Legal Definitions - FPA

FPA stands for Free from Particular Average.

This is an insurance term, most commonly found in marine insurance, that specifies the conditions under which an insurer will pay for losses. When an insurance policy includes an FPA clause, it means the insurer is generally not responsible for covering partial damage or loss to the insured goods or vessel (known as "particular average"). Instead, the policy will only pay out if:

• The insured property is a total loss (completely destroyed or lost).
• The loss occurred as part of a general average sacrifice (a deliberate act to save the entire ship and its cargo from a common peril, where all parties involved share the cost proportionally).

In essence, an FPA clause limits coverage to major, catastrophic losses or losses that were intentionally incurred for the greater good of the entire voyage, rather than covering minor or accidental partial damage.

Here are some examples illustrating how FPA applies:

• Example 1: Partial Damage to a Cargo Shipment

  A company ships a container of high-value textiles from Asia to Europe, insuring the cargo with an FPA clause. During the voyage, the ship encounters rough weather, causing some of the textile bales inside the container to shift and become water-damaged. The ship itself and the majority of the cargo arrive safely, but a portion of the textiles is ruined.

  Explanation: This scenario represents a "particular average" loss because only a part of the cargo was damaged, and it was not a total loss of the entire shipment or a deliberate sacrifice to save the ship. Under the FPA clause, the insurer would not be obligated to compensate the company for the water-damaged textiles.

• Example 2: Minor Damage to a Commercial Vessel

  A fishing boat owner insures their vessel with an FPA policy. While navigating a busy harbor, the boat collides with a buoy, resulting in a significant dent and scrape along the hull. The boat remains operational and can continue fishing, though it requires repairs.

  Explanation: This is a partial loss to the vessel itself, falling under "particular average." Since the damage is not a total loss and was not part of a "general average sacrifice" (a deliberate act to save the entire venture), the FPA clause means the insurance policy would not cover the cost of repairing the dent and scrape.

• Example 3: Loss Due to a General Average Sacrifice

  A large container ship carrying various goods, including a consignment of FPA-insured electronics, experiences an uncontrolled fire in one of its cargo holds. To prevent the fire from spreading to the entire vessel and its remaining cargo, the captain orders the flooding of the affected hold, intentionally sacrificing the electronics and other goods within that specific area.

  Explanation: This deliberate act of sacrificing some cargo to save the entire ship and the rest of its contents is a "general average sacrifice." Even though the electronics themselves might only be a partial loss within the context of the entire ship's cargo, because their loss was part of a general average act, the FPA clause *would allow* the insured party to recover their proportional share of the loss from the insurer.