Legal Definitions - memorandum clause

A memorandum clause is a specific provision found in marine insurance policies. Its primary purpose is to protect insurance companies from having to pay for certain types of losses that are considered either common, minor, or inherent to the nature of the goods being transported by sea.

Specifically, a memorandum clause typically limits the insurer's liability in two main situations:

• Damage to inherently perishable goods: It often excludes coverage for damage or spoilage to items that naturally degrade or spoil quickly (e.g., fresh produce, certain chemicals) unless the damage is severe or caused by a major, unexpected event.
• Minor, partial damages: It sets a threshold, often a percentage of the cargo's value, below which the insurer will not be liable for partial losses. This prevents a multitude of small claims. However, this limitation usually does not apply if the damage is part of a "general average" loss (a shared sacrifice made to save the entire ship and cargo), or if the ship itself runs aground (is "stranded").

Here are some examples to illustrate how a memorandum clause works:

• Example 1: Perishable Goods

  Imagine a shipment of fresh avocados being transported across the ocean. The marine insurance policy includes a memorandum clause that states "avocados free from average unless general, or the ship be stranded." During the voyage, a small percentage of the avocados naturally ripened too quickly and spoiled due to the inherent nature of the fruit and the duration of transit, even though there were no major incidents like a storm or accident.

  How it illustrates the term: In this scenario, the memorandum clause would likely protect the insurer from liability for the spoiled avocados. Since the spoilage was due to the perishable nature of the fruit and not a major insurable event (like the ship stranding or a general average act), the clause ensures the insurer doesn't cover routine degradation of highly perishable goods.

• Example 2: Minor Damage Threshold

  A cargo ship is carrying several containers filled with ceramic tiles. The marine insurance policy contains a memorandum clause stating that the insurer is "free from particular average under 5%." During unloading at the destination port, one container is slightly mishandled, resulting in minor chips and cracks to tiles that amount to 3% of the total value of the tiles in that container.

  How it illustrates the term: Because the damage to the tiles (3%) falls below the 5% threshold specified in the memorandum clause, the insurance company would not be obligated to pay for this particular partial loss. The clause prevents the insurer from being responsible for very small, common damages that might occur during handling or transit.

• Example 3: Exception for Stranding

  Consider a shipment of delicate, high-value electronics. The marine insurance policy has a memorandum clause that generally excludes liability for minor cosmetic damage under 2% of the cargo's value. However, during the voyage, the ship unexpectedly runs aground on a sandbar for several hours. The jolt and subsequent prolonged stoppage cause significant internal damage to some of the electronic components, amounting to 10% of the cargo's value.

  How it illustrates the term: Even though the memorandum clause might typically exclude minor damage, it usually includes exceptions for major events like the ship being "stranded." Because the damage to the electronics was a direct result of the ship running aground, the insurer would likely be liable for the loss, despite the clause's usual limitations on minor damage. The stranding event overrides the standard protection offered by the memorandum clause.