What is Particular Average (PA)?

What is Particular Average?

Average, which is traditionally believed to be a derivation of the Arabic word awariya, is a technical term relating to partial loss.

The concept of partial loss may be sub-divided into Particular Average (PA) and General Average (GA). This term refers to accidental loss of or damage to specific items where only the claimant’s cargo or ship is involved. A claim under the policy of insurance would naturally follow such an incident.

Particular Average (PA)

Particular Average (PA) is a term used in marine insurance to refer to a partial loss suffered by an insured ship, cargo, or other insured property, which is directly attributable to an insured peril or incident. This type of loss is specifically covered under a marine insurance policy, and it does not involve the entire loss of the insured property.

In the context of shipping, Particular Average can occur due to various causes, such as damage to the ship or its cargo due to bad weather, grounding, collision, or other unforeseen events. The insurance company compensates the insured party for the damages incurred, provided that these damages fall within the scope of the policy coverage.

The calculation of Particular Average can be complex, as it takes into account factors such as the value of the insured property, the extent of the damage, and any deductibles or limits specified in the policy. Once the loss is assessed and verified, the insurance company will settle the claim accordingly.

What is with Particular Average (PA) Insurance?

With Particular Average (PA) insurance refers to a type of marine insurance coverage that specifically covers partial losses suffered by the insured ship, cargo, or other insured property due to an insured peril or incident. This type of insurance is different from other forms of coverage, such as Total Loss Only (TLO) insurance, which only covers the complete loss of the insured property.

With Particular Average insurance, the policyholder is protected against partial losses resulting from various causes, such as damage to the ship or its cargo due to bad weather, grounding, collision, or other unforeseen events. The insurance company compensates the insured party for the damages incurred, provided that these damages fall within the scope of the policy coverage.

When purchasing a marine insurance policy, it is essential to understand the specific terms and conditions associated with the coverage. With Particular Average insurance, the policyholder should be aware of any deductibles, limits, or exclusions that may apply. It is also crucial to ensure that the insured property’s value is accurately declared to avoid underinsurance, which could lead to reduced compensation in the event of a claim.

General Average (GA) vs Particular Average (PA)

General Average and Particular Average are two concepts used in marine insurance to describe different types of losses or damages that may occur during a voyage. They have distinct implications for the apportionment of liability and compensation. Here is a comparison of the two concepts:

General Average: General Average is a principle of maritime law that applies when a voluntary sacrifice or extraordinary expense is intentionally made to preserve the vessel and its cargo from a common peril. In such a situation, all parties involved in the voyage (shipowners, cargo owners, and others with a financial interest in the journey) proportionately share the costs of the sacrifice or expenditure.

Examples of General Average acts include jettisoning cargo to lighten the ship during a storm or expending resources to extinguish a fire on board. The apportionment of the losses is determined by a General Average adjustment, which takes into account the value of each party’s interest and the extent of the sacrifice made.

Particular Average: Particular Average refers to a partial loss suffered by an insured ship, cargo, or other insured property that is directly attributable to an insured peril or incident. This type of loss is specifically covered under a marine insurance policy and does not involve the entire loss of the insured property.

Examples of Particular Average losses include damages to the ship or its cargo due to bad weather, grounding, collision, or other unforeseen events. The insurance company compensates the insured party for the damages incurred, provided that these damages fall within the scope of the policy coverage.

General Average deals with shared losses incurred intentionally to save the vessel and its cargo from a common peril, while Particular Average refers to partial losses covered by a marine insurance policy resulting from an insured peril or incident. The former involves the proportional sharing of losses among all parties involved in the voyage, whereas the latter concerns the insurance company compensating the insured party for the damages.

What is the difference between General Average (GA) and Particular Average (PA)?

General Average deals with shared losses incurred intentionally to save the vessel and its cargo from a common peril, whereas Particular Average refers to partial losses covered by a marine insurance policy resulting from an insured peril or incident.

General Average involves the proportional sharing of losses among all parties involved in the voyage, while Particular Average concerns the insurance company compensating the insured party for the damages.

Particular Average (PA) Example

Here is an example to illustrate a Particular Average (PA) situation in the context of marine insurance:

Imagine a shipping company has a vessel transporting cargo from Port A to Port B. The ship is insured with a marine insurance policy that includes coverage for Particular Average losses. During the voyage, the vessel encounters a severe storm, causing substantial damage to some of the cargo on board.

