ADJUSTMENT OF AVERAGE is the ascertaining of the amount of indemnity due to the party insured under a policy of marine insurance after all proper allowances and deductions have been made. It includes the fixing of each underwriter's proportion of that indemnity. For the proportion of the risk which is uninsured, the assured is taken to be his own underwriter. When a ship is lost, or any of those contingencies have arisen against which the insurance is effected, the owner of the ship or of the goods insured, as the case may be, reports the fact to the underwriters. As a matter of practice, all the business connected with such an insurances is conducted through a broker, who would hold the policy. Before proceeding to the adjustment,, in ordinary cases, the underwriters require to be satisfied that the loss has occurred through circumstances against which the insurance was effected. They then examine the correctness of the demand made by the assured. But in complicated cases of partial or average losses, the matter is usually referred to a professional average adjuster to calculate and adjust the percentage rate of losses. In a case of total loss there is little difficulty, but in cases of partial losses, where there has been no abandonment, very careful investigation is necessary. The amount of damage being thus ascertained, the liability of each underwriter is settled, and the policy is said to be adjusted. According to the practice at Lloyds, the policy is endorsed, "Adjusted the loss on this policy at £— per cent.," or to a similar effect. It is then taken to the underwriters who have subscribed it, who initial the endorsement and strike out their subscriptions. The loss is payable four to six weeks afterwards, after which the amount is debited by the broker to the underwriter, the initialling of the endorsement being struck through, and the loss "struck off" or settled in account. This closes the account as between the broker and the underwriter. But as between the assured and the under writer this "striking off" does not discharge the latter's liability under the policy, unless (a) he pays the amount of the loss to the broker in money, or-. (b) the assured assents to the above method of adjustment, or can reasonably be said to have acquiesced therein. By adjustment, however, the under writer who has not paid, is not prevented from defending a claim on the policy on the ground of any misconception of law or fact—even though he was ignorant of such facts when he signed the adjustment. But actual payment of the loss, though made in ignorance of the law, prevents him recovering the money from the assured, unless fraud or legal mistake be proved.
Measure of the policy is a valued one, each underwriter is liable in case of a loss, for such proportion of the loss as the amount of his subscription bears to the value fixed by the policy. If the value is not so fixed, the criterion for proportion is the insurable value of the subject. On the same principle is determined the liability of each underwriter for expenses properly incurred under the sue and labour clause in the policy. As illustra tion: if the loss be £500, and the insurable value of the subject be £1000, and one underwriter has insured it for £100, he is liable to the assured on insurable value subscription the following principle : ; that is, the amount loss liablity of liability would be £50. If the expenses under the sue and labour clause are £50, and the value of the subject is £100, an underwriter for £60 should pay £30. (a) Where there is a total loss of the subject, if the policy be such value is the measure of the indemnity. If there is no value
fixed, the indemnity is the insurable value—subject, however, to the limit of the sum insured, or any express agreement in the policy. (b) In cases of partial loss. Where a wooden ship is damaged only, and has been repaired, the indemnity (subject to express agreement, if any) is the reasonable cost of repairs, less customary deductions; but not exceeding the sum insured in respect of any casualty. These customary deductions are roughly: one-third for new work substituted for old in respect of all repairs of damage sustained by the ship after her first voyage; one-sixth for repairing chain cables; the insured being entitled to charge in full certain expenses, such as fpr removal, appliances, temporary repairing, stores, and for reparation (luring her first voyage. The insured may charge the full expense of painting. In the case of an iron ship, the deduction is roughly one-third from the gross repairs, including labour and materials used therein, the value of the old materials being then deducted. Where the repair of a ship is only partial, the assured may obtain the reasonable cost of such repairs computed as above, and also indemnity for reasonable depreciation from unrepaired damage ; provided the whole amount does not exceed the cost of reparation of the whole damage as above computed. Where there is a partial loss of freight, the measure of indemnity, in the absence of a limit or express agreement, is such proportion of the sum fixed by the policy, or if no sum fixed, of the insurable value of the subject, as the proportion of freight lost by the assured bears to the whole freight at risk.
Where of goods, the measure of indemnity (there being no limit or express agreement) is as follows: (1) where part of the goods insured by a valued policy is totally lost, the indemnity is such proportion of the sum fixed by the policy as the value of the paft, lost bears to the insurable value if the whole, ascertained as in the case of an unvalued policy ; (2) where part of the goods insured by an open policy is totally lost, the indemnity is the insurable value of the part lost, ascertained as in case of total loss. Thus, in the case of goods valued at .V500 and insured for -E200, the insurable value of which is 1'400, and of the part lost is 1950, the under writer pays one-eighth of his subscription, for the loss is one-eighth of the whole; and if goods are worth for insurance 1100, and L'25 of them are lost, the underwriter pays one-fourth of his subscription.
(c) There is as a rule a memorandum contained in a Lloyd's policy which qualifies the measure of Such memorandum usually runs as follows :— Corn, fish, salt, fruit, flour and seed are warranted free from average, unless general or the ship be stranded. Sugar, tobacco, hemp, flax, hides and skins are warranted free from average under five pounds per cent., and all other goods, also the ship and freight, are warranted free from average under three pounds per cent., unless general or the ship be stranded.
Here, "average unless general" means a partial loss other than a genera: average loss, and (sloes not include particular charges. A general average loss, however small, may be recovered from the underwriters; but a particular average loss cannot, unless it exceeds the specified percentage. In that case the whole loss may be recovered from the underwriter. (d) Unless the policy otherwise provides, the underwriter is liable for successive Iona, even though the total amount of such losses exceeds the sum insured, See AVERAGE ; MARINE INSURANCE.