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What Is an Average Agreement?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 February 2017
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    2003-2017
    Conjecture Corporation
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An average agreement is a type of insurance that is often utilized for goods that are transported over bodies of water. Commonly associated with marine insurance, this particular type of agreement or provision within the insurance contract itself commits the shipper of the goods to tendering an insurance premium that is equal to a specified percentage of the total value of the shipment. Along with others involved in the process of shipping and delivering the goods, this approach establishes the basis for what is known as general average coverage, which effectively protects the shipper in the event that the shipped goods are lost, stolen or damaged at some point in the transfer.

With an average agreement, the insurance company providing the coverage makes a commitment to honor claims up to a maximum amount if they result from some type of activity that leads to the loss or damage of the goods while en route to the recipient. This includes situations in which a portion of the cargo of a vessel is deliberately sacrificed in order to save the remainder. The same information regarding the value of those goods that is used to determine the premium paid by the shipper will also be used to determine the maximum amount of coverage provided under the terms of the general average clause within the marine insurance agreement.

With an average agreement in place, the losses resulting from damage or theft are kept in check. Even in the event of disaster situations, this approach helps to ensure that eventually the loss is covered by those involved in the process of transporting the goods. For example, should the captain of a delivery vessel carrying 60 containers deem it necessary to jettison 30 of those containers in order to protect the ship and the remaining cargo, all the parties involved in the average agreement would contribute toward covering a portion of the value of that lost cargo, including the owner of the ship as well as the owners of all the cargo in transport.

The use of an average agreement as part of the marine insurance coverage carried on goods shipped over various waterways is relatively common. A number of providers offer this scope of coverage, with ranges on the benefits offered in different plans. As with any type of insurance coverage, comparing pricing and terms with several different insurance providers will likely yield a few who offer benefits and provisions that are in line with the needs of the shipper.

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