14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

The four ocean marine coverages

Ocean marine is the oldest line of insurance and covers ocean (and connected inland-water) transportation exposures. The exam tests four standard coverages:

1. Hull — physical damage to the vessel itself, including machinery and equipment. Hull forms also contain a collision (running-down) clause covering the owner's liability for damage the insured vessel causes to another vessel.
2. Cargo — physical loss/damage to the goods being transported; can be written per voyage or on an open (reporting) basis.
3. Freight — the shipping revenue/charges the carrier loses if cargo is not delivered (freight is "earned" only on delivery in many contracts).
4. Protection & Indemnity (P&I) — the vessel owner's liability for bodily injury, crew illness/injury, and damage to property (docks, piers, other cargo) not covered by the hull collision clause.

Warranties — express and implied

Ocean marine relies on warranties more strictly than other lines. A warranty is a promise that, if breached, can void coverage — even when the breach did not cause the loss.

Implied warranties (automatic, not written):

• Seaworthiness — the vessel is fit for the voyage (sound hull, adequate crew, proper equipment)
• No deviation — the vessel will not stray from the agreed/customary route without necessity
• Legality — the venture is lawful

Express warranties are written into the policy (e.g., a trading-limits warranty restricting navigation to certain waters).

Trap: Breach of an implied warranty such as seaworthiness can defeat a claim even if the actual loss arose from an unrelated peril — strict enforcement is unique to marine.

Perils of the seas

Ocean marine cargo and hull forms cover perils of the seas — fortuitous accidents peculiar to the sea, such as heavy weather, stranding, sinking, collision, and jettison. Note the distinction:

• Perils OF the sea = extraordinary forces of the sea (storms, waves, stranding)
• Perils ON the sea = events that merely happen at sea but are not unique to it (e.g., fire, theft) — these must be added by clauses

Broad cargo forms add coverage through clauses such as "All Risks," the Inchmaree clause (latent defects, machinery breakdown, crew negligence), and Free of Particular Average (FPA) or With Average (WA) terms governing partial losses.

FPA vs. WA worked point: Under Free of Particular Average (FPA), the insurer pays total losses and general-average contributions but generally not partial (particular average) losses unless the vessel stranded, sank, burned, or collided. Under With Average (WA), partial losses are covered once they exceed a stated percentage (a franchise, e.g., 3%). So if seawater damages 2% of a cargo value, an FPA policy pays nothing, a WA-3% policy pays nothing (below franchise), but a WA-3% policy pays in full once damage exceeds 3%. These clause distinctions are favorite exam traps.

General average vs. particular average

This is the most heavily tested ocean marine concept.

• Particular average — a partial loss borne only by the owner of the property that was lost or damaged. Example: seawater ruins one shipper's crate; only that shipper's interest absorbs the loss.
• General average — a voluntary, intentional, reasonable sacrifice made for the common safety of the entire venture (vessel + all cargo). The loss is shared proportionally by ALL interests saved. Example: cargo is jettisoned to refloat a stranded ship; every saved interest contributes.

Trap: General average requires the sacrifice to be deliberate and for common safety; an accidental partial loss to one party is particular average, not general.

Worked example — general average contribution

A ship runs aground. To refloat, the crew jettisons $100,000 of one shipper's cargo. After the sacrifice, the saved values are:

Under general average, the $100,000 sacrifice is shared in proportion to each interest's value at risk. Each saved interest contributes about $100,000 / $1,100,000 = 9.09% of its value. The vessel owner contributes about $63,600, remaining cargo about $27,300, and the sacrificing shipper effectively bears its own share too. The exam point: a deliberate sacrifice for common safety is spread across all saved interests, unlike particular average where one owner bears the whole loss.

The Four Ocean Marine Coverages

Ocean marine is the oldest line of insurance and uses four traditional coverages the exam expects you to name:

P&I functions as the ocean-marine liability coverage, filling gaps the hull policy's limited Running Down Clause (collision liability) leaves. Ocean marine is largely unregulated as to rates and forms because it is written for sophisticated commercial buyers.

Marine Perils, Averages, and Warranties

Ocean marine introduces unique terminology:

• Perils of the sea — heavy weather, stranding, sinking, collision; distinct from perils on the sea (fire, jettison, piracy).
• General average — when cargo or equipment is voluntarily sacrificed to save the whole venture (e.g., jettisoning cargo in a storm), all parties share the loss proportionally.
• Particular average — a partial loss borne only by the owner of the lost/damaged property.
• Implied warranties — seaworthiness of the vessel, legality of the venture, and no deviation from the planned route; breach can void coverage.

Worked example: a captain jettisons $100,000 of one shipper's cargo to refloat a grounded vessel, saving a $5M ship and $3M of other cargo. Under general average, the sacrificed shipper is reimbursed proportionally by all interests benefiting from the salvage — the loss is shared, not borne alone. Trap: general average spreads the sacrifice; particular average does not.