursuing small general average claims,” BIMCO said.
The clause is targeted for use in hull and machinery policies covering all types of vessels, from container ships, bulk carriers, and tankers to cruise ships.
To define the standard clause, BIMCO has worked with insurance underwriters, average adjusters, shipowners and the International Group of Protection & Indemnity Clubs.
Howard McCormack, president of the Average Adjusters Association of the United States, has welcomed BIMCO’s initiative. The standard clause “reflects the commercial resolution of a matter that has.caused some angst in the maritime industry, particularly among the container trades where there is intense competition,” McCormack said.
“Due to the complexities of obtaining security for a general average declaration by the vessel owner, the owners and cargo interests have reached a reasonable commercial solution to this problem,” he added.
One of the disadvantages to shipowners of declaring general average is the risk of delay at the discharge port, because general average security must be in place prior to the delivery of the cargo.
In recent years, insurance underwriters and others have called for the general average system to be abolished or substantially amended. The Comit' Maritime International is currently reviewing the provisions of the York-Antwerp Rules, which define the general average rules.