What Is a Collision Liability Warranty?
Interlink編集部What is a General Average Guarantee?
A General Average Guarantee is a document issued by an insurance company on behalf of the cargo owner, guaranteeing payment of the general average contribution that will be finalized at a later date once general average is declared.
When general average occurs, shipping lines or general average adjusters may require collateral to secure the future general average contribution before releasing cargo. If marine cargo insurance is in place, the insurer may issue a General Average Guarantee as this collateral.
In practice, this document may be called a General Average Contribution Guarantee, G.A. Guarantee, General Average Guarantee, General Average Letter of Guarantee, Letter of Guarantee, L/G, or Unlimited General Average Guarantee.
The key role of the General Average Guarantee is to facilitate cargo release by allowing the cargo owner to avoid making a cash deposit as security, relying instead on the insurer's guarantee. However, it is not automatically issued by the marine cargo insurer, and confirmation with the insurance company and submission of necessary documents are required.
Scope Covered in This Article
| Topic | Main Contents | Key Practical Points |
|---|---|---|
| Basics of the General Average Guarantee | Issuer, submission destination, purpose, and impact on cargo release | Confirm that this is an insurer's payment guarantee and differs from the cargo owner's cash deposit. |
| Differences from General Average Cash Deposit | Differences between an insurer guarantee and a cargo owner's cash collateral | Whether marine cargo insurance is in place significantly affects the practical burden. |
| Differences from the General Average Bond and Cargo Value Declaration | Who prepares or signs the documents and what commitments or declarations they contain | Not only the guarantee but also documents from the cargo owner may be required. |
| Limited Guarantee vs. Unlimited Guarantee | Presence or absence of guarantee amount limits, insurer confirmation, and impact on cargo owners | When an unlimited guarantee is required, the issuance confirmation may take extra time. |
| Differences from Salvage Guarantee and Salvage Security | Difference between guaranteeing general average contributions and securing salvage charges | Even if a General Average Guarantee is submitted, separate security for salvage charges may be needed. |
| Points for Freight Forwarders and NVOCCs to Confirm | Submission destinations, deadlines, required documents, additional costs, and cargo release conditions | Check guarantee issuance status and cargo release permission separately. |
Role of the General Average Guarantee
Settlement of general average is not completed immediately after the incident. The general average adjuster reviews the accident details, salvage costs, sacrifices, and the values of the ship, cargo, and freight, then calculates the final general average contribution at a later date.
Therefore, shipping lines or general average adjusters require guarantees, cash deposits, bank guarantees, or similar collateral to secure payment of the future contribution before releasing cargo.
When marine cargo insurance is in place, the insurer's issuance of a General Average Guarantee can allow the cargo owner to receive cargo release without making a cash deposit.
| Item | Description | Practical Significance |
|---|---|---|
| Issuer | Marine cargo insurance company | The payment guarantee is provided by the insurance company, not the cargo owner directly. |
| Submission destination | Shipping line or general average adjuster | Check the submission destination indicated in the guidance documents. |
| Purpose | Guarantee payment of the general average contribution determined later | Functions as security prior to cargo release. |
| Main usage scenario | Cargo covered by marine cargo insurance where general average is declared | Even if insured, the guarantee must be requested and documents must be submitted. |
| Impact on cargo release | Delays in submission may stop D/O exchange and cargo release | Could lead to storage fees, demurrage, detention, and delivery delays. |
Differences from General Average Cash Deposit
Both the General Average Guarantee and the general average cash deposit secure payment of general average contributions, but the practical burden differs significantly.