In this scenario, the damages sustained by the cargo due to the storm would be considered a Particular Average loss. The shipping company, as the insured party, would need to file a claim with their marine insurance provider to seek compensation for the damaged cargo.

To process the claim, the insurance company would require documentation, such as a detailed survey report of the damages, invoices, and proof of the cargo’s value. The insurer would then assess the extent of the damage, verify that it falls within the policy coverage, and calculate the compensation amount based on the policy’s terms and conditions.

Once the insurance company approves the claim, they would compensate the shipping company for the Particular Average loss, covering the cost of the damaged cargo, minus any applicable deductibles or limits specified in the policy. This compensation would help the shipping company mitigate the financial impact of the loss and facilitate the continuation of their business operations.

What are the types of marine loss?

Marine losses can be divided into two main parts containing several subparts;

A. Total Loss

Actual Total Loss (ATL)
Contractive Total Loss (CTL)

B. Partial Loss

Particular Average Losses
General Average Losses
Particular Charges
Salvage Charges

What are the types of Particular Average (PA) Loss?

Particular Average (PA) loss refers to a partial loss suffered by an insured ship, cargo, or other insured property due to an insured peril or incident covered under a marine insurance policy. There are several types of Particular Average losses, which can be broadly categorized into the following:

Damage to the ship: This type of PA loss involves damages to the vessel’s structure or machinery, such as hull damage, engine damage, or damage to other essential equipment. Examples of causes for this type of loss include collisions, grounding, heavy weather, or fire.
Damage to cargo: This type of PA loss pertains to damages sustained by the cargo being transported. Causes for this type of loss can include rough handling, water ingress due to heavy weather, contamination, or damage due to shifting during transit.
Damage to containers or packaging: This type of PA loss covers damages to the containers or packaging in which the cargo is stored or transported. Causes can include accidents during loading or unloading, improper stowage, or damage sustained during transit due to heavy weather or other perils.
Expenses incurred due to emergency repairs or salvage: This type of PA loss covers the costs associated with emergency repairs to the vessel or the salvage of the ship or its cargo to prevent further loss or damage. Examples include towing costs, emergency repair expenses, or costs to refloat a grounded vessel.
Sue and labor charges: This type of PA loss pertains to expenses incurred by the insured party in their efforts to minimize the extent of the damage or loss to the insured property. Examples include costs related to temporary repairs, hiring additional security personnel, or taking necessary measures to protect the cargo or vessel from further damage.

It is essential to note that the specific coverage for each type of Particular Average loss depends on the terms and conditions of the marine insurance policy. The insured party should review their policy documents carefully to understand the scope of their coverage and any applicable deductibles, limits, or exclusions.

What is a Particular Average (PA) in Marine Insurance?

Particular Average (PA) in marine insurance refers to a partial loss suffered by an insured ship, cargo, or other insured property that is directly attributable to an insured peril or incident. This type of loss is specifically covered under a marine insurance policy and does not involve the complete loss of the insured property.

In the context of marine insurance, Particular Average losses can occur due to various causes, such as damage to the ship or its cargo because of bad weather, grounding, collision, or other unforeseen events. The insurance company compensates the insured party for the damages incurred, provided that these damages fall within the scope of the policy coverage.

Particular Average coverage is an essential aspect of marine insurance, as it protects the insured party from the financial consequences of partial losses that can occur during the course of a voyage.

Substituted Expenses in Particular Average on Ship?

Substituted expenses in the context of Particular Average (PA) on a ship refer to costs incurred by the insured party to minimize the extent of the damage or loss to the insured property, particularly the vessel. These expenses are also known as sue and labor charges or mitigation expenses and are typically covered under a marine insurance policy, provided that they are reasonable and necessary.

Substituted expenses aim to prevent further damage, reduce the overall loss, and protect the ship’s value. Examples of such expenses include:

Temporary repairs: Costs associated with making temporary repairs to the vessel after an incident, such as patching a hole in the hull or fixing damaged equipment, to allow the ship to continue its voyage safely.
Towing or assistance: Fees incurred for towing or assistance services to move a damaged vessel to a safe location, such as a nearby port or repair facility, to prevent further damage or loss.
Port of refuge expenses: Costs related to the deviation of the vessel to a port of refuge for repairs or inspections after encountering an insured peril, such as severe weather or a collision.
Salvage costs: Expenses involved in recovering and preserving the ship or its cargo following an incident, to prevent further loss or damage.
Additional security or labor: Costs associated with hiring additional security personnel, labor, or specialized services to protect the vessel and its cargo during an emergency situation or repair process.

