the clause which protects an insurer against the undesirable effects of under- insurance, indemnity being scaled down in the proportion that the sum insured was less than the true value of the property.
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Marine insurance term for loss or damage. See also General average and Particular average.
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(i) Synonym for “loss.” derived from the French and used primarily in ocean marine Insurance. (ii) Arithmetic mean, or the total of a series of values divided by the number of values making up the total. General Average : Damage and expenses purposely incurred for the common safety of the vessel, freight and cargo interests. General averages are paid by the several interests in the proportion of their respective values exposed to the common danger including the interest of the party whose property or interest is intentionally sacrificed. For example, if it is necessary to jettison cargo to save a ship, the owners of the ship and the rest of the cargo that is saved will share in the loss of the goods that were intentionally sacrificed. Refer: “Loss General Average.” , Particular Average : Loss to a ship, freight or cargo interest which is not shared by contribution among all interests, but is borne by the owner of the interest to which loss occurs, Refer “Loss Particular Average.”Average Adjuster : Independent expert who assesses the liabilities of the various parties to a common maritime adventure and to classify the various items of expenditure between general and particular average, viz., ship, freight and cargo.
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1. In non-marine property insurance if a sum insured is ‘subject to average, and the sum insured is less than the value at risk at the time of loss, the claim will be reduced in the same proportion. The measure combats underinsurance. Agricultural products and ecclesiastical property are subject to the special condition of average (the 75 per cent condition) as values fluctuate or are difficult to assess. If the sum insured is 75 per cent or more than the value at the time of loss no deduction is made for REINSTATEMENT partial losses. The two conditions of average applies where property (e.g. A) is insured under both a specific policy and a more general policy covering property that includes additional property (e.g. A, B and C) under an inclusive sum insured. The first condition is pro rata average while the second is initially ‘noncontribution’, i.e. the more specific insurance pays first, leaving only any uninsured balance to be recovered under the general policy on the basis of pro rata average. See also AVERAGE; DAY ONE AVERAGE; FIRST LOSS POLICIES. 2. In marine insurance ‘average’ means ‘loss’ in different ways, notably general average and particular average but the non-marine approach is also used. A cargo claim is based on the percentage of depreciation calculated by comparing the actual damaged value at destination with the actual sound value at destination and applying this percentage to the agreed insured value (Marine Insurance Act 1906, s.71). See WITH AVERAGE; FREE OF PARTICULAR AVERAGE.