14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)
Key Takeaways
- Ocean marine is the oldest line, rooted in Lloyd's of London (1680s), and is governed by admiralty law and doctrines such as average and sue-and-labor.
- Its four core coverages are Hull (the vessel), Cargo (the goods), Freight (the shipping revenue), and Protection & Indemnity (maritime liability).
- The running-down clause inside hull coverage pays the insured's liability for collision with another vessel; P&I handles crew, pollution, and fixed-object liability.
- Perils of the sea (storm, stranding, collision, jettison) are covered; inherent vice, ordinary wear, delay, and war are excluded, with war bought back separately.
- General average shares a voluntary sacrifice for common safety among all voyage interests; particular average is borne by the owner alone; the Sue and Labor clause pays loss-mitigation costs in addition to the loss.
The Oldest Insurance Line
Ocean marine insurance predates fire and life insurance by centuries. The modern market traces to Edward Lloyd's coffeehouse in London in the 1680s, where shipowners and merchants found underwriters willing to subscribe to portions of a voyage - the origin of today's Lloyd's of London.
Quick Answer: Ocean marine insures vessels, cargo, shipping revenue, and maritime liability for over-water commerce, organized into four coverages: hull, cargo, freight, and protection & indemnity.
Unlike most P&C lines, ocean marine is governed heavily by admiralty (maritime) law and long-settled doctrines such as average and sue-and-labor. The exam rewards knowing these doctrines, not just the coverage names. Ocean marine forms are largely non-filed (manuscript) - underwriters tailor each placement.
The Four Core Coverages
| Coverage | What it insures | Key clause/detail |
|---|---|---|
| Hull | The vessel, machinery, equipment | Running-down (collision liability) clause |
| Cargo | Goods shipped by sea | Often "warehouse to warehouse" |
| Freight | Shipping revenue lost if cargo never arrives | Protects the carrier's/shipper's income |
| Protection & Indemnity (P&I) | Maritime liability | Crew injury (Jones Act), pollution, dock damage |
The running-down clause (RDC) within hull coverage pays the insured vessel owner's liability for collision with another vessel - a liability item carried inside a property coverage, which surprises candidates. Broader liabilities (crew, passengers, pollution, fixed objects like piers) fall to P&I.
Freight is the transportation revenue at stake: if cargo is lost and the shipper need not pay freight, the carrier loses that income - freight coverage replaces it. Candidates often confuse "freight" (the revenue) with "cargo" (the goods).
An insured tanker collides with another vessel, damaging that other ship. Which ocean marine coverage responds to the insured owner's liability for damaging the OTHER vessel?
Perils of the Sea and Exclusions
"Perils of the sea" means fortuitous, accidental dangers - not every peril encountered on the sea.
| Covered (perils of the sea) | Excluded |
|---|---|
| Storm, heavy weather, sinking | Ordinary wear and tear |
| Stranding, grounding | Inherent vice (cargo that self-spoils) |
| Collision, jettison | Delay (even if a peril caused it) |
| Fire, lightning, piracy | War, strikes, riots (separate coverage) |
Inherent vice - fruit that rots, steel that naturally rusts in a humid hold - is a classic excluded trap: the cargo's own nature, not a sea peril, caused the loss. War is excluded from the standard policy and bought back through a separate war-risk policy. Delay is excluded even when a covered peril caused the delay.
Average, Sue and Labor, and Warranties
Average in marine law means partial loss.
- General average - when property is voluntarily and reasonably sacrificed for the common safety (jettisoning cargo to refloat a grounded ship), all parties to the voyage (ship, cargo owners, freight) share the loss proportionally to the value saved.
- Particular average - a partial loss accidentally suffered and borne by the owner of the lost property alone.
Worked general-average split: A ship jettisons $100,000 of one merchant's cargo to save the voyage. Total saved values are vessel $3,000,000, cargo $1,500,000, freight $500,000 = $5,000,000. The jettisoned merchant first contributes its own share. Each interest contributes 100,000 / 5,000,000 = 2% of its saved value: vessel $60,000, cargo interests $30,000, freight $10,000 - together restoring the $100,000 sacrifice.
The Sue and Labor clause obligates the insured to take reasonable steps to minimize a loss and pays those expenses in addition to the loss amount. Marine warranties - implied seaworthiness of the vessel and legality of the venture - are strictly enforced; breach can void coverage.
A few more doctrines round out exam coverage. Free of particular average (FPA) and with average (WA) clauses set when partial cargo losses are paid: FPA pays partial losses only if caused by a major peril (stranding, sinking, burning, collision), while WA pays partial losses above a stated percentage franchise. The memorandum clause lists franchise percentages for spoilage-prone cargo. Coinsurance is generally absent or written at 100% on agreed-value hull and cargo placements.
Finally, the abandonment and constructive total loss rule lets an insured abandon damaged property to the insurer and claim a total loss when repair cost would exceed the insured value - paralleling the auto total-loss concept but governed by maritime custom. Knowing FPA versus WA and constructive total loss separates a strong score from a borderline one.
To refloat a grounded vessel, the crew jettisons one shipper's cargo for the common safety of ship and remaining cargo. How is this loss treated under ocean marine doctrine?