General Average and Insurance Relationship: Who Pays What, and How Much?

In maritime transport, "general average" (or " joint average" as it is called in the Turkish Commercial Code) is a well-established principle that, following an accident, prevents the costs from becoming solely the responsibility of the parties involved, shared salvation in shared danger . The jettisoning of a container, firefighting expenses, extraordinary costs arising from the ship entering a port of refuge... Sometimes a single decision saves the ship and the cargo; but it also shares the cost among the ship, cargo, and freight stakeholders.

In this article, I examine the legal framework of general average and its intersection with insurance, particularly focusing on the question of "who pays for what and how much?" along with its practical application

1) What is general average (common average)?

According to the Turkish Commercial Code, a "general average act" arises when a ship, engaged in a common maritime adventure, knowingly makes an extraordinary sacrifice or incurs an extraordinary expense in order to protect the ship, its cargo, other goods, and freight from a danger that threatens them all ; the losses and expenses that are the direct result of this act are considered general average.

In international practice, the York–Antwerp Rules define "general average" as an extraordinary sacrifice or expense deliberately and reasonably made for the common safety , to protect property in a common maritime adventure from danger

The main idea is this: if liberation is shared, then the price (with certain rules) must also be paid collectively.

2) Essential conditions for general average

In practice, simply declaring "general average declared" is not enough; whether the event truly qualifies as general average of certain conditions .

1. Shared maritime adventure: A situation where a ship and multiple interests (cargo/freight, etc.) are involved in the same transportation adventure.

2. Common danger (peril): A real danger that threatens both the ship and its cargo.

3. Exceptional nature: The sacrifice/expenditure made must be of an extraordinary nature, not a "routine operating expense".

4. Deliberate and reasonable action: The decision must be made consciously and be reasonable under the circumstances.

5. Causality: The loss/cost must be a direct result of the general average action.

3) Why is the difference between "particular average" and "private average" important?

• Particular average: As a rule, the party whose property caused the damage bears it (e.g., damage to a single cargo due to its own fault).

• General average: Extraordinary sacrifice/expenditure made for the common salvation in a common danger " (garame) .

This distinction directly affects how insurance is applied: a cargo insurer often considers both "damage compensation" and general average contributions

4) Typical sacrifices and expenses included in general average

The details of each case are different; but the commonly encountered items in practice are as follows:

• Jettisoning of cargo or sacrificing part of the cargo

• Fire extinguishing and emergency response expenses

• Extraordinary port/labor/organizational expenses due to the ship entering a refuge port

• Extraordinary repairs/transfers (lightening) made to eliminate the danger.

• Additional expenses incurred to avoid a larger general average expense (the Turkish Commercial Code accepts the concept of "avoided expense").

The critical point here is: simply "an expense was incurred" does not automatically result in general average; the expense must be extraordinary and for a common safety purpose

5) How does Garame (sharing) work?

The Turkish Commercial Code explicitly states that losses and expenses included in general average among the ship, cargo, freight, and other goods according to the relevant provisions.
The York–Antwerp Rules also emphasize that the contribution shall be distributed among the “participating interests” according to specific principles.

The logic of the contribution rate

General average calculations in most cases follow this mathematical formula:

1. The total general average amount is calculated as (accepted sacrifice + accepted expenses).

2. The total contributing values ​​are calculated:

   • The value of the ship

   • Value of goods delivered upon arrival (as a rule)

   • Freight value at risk (according to the transportation contract)

3. Contribution rate = GA amount / Total contribution value

4. Each interest pays its contribution by applying this ratio to its own value.

6) “Who is indebted?” — Personal debtors of the Garame share

The Turkish Commercial Code establishes the personal debtors of general average and related shares in a three-part structure:

• Shipowner at the time of a general average incident

• Freight creditor on the unloading date

• Owner of the cargo (other goods) on the unloading date

This arrangement is particularly important for reducing the "who pays" dispute in supply chains (sales/turnover/delivery) where the goods change hands.

7) Why is delivery delayed? Security, lien, and "average bond/guarantee"

When general average is declared, the main risk for the carrier/shipowner is this: How will they secure their receivables until the dispatch is completed and the final contributions are determined?

Therefore, the Turkish Commercial Code provides creditors with strong security instruments:

• The right of a ship creditor on a ship ,

• The right of lien on goods that fall under the category of "garame" (a type of legal provision) .

• Pledge of receivables on freight .

In practice, this means: the cargo is often not released without general average insurance coverage. This coverage typically consists of two documents:

• Average Bond: A commitment by the buyer to pay a contribution to be determined later.

• Average Guarantee: A guarantee by the cargo insurer to pay the buyer's deductible.

This mechanism makes it possible for the carrier to deliver the cargo without requesting a "cash deposit".

8) Adjustment process: Why is the insurer's role critical?

