Legal Definitions - free of all average

Free of All Average (FAA) is a term used in maritime insurance. It describes a specific type of insurance policy that provides coverage only for a total loss of the insured cargo or vessel. This means the policy will not pay out for partial damage, spoilage, or any other minor or "average" losses, regardless of their cause. Compensation is only provided if the entire insured item is completely destroyed, lost, or rendered worthless.

• Example 1: High-Value Art Shipment
  Imagine an art gallery shipping a collection of antique sculptures across the ocean, insured "Free of All Average." During the voyage, one of the crates containing a sculpture is dropped, and the artwork inside is severely cracked, though still identifiable and repairable. Because the insurance policy is FAA, the gallery would not be able to claim compensation for the partial damage to that single sculpture. However, if the entire shipping container carrying all the sculptures were to fall overboard and be lost at sea, resulting in a total loss of the entire collection, the FAA policy would then pay out the full insured value. This example illustrates "Free of All Average" because it shows that minor or partial damage, even if significant, is not covered; only the complete loss of the entire insured collection triggers a payout.

• Example 2: Bulk Commodity Shipment
  Consider a large cargo ship carrying a bulk shipment of grain, insured "Free of All Average." While at sea, a small leak develops in one of the holds, causing a portion of the grain to become wet and spoiled. Even though this represents a financial loss for the shipper, the FAA policy would not cover it because it's only a partial loss of the total cargo. If, however, the ship were to sink entirely with all its cargo, leading to the complete loss of the entire grain shipment, the FAA insurance would then compensate the owner for the total value of the lost grain. This demonstrates "Free of All Average" by highlighting that damage or loss to only a part of the bulk cargo does not qualify for coverage; the entire shipment must be lost for the policy to pay out.

• Example 3: Specialized Research Vessel
  A scientific organization owns a specialized research vessel, insured "Free of All Average." During an expedition, the vessel suffers a collision that causes significant structural damage to its hull and disables some of its onboard equipment, requiring expensive repairs. Despite the substantial cost of repairs, the FAA policy would not cover these expenses because the vessel itself is still afloat and capable of being repaired; it is not a total loss. However, if the collision were so severe that the vessel sank and was deemed unrecoverable, representing a complete loss of the ship, the FAA insurance would then provide coverage for its full insured value. This example illustrates "Free of All Average" by showing that even extensive damage requiring costly repairs is not covered if the insured item (the vessel) is not a complete, irrecoverable loss.