Average Clause Law and Legal Definition
Average clause is a clause in ocean marine insurance which sets out the coverage provided in the event of partial loss. The term is more associated with marine cargo insurance policies. The general average clause obligates the insurers to share the cost of losses incurred voluntarily to save the voyage from complete destruction. Such sacrifices must be made voluntarily. A general average loss is deliberate to save the ship and cargo from a threatened peril. For instance, jettisoning some cargo by the master to save the ship is a general average loss. The cost of such loss is called general average sacrifices and is proportioned among all of the parties to the marine adventure, including the various owners of the cargo and the vessel owner. The term “with average” is also associated with this concept. With average clause gives protection for partial loss from perils of the sea if the partial loss amounts to a certain percentage (usually 3%) of the insured value. The percentage is called a franchise. It is not a deductible percentage, but is the amount the claim that must be reached before the partial loss from a peril insured against is paid. The franchise is not applied in general average losses. It is also not applied if the vessel is involved in a fire, stranding, sinking, burning, or a collision.