8.1 How is a dispatcher selected?

According to the Turkish Commercial Code, dispatches are made by a dispatcher unanimously chosen by the parties concerned; if unanimity cannot be achieved, the dispatcher by the court of the place where the dispatch is to be made . Furthermore, the parties concerned are obliged to provide the dispatcher with documents such as charter parties, bills of lading, and invoices.

8.2 Having the dispatch done and location

The shipowner is obliged to have the dispatch carried out without delay; if they fail to do so, the relevant parties, including the insurer, may request that the dispatch be carried out.
The assessment and distribution of damages are made at the destination; if the destination cannot be reached, then at the port where the voyage ends.

8.3 Court approval and objection

Interested parties, including insurers, may request approval of the dispatch, or they may object to the type or calculations of the average.
The procedure for approving the dispatch is regulated in the Turkish Commercial Code; if there are no objections, it is approved; if there are objections, they are heard and, if necessary, corrected before approval.
Once the approval decision becomes final, it acquires the force of a judgment with regard to the payment of the claims indicated in the report.

From an insurance perspective: The cargo insurer is not just a "payer"; they are one of the most active actors in the case, determining whether the items on the dispatch are general average, assessing the valuation, determining the contribution rate, and handling exceptions.

9) At what point does the insurance policy come into effect?

9.1 What does cargo insurance cover?

In standard marine cargo insurance clauses, general average is usually explicitly covered. The Institute Cargo Clauses (A) texts stipulate that general average and salvage charges, determined according to the carriage contract and applicable law/practice, will be covered.

In practice, a cargo insurer:

• an average guarantee , it speeds up the delivery of the cargo.

• The policyholder pays the contribution amount determined in the final dispatch (within the policy terms).

9.2 What does Hull & Machinery insurance cover?

Boat insurance is usually for the owner:

• The ship's contribution to general average,

• Expenses assessed under general average ,

• salvage/damage mitigation expenses such as sue and labor
  (depending on the policy terms).

9.3 Where does P&I (Club) come into play?

P&I coverage is not about "physical damage to property," but mostly about liability -based work. Some club rules may provide specific protections regarding general average/special charges/salvage amounts that the member cannot collect from the load; it is stated that this relates to the risk of not being able to collect from others rather than the member's own obligation to pay

9.4 What happens with an uninsured load?

If general average coverage cannot be provided, the carrier often a cash deposit or may delay delivery of the cargo. The approach of releasing cargo against coverage is also clearly explained in industry FAQ documents.

10) Who pays for what and how much? — A simple example

Let's have these values ​​at once:

• The ship's added value: 20,000,000 USD

• Total contribution value of goods delivered upon arrival: 10,000,000 USD

• Freight at risk: $2,000,000

• Accepted general average amount (sacrifice + expense): 3,000,000 USD

Total contribution value = 32,000,000 USD
Contribution rate = 3,000,000 / 32,000,000 = 9.375%

Accordingly:

• Ship interest: 20,000,000 x 9.375% = 1,875,000 USD

• Total cargo benefits: 10,000,000 x 9.375% = 937,500 USD

• Freight benefit: 2,000,000 x 9.375% = 187,500 USD

If a single importer receives cargo with a contribution value of USD 100,000, their contribution would be approximately USD 9,375 .

Insurance coverage:

• If the importer's cargo policy covers general average contributions, the insurer will often pay the contribution.

• The owner's hull insurance may cover the vessel's share (subject to policy terms and valuation criteria).

11) Critical errors in implementation: risk of “unnecessary payments” and “lack of security”

In general average claims, the most costly mistakes are often made not in the "accident" itself, but in post-accident management :

1. Late notification/late documentation: The dispatcher cannot make a sound valuation without the necessary documents (bill of lading, invoice, charter parcel).

2. Incorrect value declaration: If the contribution value is incorrectly determined, the contribution amount will also be incorrect.

3. Assuming policy coverage: Cargo clauses, deductibles, and additional war/strike coverages alter the outcome in general average practice.

4. Incorrectly managing the guarantee document: Average bond/guarantee texts have technical consequences in areas such as "limit," "sanctions," and "non-separation."

5. Missing the dispatch objection deadline: It is expected that all relevant parties, including the insurer, will be actively involved in the objection and approval process.

12) Statute of Limitations: Don't assume the case will "close automatically"

According to the Turkish Commercial Code claims for general average dividends are subject to a one-year statute of limitations; the period begins to run from the date the ship arrives at its destination (or the place where the voyage ends).

This short timeframe demonstrates why dispatch, collections, and dispute management need to be addressed quickly.

Conclusion: In general average, the "manager" wins as much as the "payer"

General average is a crisis management tool in maritime trade: it distributes the cost of extraordinary decisions that save the ship and cargo according to a logic of fair sharing. However, this fairness does not arise automatically; the dispatch, collateral, insurance coordination , and dispute mechanisms are not operated correctly, unnecessary costs and lengthy disputes become inevitable.