A particular average clause refers to the particular loss or damage caused to cargo due to a particular peril. The person affected by the damage to the cargo bears the loss. Thus, in any situation, it is not possible to shift the burden of loss to others involved in the shipment.
In other words, the result of the particular average loss in marine insurance is that the loss falls on the owner of the particular ship/cargo who has incurred damages either due to an accident or otherwise.
Partial loss caused due to insured peril
According to the Marine Insurance Act, 1906, the particular average loss is a partial loss (i.e., any loss other than a total loss). It is due to an insured peril and is not a general average loss.
During the voyage, when parts of the cargo are damaged due to seawater, it was seen as a particular average loss. Hence, the person getting affected directly due to damage to the said cargo bears the losses.
The particular average loss with regard to cargo may happen due to a lowering of the value of the cargo due to some factors during the voyage. Also, damages caused only to a part of the ship are a particular average loss with regards to the ship (hull or machinery). There should not be a total loss of the ship.
Claim amount paid by the insurance company
The amount the insurance company has to pay in order to indemnify the policyholder as per the particular average clause depends on the cargo insurance premium amount paid. Usually, the insurer has to pay for the loss for which the policyholder pays the premium. It is necessary to note that the amount that the insurance company has to pay is not dependent on the market price, which the goods might fetch when they reach the port of destination or arrival.
Case:1
It had been a smooth journey for the ship Tango which was sailing from India to Sri Lanka. However, after two days of sailing, the ship’s propeller suffered damage due to bad weather. To continue the voyage, the ship required some repair work as well.
The expenditure on the repairing work was borne by the shipowner. As the shipowner had marine cargo insurance, the insurer settled or indemnified the claim. However, it settled the claim on the basis of the diminished value of the property sustained due to losses or damages. Losses or damages were due to an insured peril, which was a natural calamity. Hence, in this case, the insurance company considered it as a particular average and settled the claim accordingly.
Case: 2
A certain ship was carrying a cargo worth Rs 1 crore when suddenly, due to mechanical issues, it started overheating. The captain immediately informed the shipowner who tried to find out all the possible ways to safeguard the goods. Finally, the cargo owner decided to sell the cargo at a lower value in the intermediate port before the cargo reached the destination port. The goods fetched Rs 5 lakh in sales. However, the cargo owner could earn about Rs 9 lakh with the sale of goods in the market.
In this case, the cargo owner had to incur losses due to selling the goods urgently. The cargo owner had a cargo insurance policy. So, he contacted the insurer who considered it as particular damage and decided to settle the claim. As the cargo-owner had to sell goods suddenly, they incurred losses. The insurer considered it as part of the particular average loss. Therefore, the claim was settled as per the partial loss clause.
