BIMCO Standard General Average Absorption Clause

September 2002

From BIMCO Press Release of 6 September 2002:

Standard Absorption Clause Welcomed by Industry

Insurance underwriters and average adjusters have welcomed the recent publication of BIMCO’s Standard General Average Absorption Clause. It is hoped that the 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. 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.

BIMCO’s Deputy Secretary General, Søren Larsen, said that "it is not the first time that the marine insurance sector has looked to BIMCO for assistance in developing and promoting a standard clause for industry-wide use and we are delighted to have been able to continue the excellent working relationship on this occasion". He continued "we have worked closely with insurance underwriters, average adjusters, shipowners and the International Group of P&I Clubs to ensure that the Standard Absorption Clause fairly represents the interests of all parties. This, we hope, will encourage the Clause’s widespread adoption".

Average adjusters are unequivocal in their support for the new Clause. Tim Madge, Chairman of the Association of Average Adjusters, said that the BIMCO Absorption Clause should "alleviate many of the problems that we encounter in practice due to a multitude of different wordings being included in policies". He went on to say that his Association hoped that the Clause "is soon adopted as a standard clause world wide".

In the United States, Howard McCormack, President of the Average Adjusters Association of the United States has praised BIMCO’s initiative. He said that his Association had been following the development of the Absorption Clause with interest and that "BIMCO is to be congratulated on their hard work to come up with a clause that 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". Mr McCormack added, "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".

Mr McCormack concluded, "The Absorption Clause is a practical method of dealing with what is a purely commercial issue. It should be understood that the clause does not involve any variation or change in the York-Antwerp Rules but is solely a commercial resolution to a practical problem".

The insurance sector has been equally supportive of BIMCO’s initiative as they recognise that widespread use of absorption clauses will save both time and money because they avoid the great deal of work associated with collecting security on all contributing interests and settling afterwards. David Taylor, Permanent Secretary of the Joint Hull Committee has said "The Joint Hull Committee very much welcomes BIMCO’s initiative in producing a standard GA absorption clause and its continuing willingness to consider the insurance sector when drafting its industry standard clauses. The London marine market looks forward to continuing co-operation with BIMCO on these important issues".

According to BIMCO’s Grant Hunter, Documentary and Legal Division Manager, "the key features of BIMCO’s Absorption Clause are that it is triggered automatically under a shipowners’ hull and machinery policy if he decides not to claim general average. The Clause is governed by a threshold and upper limit figure to control its application to smaller general averages. To help achieve the objective of eliminating small general averages, the deductible does not apply to the exercise of the absorption clause". He added, "it is important to note that the application of the York-Antwerp Rules, 1994 are not affected by the use of the Clause other than exclusions expressly permitted under the Rules".

Contact person:

Mr. Grant Hunter, Manager

Documentary and Legal Division, BIMCO

Tel. (+45) 44 36 68 45

e-mail: [email protected]

 

Notes 

BIMCO, established in 1905, is the world’s leading private association of shipping companies, with nearly 2,700 members in 122 countries. The owner-members of BIMCO control a fleet of 510 million DWT thereby representing 65% of the world’s merchant fleet. Among its many activities, the organisation provides strictly professional, non-political information and counselling services for the maritime community including owners, brokers, agents and club members. BIMCO is an official observer at the International Maritime Organization.

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BIMCO General Average Absorption Clause and accompanying Explanatory Notes