Average Clause: A Comprehensive Guide to Its Legal Definition

Q: How does a general average loss work?

A general average loss occurs when a deliberate action is taken to save the ship and its cargo, and the costs are shared among all stakeholders.

Q: What is the franchise percentage?

The franchise percentage is the threshold that must be reached before an insurance claim for partial loss is paid, often set at three percent.

Q: Are all maritime losses covered under the average clause?

No, certain losses, such as those from fire or collision, are excluded from average clause coverage.

Q: What should I do if I experience a loss?

Document the loss and review your insurance policy. Consider using legal templates or consulting a legal professional for assistance.

Definition & Meaning

An average clause is a provision commonly found in ocean marine insurance policies, particularly those related to marine cargo. It outlines the conditions under which coverage is provided for partial losses of cargo. The average clause ensures that if a loss occurs, the insurance company will cover certain costs associated with that loss, particularly when it is necessary to protect the overall voyage from total destruction.

The general average clause requires all parties involved in a marine adventure, including cargo owners and vessel owners, to share the costs of losses that are intentionally incurred to safeguard the ship and its cargo. For example, if the ship's captain decides to jettison some cargo to prevent the ship from sinking, this is classified as a general average loss. The costs associated with such losses are referred to as general average sacrifices and are distributed among all stakeholders.

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Legal Use & context

The average clause is primarily used in the context of marine insurance law. It is relevant for parties involved in shipping and logistics, including insurers, shipowners, and cargo owners. Understanding this clause is essential for those who engage in maritime trade, as it dictates how losses are managed and compensated in the event of partial loss due to maritime perils.

Users can manage their insurance needs through legal templates available on platforms like US Legal Forms, which provide resources for drafting and understanding marine insurance agreements.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A cargo ship encounters a severe storm, and the captain decides to throw overboard some cargo to stabilize the vessel. This action is considered a general average loss, and the costs incurred will be shared among the cargo owners and the shipowner.

Example 2: A vessel runs aground and sustains damage. The shipowner may incur costs to salvage the ship, which can be classified under the average clause, requiring all parties to share the expenses proportionately. (hypothetical example)

Comparison with related terms

Term	Definition	Differences
General Average	A principle where all parties share the costs of losses incurred to save a ship and its cargo.	General average applies to deliberate actions taken to prevent total loss, while average clause may cover specific partial losses.
Partial Loss	A loss that affects only a portion of the insured cargo.	Partial loss may not involve shared costs unless it meets the criteria of the average clause.

Common misunderstandings

What to do if this term applies to you

If you are involved in maritime shipping and your cargo is subject to an average clause, review your insurance policy carefully to understand your coverage. If a loss occurs, document the situation thoroughly to support your claim.

For assistance, consider using US Legal Forms to access templates for marine insurance agreements or consult a legal professional for tailored advice.

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Quick facts

Commonly found in marine cargo insurance policies.
Coverage applies to partial losses under specific conditions.
General average losses require cost-sharing among stakeholders.
Franchise percentage typically set at three percent.
Exclusions include fire, stranding, sinking, and collision.

Key takeaways

Frequently asked questions

What is an average clause?

An average clause is a provision in marine insurance that outlines coverage for partial losses and the sharing of costs among involved parties.