Marine insurance policies often cover substituted expenses, as these actions help minimize the overall loss for both the insured party and the insurer. However, the policyholder should review their policy documents carefully to understand the scope of coverage for substituted expenses, as well as any limitations, deductibles, or exclusions that may apply.

Particular Average (PA) Case and Example

It should be noted that the principle of substituted expenses is not generally accepted in English law, although this position is modified by the York-Antwerp Rules in cases of general average.

In the matter of Wilson v. Bank of Victoria (1867) case, (which predates the York-Antwerp Rules), an auxiliary sailing vessel traveling from Australia to Britain on a laden voyage collided with an iceberg and sustained damage, leading to its dismasting. The ship put into Rio de Janeiro, where only temporary repairs were carried out due to the prohibitive cost of permanent repairs. This allowed the ship to continue its journey to its destination under steam with coal being purchased at Rio and Fayal for this purpose.

The Shipowners made a claim for contribution towards the cost of the coal purchased, arguing that it was a substitution for the expenses that would have been incurred at Rio had permanent repairs been carried out there. However, the court disallowed the claim, holding that the use of the auxiliary engine to bring the vessel home, and the consequent expenditure on coal, was merely a service performed by the Shipowners for the owners of the cargo carried, and thus not subject to contribution

Particular Average, as defined by section 64(1) of the Marine Insurance Act 1906, is a partial loss of the subject matter insured caused by a peril insured against, and the measure of indemnity for the partial loss of ship is the reasonable cost of repairs, as provided by section 69 of the Act.

Perhaps it is a misnomer to assume that alternative means of reparation are available to Shipowners when they are obligated (due to their contract with Underwriters) to repair their vessel at the most economical cost. While there may be multiple approaches to addressing a specific repair, only one can be deemed the most reasonable. Once the optimal course of action has been determined, the remaining alternatives are rendered moot. As such, any action taken cannot be a substitute for a nonexistent alternative.

This concept was illustrated in the case of Wilson v. Bank of Victoria, which held that for substitution to occur, an alternative must exist. In that case, it was ruled that the Master was duty-bound to spend a small sum on temporary repairs and fuel to safely bring the vessel to its destination. The purported alternative of unloading the cargo and repairing it at a port of refuge was not an option available to the Shipowner, and it was fallacious to argue that the cost of the fuel (which the Shipowners were attempting to claim under General Average) was a substitution for such measures. This principle is also applicable to claims made under Particular Average, where Shipowners must effectuate the most reasonable repair, and the claim must be based on the actual cost thereof and not on the cost of some alternative that was not available to them.

For Particular Average claims on a ship, the standard remains “the reasonable cost of repairs,” and any expenses not related to repair cannot be included in the claim unless Underwriters specifically agree to cover them. For example, Underwriters may agree to cover the cost of relocating the vessel from one repair location to another if it is more cost-effective. On the surface, this may seem similar to a situation where Shipowners incur additional fuel costs (such as by using diesel instead of fuel oil) to reach a destination with less expensive repairs. However, in the former example, the Owners derived no operational benefit from the relocation cost. This is not the case with the latter example, where the voyage on which the extra operating costs were incurred was a revenue-generating one.

During the annual general meeting of the British Association of Average Adjusters in May 1992, Mr. John Crump delivered an address on the “Reasonable Cost of Repairs,” in which he shared his thoughts on several fascinating cases. Here are the cases and his comments:

(A) A vessel experienced damage to her steering gear in a costly repair area. Class approved that the vessel could continue trading for a limited time until it reaches an inexpensive repair zone, provided extra tugs were engaged when entering and leaving ports.

(B) A vessel experienced damage to its main engine, and Class approved a temporary repair until it reached a more appropriate and less expensive repair port. However, the repair adopted involved burning diesel oil instead of the customary fuel oil during the interim period.