| Item | General Average Guarantee | General Average Cash Deposit | Practical Differences |
|---|---|---|---|
| Typical use case | When marine cargo insurance is in place | If no marine cargo insurance is in place or a guarantee cannot be obtained | Insurance status largely influences the initial response. |
| Form of collateral | Payment guarantee from insurer | Cash deposit by cargo owner | Distinguishes an insurer guarantee from cash collateral. |
| Temporary cash burden on cargo owner | Generally lighter | May require significant cash | Lack of insurance may cause funding arrangements to delay cargo release. |
| Procedural counterpart | Insurance company, insurance agent, general average adjuster | General average adjuster, shipping line, bank, and related parties | Contacts and submission parties differ. |
| Impact on cargo release | Easier if documents are complete | Determining deposit amount, remittance, and confirmation may take time | Cash deposit processes may hold up release until remittance is confirmed. |
Differences from the General Average Bond and Cargo Value Declaration
In general average procedures, submission of not only the General Average Guarantee but also the General Average Bond and Cargo Value Declaration may be requested. They are all used in the same procedure but serve different roles.
| Document Name | Prepared or Signed by | Role | Practical Considerations |
|---|---|---|---|
| General Average Guarantee | Insurance company | Guarantees payment of the general average contribution. | It is not issued automatically even if marine cargo insurance is in place. |
| General Average Bond | Shipper or cargo rights holder | The cargo-side party undertakes to pay properly adjusted general average contributions. | Check the signatory, submission destination, and submission deadline. |
| Cargo Value Declaration | Shipper or cargo rights holder | Declares the cargo value used as the basis for calculating the general average contribution. | Verify consistency with invoice value, trade terms, freight, and insurance premium. |
| Commercial Invoice | Seller, exporter, or other relevant party | Basic document used to confirm cargo value. | If there is a discrepancy with insured amount or declared value, verification may take time. |
In other words, the General Average Guarantee is a payment guarantee issued by the insurance company, while the General Average Bond and Cargo Value Declaration are documents submitted by the shipper’s side. Submitting only one of these does not complete the process.
Limited Guarantee vs. Unlimited Guarantee
The General Average Guarantee may be issued as a limited guarantee, which has an upper limit on the guaranteed amount, or as an unlimited guarantee that does not specify a maximum amount.
In practice, shipping lines and general average adjusters may request an unlimited General Average Guarantee rather than a limited one, since the final general average contribution amount is not yet fixed.
| Item | Limited Guarantee | Unlimited Guarantee | Practical Considerations |
|---|---|---|---|
| Guarantee amount | A specific upper limit amount is stated. | No upper limit is specified. | Confirm which format the adjuster requires. |
| Viewpoint of shipping line or adjuster | Risk remains that the final contribution may exceed the limit. | Facilitates securing future collection of contributions. | An unlimited guarantee may be requested. |
| Risk for insurance company | Easier to manage the scope of guarantee. | The insurer must carefully check payment limits and deductibles under the insurance policy. | Internal insurance company reviews may take time. |
| Impact on shipper | May be required to provide additional guarantees or cover shortfalls. | The insurer may request a counter-guarantee, additional verification, or cargo value explanation. | Check insured amount, insurance value, and any uninsured portions. |
| Post-adjustment issues | If shortages are discovered, additional measures may be required. | Even with an unlimited guarantee, not all losses may be covered unconditionally under the insurance policy. | Understand the guarantee and the insurance coverage as separate issues. |
Points to Note Regarding Unlimited Guarantees
While an unlimited guarantee provides assurance to shipping lines and general average adjusters, it is a document that requires careful verification by the insurance company.
The general average contribution amount is determined after the fact, so the final amount is unknown at the time the guarantee is issued. Furthermore, depending on insurance policy terms, insured amount, coverage, deductibles, and declared cargo value, the insurance company may not be able to issue an unlimited guarantee as requested.
Therefore, when issuing an unlimited guarantee, the insurance company may ask the shipper for a counter-guarantee, further verification, an explanation of cargo value, and confirmation of any uninsured portions.
