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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated July 06, 2023 Fact checked by Fact checked by Skylar ClarineSkylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies.
Free of Particular Average (FPA) is an insurance contract clause that eliminates an insurer’s liability for partial losses. FPA clauses are most commonly found in marine insurance policies.
In shipping parlance, the word “average” is associated with losses, and “general average” refers to a loss associated with cargo or the ship itself. The expense of protecting the ship and its cargo is typically shared between the shipowner, the cargo owner, and other interested parties on a pro rata basis.
Because the interests of the different parties do not always overlap (e.g., the shipowner may care less about the cargo than the cargo owner), maritime transportation expenses are shared so that all parties have an incentive to cooperate. The parties will purchase a marine cargo policy, also known as a voyage policy, to protect themselves from certain perils.
How cargo losses are covered depends on how the policy addresses coverage of the “average,” with broader coverage carrying a higher premium. Free of Particular Average (FPA) clauses in maritime insurance policies specifically address cargo coverage.
FPA use is considered to create one of the more restrictive types of marine cargo insurance because only general losses are guaranteed to be covered for specific perils.
The FPA clause limits coverage against partial losses, with insurers only maintaining liability in certain cases.
In some cases, insurance companies are liable for partial losses. The conditions in which FPA clauses no longer apply vary. There are two types of conditions generally used, American and English.
In American FPA provisions, the insurer’s liability for partial cargo loss is eliminated unless stranding, sinking, fire, or collision caused the loss.
In English FPA provisions, the insurer’s liability for partial cargo loss is eliminated except in the case that a stranding, sinking, fire, or collision event occurred.
The difference is subtle but important. In the American version, the policyholder must prove that stranding, sinking, fire, or collision caused the partial loss, whereas the English version only requires a stranding, sinking, fire, or collision to have occurred at all. It is much harder to claim a partial loss in the American version because the insured must prove one of the events caused the damage in order to retain coverage.
Policies with FPA clauses are considered to have Institute Cargo Clauses (C), simply known as “C” clauses. They differ from policies using “with average,” or “B” clauses, and “all risks,” or “A” clauses.
“With average” policies provide broader coverage. The coverage extends to partial losses if the partial losses reach a certain percentage of the policy’s insured value.
“All risks” policies provide coverage against transportation perils but generally restrict coverage of specific risks, such as those associated with political turmoil.
Because maritime insurance policies with FPA clauses do not typically cover risks associated with wars, strikes, and riots, obtaining such coverage will require the payment of an additional premium.
Free of Particular Average (FPA) is most often used in marine insurance, where it is a contract clause that eliminates an insurer’s liability for partial losses. "Average” is associated with losses, and “general average” refers to a loss associated with cargo or the ship itself.
FPA policies are either American or English. In American FPA provisions, the insurer’s liability for partial cargo loss is eliminated unless stranding, sinking, fire, or collision caused the loss. In English FPA provisions, the insurer’s liability for partial cargo loss is eliminated except in the case that a stranding, sinking, fire, or collision event occurred. It is much harder to claim a partial loss in the American version because the insured must prove one of the events caused the damage in order to retain coverage.
Article SourcesA waterfall concept is a method of intergenerational wealth transfer that utilizes a rollover of a life insurance policy to a child or grandchild.
Guaranteed universal life insurance offers affordable permanent coverage, level premiums, a guaranteed death benefit, and may include a cash value component.
Group term life insurance is life insurance offered as an employee benefit. Often a base amount is covered at no charge, with the option to add more.
Second-to-die insurance is a type of life insurance on two people providing benefits to the beneficiaries only after the last surviving person dies.
Adjustable life insurance allows policyholders the option to change key features like premiums and the death benefit.
Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies.
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