The perils of the uninsured in a general average scenario

As investigations into the
cause of the fire aboard the
APL Austria continue, (see
page 4) there’s a long road
ahead for cargo owners
as they get to grips with
the legal ramifications of
general average (GA)
– particularly
in the case of
uninsured
cargo.
And
according
to industry
commentators, massive
amounts of cargo sail the
seas while uninsured,
saving owners millions in
insurance costs but landing
them in deep water if GA is
declared.
And the prime reason for
the intentionally uninsured
cargo element is that cargo
owners realise that they
can make a saving on the
purchase of cargo if they
do not have to insure it,
Andrew Pike, partner in
Bowmans Shipping and
Logistics Practice Group
told FTW.
“This in turn
allows them
potentially
to make a
greater profit
when they
on-sell the
cargo.”
They will
typically
do some
sort of risk
assessment on
their cargo. If
they conclude
that the
probability
of the cargo
being lost
or damaged
in transit
is relatively low, they
would probably bet on it
being safely delivered and
therefore not insure it.
“Realistically,” said Pike,
“probably 95% of all cargo
is safely delivered.”
Pike also suggested that
those trading high volumes
could also take a view that,
even if they occasionally
lost some cargo, it was
preferable to self-insure,
as the costs of replacing
that cargo would still be
less than the aggregate of
insuring every container of
cargo.
However, Pike also
speculated that most
cargo owners were
blissfully unaware of the
perils of GA. “They can
find themselves in an
uncomfortable position
if they find their cargo
subject to a
lien and are
unable to call
on an insurer to
produce security
for the release
of the cargo at
short notice,” he
said.
Andrew Robinson,
director of Norton Rose
Fulbright SA and a
legal expert in maritime
insurance, told FTW that,
while it was fair to say
that the primary interest
for owners was claims for
loss of or damage to goods,
there was also a liability
angle.
“The Institute Cargo
Clauses (the usual cover
taken out) also provide
cover for the cargo owner
when he is liable to the
shipowner for general
average contributions, or to
salvors for salvage charges.
These being calculated as a
percentage of sound cargo
delivered or salvaged.”
Another problem for the
uninsured is that salvors
will only release the cargo
against suitable security
from the cargo owner to
cover its salvage claim.
Also, the shipowner will
take the same stance
in its claim for a GA
contribution, and will not
release cargo unless its
claim is secured.
“However,
had the cargo
been insured,”
said Robinson,
“a suitable
guarantee
provided to
each claimant
(salvor and
shipowner) by a marine
insurer of good standing
will suffice. If not, the
cargo interest will have
to put up a cash bond or
similar before the salvor
or shipowner is obliged
to release the cargo –
which comes at a not
inconsiderable cost.”
Also, the insured cargo
interest, once indemnified,
can hand over the rights of
recovery against any liable
party to the insurer – which
will then pursue the claim
at its expense. However, the
uninsured cargo interest
must bear the cost of any
recovery itself.
INSERT
Cargo owners can
find themselves in
an uncomfortable
position if they find
their cargo subject to
a lien and are unable
to call on an insurer
to produce security
for the release of the
cargo at short notice.
– Andrew Pike
INSERT
95% The estimate of cargo
that is safely delivered.