Variations in Terminology
The General Average Guarantee may be called by different names depending on the parties involved or the document format. Even if the name differs, documents intended to guarantee payment of general average contributions are treated as the same type of document in practice.
| Term | Context of Use |
|---|---|
| General Average Guarantee | One of the standard English terms for this document. |
| General Average Contribution Guarantee | Used when emphasizing guarantee of payment of general average contributions. |
| G.A. Guarantee | Used in English documents or by overseas adjusters. |
| General Average Letter of Guarantee | Used when formatted as a letter of guarantee. |
| Letter of Guarantee | Generic wording that may also apply to other types of guarantees, so the document content should be checked. |
| L/G | Abbreviation of Letter of Guarantee. It may also refer to other guarantees, so the underlying document should be checked. |
| Unlimited General Average Guarantee | Used to refer specifically to an unlimited guarantee. |
Process from Issuance Request to Submission
The General Average Guarantee should be requested from the insurance company or insurance broker as soon as possible after the declaration of general average. Delays in cargo release can result in storage charges, demurrage, detention, and delivery delays, so prompt action is critical.
| Step | Actions | Points to Note |
|---|---|---|
| 1. Receipt of General Average Declaration | Check notifications from the shipping company, NVOCC, overseas agents, and general average adjusters. | Confirm vessel name, voyage number, B/L number, container number, and submission deadline. |
| 2. Contact shipper and insurance company | Inform the shipper of the incident details and contact the insurance company or insurance agent. | Even if insurance is in place, the insurer does not automatically issue a guarantee letter. |
| 3. Prepare necessary documents | Gather B/L, Invoice, Packing List, insurance policy, General Average Declaration, and other documents. | Discrepancies between cargo value and insured amount may cause delays in verification. |
| 4. Confirm with insurance company | Verify insurance terms, coverage amount, insured scope, exclusions, and the required format of the guarantee letter. | If an unlimited guarantee letter is requested, the insurer may require a counter-guarantee or additional checks. |
| 5. Issuance of General Average Guarantee | The insurance company issues the General Average Guarantee. | Confirm whether the original is required or whether submitting a PDF is sufficient. |
| 6. Sending to the submission destination | Send the General Average Guarantee and related documents to the recipient specified by the adjuster. | Be careful not to confuse submission to the shipping company with submission to the general average adjuster. |
| 7. Confirmation of cargo release | Confirm D/O exchange, cargo release, and possibility of cargo removal. | Salvage guarantee letters or Salvage Security may be required separately. |
Documents Commonly Required for Guarantee Letter Issuance
When requesting a General Average Guarantee from the insurance company, the following documents are generally required.
| Document | What Is Checked | Points to Note |
|---|---|---|
| General Average Declaration | Occurrence of general average, vessel, voyage, submission destination, required documentation | Check submission deadlines and specific required forms. |
| B/L and clauses on reverse side | Carriage contract, general average clause, applicable rules | If both House B/L and Master B/L exist, confirm their relationship. |
| Invoice | Cargo value, transaction terms, seller and buyer | Ensure consistency with insured amount and declared value. |
| Packing List | Cargo details, quantity, weight, packing specifications | Used to specifically identify the cargo involved. |
| Insurance Policy or Certificate of Insurance | Insurance company, insured amount, insurance terms, insured scope | Verification of whether general average contributions are covered by insurance. |
| General Average Bond | Consent from the cargo side regarding general average contributions | Confirm the signatory and submission destination. |
| Cargo Value Declaration | Declared value used as the basis for general average contribution calculation | Confirm treatment of FOB value, freight, and insurance premium. |
| Freight documents for FOB shipments | Verification of cargo value and insured value | Check who bears the freight costs. |
| Information regarding salvage security | Whether Salvage Security is required separately from the General Average Guarantee | Separate checks are required for general average and salvage security. |
Delays in Guarantee Letter Submission and Additional Costs
Delays in submitting the General Average Guarantee may cause cargo release to be halted and generate additional costs throughout the transport.