(C) A winch or winches were damaged during discharge. Instead of effecting repairs at the expensive discharge port, equipment was hired to enable the affected hold(s) to be discharged, allowing the vessel to repair later at a reduced cost.

In each case, the assured claimed for the extra costs incurred, which saved greater repair costs for which underwriters would have been otherwise liable. Nevertheless, I submit that it is challenging, if not impossible, to argue that any of them, in themselves, form part of the cost of repairing the ship.

The only legal case that is sometimes cited as authority for applying the “substituted expenses” idea to insurance claims is Lee v. Southern Insurance (1870) LR5, CP397. However, that case involved not an insurance on the ship but an insurance on freight, and the facts were as follows:

A vessel was bound for Liverpool with a cargo of palm oil and stranded off the Welsh coast. The cargo had to be discharged, and the shipowner arranged to forward it by rail to the destination at a cost exceeding ￡200, thus earning his freight, which was at risk. The vessel was then towed to Caernarfon, where it was made seaworthy for the rest of the voyage.

The forwarding costs were claimed under the freight policy, but the Court held that such a claim must be limited to ￡70, which would have been the cost involved in reshipping the cargo onto the original vessel after repair.

The case thus involved a claim for particular or special charges, not a claim for particular average loss. I cannot see it as referring in any way to the “substituted expenses” concept, for the hypothetical reshipping costs of ￡70 were introduced solely as a test of the reasonableness or otherwise of the forwarding costs of ￡200. The older editions of Arnould report the facts of the case under the subheading “Only reasonable expenses recoverable.”

The following are some common examples in which damages caused by insured perils fall under English law and practice:

Particular Average (PA) Example 1:

When a vessel under time charter experiences a breakdown in the South Atlantic, the vessel can continue to Santos, but additional diesel oil will be consumed and charged by Time Charterers to Shipowners. Alternatively, the vessel could be towed to Santos. The vessel uses the extra diesel oil, and at Santos, repairs are deferred again, but more additional diesel oil is claimed on the basis that repair costs would be cheaper if repaired later. Can the extra cost of diesel oil be claimed from Hull Underwriters?. Applying the same logic as in Example 1, there does not appear to be any grounds that either the tugs or extra fuel getting to port could be charged to Underwriters. The second set of alternatives, once at the port, are effectively the same as in Example 1 and cannot be allowed to Particular Average.

Particular Average (PA) Example 2:

When a vessel sustains damage to its stern-tube seals, the Shipowner has two alternatives – emergency drydocking or deferment of repairs for three months that will involve additional consumption of lubricating oil but save 50% of drydock dues. Can the cost of lubricating oil be claimed from Hull Underwriters?. Although it may be tempting to argue that Underwriters should pay or contribute towards the extra consumption of lube oil if they benefited from it, it is submitted that the Shipowners are obliged to effect repairs at the most reasonable cost, and they do not have the option of drydocking immediately. Therefore, the extra consumption of lube oil is of no benefit to Underwriters, who were only ever liable for the cost of repairs deferred and carried out in drydock. The excess lube oil consumption is not a repair cost but an extra or enhanced operational cost. Therefore, it cannot be claimed as Particular Average.

Particular Average (PA) Example 3:

When a vessel’s crankshaft is condemned, but the new crankshaft will take six months to supply, the Owners grind down the existing crankshaft as a temporary repair. The temporary repair results in the following:

(a) additional manning required in the engine room;
(b) turbocharger requires more frequent cleaning;
(c) additional consumption of diesel oil;
(d) as a result of running out of balance, some fretting results in the main engine.

Can these additional costs (a) to (d) be claimed from Hull Underwriters?

Firstly, it should be recognized that the sole purpose of the ship is to be a freight or revenue-earning instrument. It is unreasonable to leave her out of commission for six months awaiting parts if, by way of a temporary repair, she can be quickly returned to employment with the permanent repair effected on delivery of the necessary parts. Therefore, the temporary repair is in itself reasonable and forms a direct claim on Underwriters. There is a suggestion that where a temporary repair is reasonable, any extra operating costs that are known to result directly from the temporary repair would be treated as part of the cost of that repair. However, it is submitted that while (b) and (d) can be allowed as Particular Average as they involve damage or quasi-damage to the vessel, (a) and (c) should be disallowed as they are merely the enhanced cost of running the vessel in semi-damaged condition.