| Cause of Delay | Possible Issues | Practical Response | Records to Confirm |
|---|---|---|---|
| Delay in notifying the insurance company | Late issuance of the guarantee letter results in halted cargo release. | Contact the insurance company immediately upon receipt of the General Average Declaration. | Record the date and time of notification to the insurance company. |
| Incomplete documentation | Insurance company cannot issue the guarantee letter. | Collect B/L, Invoice, insurance policy, and value declaration early. | Manage missing documents and submission deadlines. |
| Wrong submission destination | The general average adjuster cannot confirm receipt. | Verify the submission destination, email address, and whether originals are required based on the declaration. | Save recipient, sending date, and confirmation of receipt. |
| Extended time to confirm issuance of unlimited guarantee | Internal insurance company checks or counter-guarantee arrangements take time. | If an unlimited guarantee is requested, share this requirement with the insurer early. | Retain records of the adjuster’s request. |
| Salvage Security was not separately addressed | Even after issuing the General Average Guarantee, cargo is not released. | Separately confirm whether a salvage guarantee letter or Salvage Security is required. | Check for any instructions regarding salvage security. |
| Delayed cargo release | Storage fees, demurrage, detention, redelivery costs, and delivery delays may occur. | After submitting the guarantee, continue monitoring cargo release status and occurrence of additional charges. | Record release status, date costs start accruing, and reasons. |
Differences from Salvage Guarantee Letter and Salvage Security
General Average Guarantees and salvage guarantee letters may arise simultaneously from the same marine casualty, but they should be treated as separate documents.
| Item | General Average Guarantee | Salvage Security | Practical Notes |
|---|---|---|---|
| Subject | General average contribution | Salvage reward payable to salvors | The costs covered differ. |
| Submission destination | Shipping company or general average adjuster | Salvors or salvors' agent | Do not confuse the submission destinations. |
| Purpose | Guarantee of payment for general average contribution | Security for salvage charges | The same guarantee may not be accepted as a substitute. |
| Timing of submission | Usually requested after declaration of general average | May be requested after salvage operations but before the general average declaration. | Confirm communications regarding both general average and salvage charges. |
| Notes | Even if submitted, the issue of securing salvage charges may remain. | May need to be submitted separately from the General Average Guarantee. | Confirm the need for both types of security before cargo delivery. |
Common Trouble Patterns
| Trouble | Cause | Countermeasure |
|---|---|---|
| Cargo not released despite having insurance | Guarantee issuance request to the insurer has not yet been made. | Explain that insurance subscription and guarantee issuance are separate procedures. |
| Delay in issuing guarantee | Time-consuming verification of required documents, cargo value, and insurance amount. | Gather the General Average Declaration, B/L, Invoice, and insurance policy as early as possible. |
| Restricted guarantee is not accepted | The general average adjuster requires an unlimited guarantee. | Accurately convey the required form of guarantee to the insurance company. |
| Shipper is required to provide a counter-guarantee when an unlimited guarantee is issued | The insurer is confirming risks beyond the insured coverage under the insurance contract. | Check insurance terms, insured amount, and uninsured portions. |
| Cargo is held despite submission of a General Average Guarantee | Salvage Security or a salvage guarantee has not been submitted. | Confirm guarantees separately for general average and salvage charges. |
| NVOCC cannot recover fees from shipper | Insufficient prior explanation regarding insurance subscription and deposit obligations. | Record insurance subscription and liability scope at quotation, booking, and B/L issuance. |
Common Misunderstandings
| Misunderstanding | Correct Understanding | Points to Confirm |
|---|---|---|
| If cargo is insured, the guarantee will be issued automatically | Notification to the insurer, submission of required documents, and guarantee content confirmation are necessary. | Check if the issuance request to the insurer or insurance agent has been completed. |
| Submitting a General Average Guarantee completes all general average procedures | The guarantee is collateral for cargo release; final settlement is conducted later. | Confirm the general average adjustment statement and final contribution later. |
| Unlimited guarantee means no additional burden will arise for the shipper | Depending on insurance contract conditions and uninsured portions, shipper confirmation or burden may still occur. | Confirm the insured amount, cargo value, deductibles, and uninsured amounts. |
| General Average Guarantee and General Average Deposit are the same | The purpose is similar, but guarantees are insurer payment guarantees, while deposits are cash collateral from the shipper. | Confirm insurance subscription status and collateral methods. |
| Submitting a General Average Guarantee also resolves salvage charges | Salvage guarantees or Salvage Security may be separately required. | Check whether separate guidance for salvage security has been received. |
| PDF submission will always be accepted | Original documents, specified forms, authorized signatures, or insurer stamps may be required. | Confirm submission format and acceptance conditions in advance. |
Points Freight Forwarders and NVOCCs Should Confirm
| Item to Confirm | Details to Confirm | Party to Confirm With |
|---|---|---|
| General Average Declaration | Check whether the declaration document exists, and verify the vessel name, voyage number, B/L number, and container number. | Shipping line, NVOCC, general average adjuster |
| Submission destination | Confirm whether the documents should be submitted to the shipping line or the general average adjuster, and whether original documents are required. | General average adjuster, shipping line |
| Insurance status | Verify if the shipper has marine cargo insurance and confirm contact details of the insurer or insurance agent. | Shipper, insurance agent, insurance company |
| Type of guarantee letter | Confirm whether a limited guarantee suffices or whether an unlimited guarantee is required. | General average adjuster, insurance company |
| Required documents | Prepare B/L, Invoice, Packing List, Insurance Policy, Cargo Value Declaration, and other necessary documents. | Shipper, insurance company, customs broker |
| Salvage Security | Confirm if Salvage Security or a separate salvage guarantee letter is necessary. | Shipping line, P&I Club, salvage operator's agent, insurance company |
| Cargo release | Check if D/O exchange or cargo release is allowed after submission of the guarantee. | Shipping line, CFS, customs broker |
| Additional costs | Confirm the possibility of storage fees, demurrage, detention, redelivery charges, and delivery delays. | Shipping line, CFS, delivery company, shipper |
| Explanation to shipper | Explain the differences between insurance enrollment, guarantee letters, deposits, and salvage security, and keep a record. | Shipper, sales representative, internal management department |
Case Example: Delay in Confirming Unlimited Guarantee
Suppose a container ship carrying import cargo runs aground, and the shipping line issues a General Average Declaration. The general average adjuster then requests submission of the General Average Bond, Cargo Value Declaration, and a General Average Guarantee from the insurance company.
Since the shipper had marine cargo insurance, the freight forwarder contacted the insurance company and submitted the B/L, Invoice, Packing List, Insurance Policy, and General Average Declaration. However, the general average adjuster required an unlimited General Average Guarantee, which led to additional confirmation by the insurer.
If this confirmation is delayed, cargo release may be halted, resulting in CFS storage fees, demurrage, detention, redelivery costs, and delivery delays. Therefore, with General Average Guarantees, it is important to confirm as early as possible not only whether there is insurance coverage, but also what type of guarantee is required, where it should be submitted, and whether salvage security is separately needed.
Points of Caution
The General Average Guarantee is a critical document directly linked to cargo release. Delayed submission can stop D/O exchange and cargo removal, leading to additional charges and delivery delays.
Also, the General Average Guarantee guarantees payment of general average contributions and is a separate document from salvage guarantee letters or Salvage Security. In maritime accidents, even if a General Average Guarantee is submitted, cargo release may not proceed if salvage security is unresolved.
Even if marine cargo insurance has been purchased, the insurer does not automatically issue the guarantee. Upon receiving a General Average Declaration, it is essential to promptly contact the insurance company or agent to check necessary documents, the required format of the guarantee, submission destination, and submission deadline.
Summary
A General Average Guarantee is a document where, upon declaration of general average, the insurance company guarantees payment of the general average contribution on behalf of the shipper.
When marine cargo insurance is in place, submission of an insurance company’s guarantee instead of depositing the General Average cash deposit can often facilitate cargo release. However, purchasing insurance and issuing guarantee letters are separate procedures requiring notification to the insurer and submission of necessary documentation.
In practice, it is important to distinguish whether a limited or unlimited guarantee is needed, whether to submit it to the shipping line or the general average adjuster, and whether separate salvage guarantee letters or Salvage Security are required. Freight forwarders, NVOCCs, and shippers must coordinate with the insurance company promptly upon receiving a General Average Declaration to prevent cargo release delays and additional costs.
