14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)

The Four Principal Ocean Marine Coverages

Ocean marine is the oldest form of insurance, predating fire and life coverage, and it insures vessels, their cargo, and the liabilities of waterborne commerce. The exam tests four principal coverages that make up an ocean marine program:

Quick Answer: Hull = the ship; Cargo = the goods; Freight = the lost shipping income; P&I = the owner's liability.

Freight is the most-misunderstood term: it is not the goods, it is the money the shipowner earns (or loses) for carrying the goods. If a voyage fails and the freight charges go uncollected, freight insurance responds.

Named Perils and "Perils of the Sea"

Ocean marine cargo and hull policies are named-peril contracts covering perils of the sea — heavy weather, stranding, sinking, collision — plus extraneous perils such as fire, jettison, piracy, and barratry (fraudulent or criminal acts by the master or crew against the owner). Ordinary wear, inherent vice, and delay are excluded.

Inherent vice is a frequent trap: it is a quality within the property itself that causes its own deterioration — fruit that rots, steel that rusts in normal humidity, or chemicals that decompose. Because the loss flows from the nature of the goods rather than an external sea peril, it is excluded even on broad cargo forms. Delay losses (a missed market, spoilage from a slow voyage) are likewise excluded unless caused by an insured peril.

Implied Warranties — Unique to Ocean Marine

Unlike most P&C lines, ocean marine policies carry implied warranties that need not be written to be binding. Breach can void coverage:

• Seaworthiness — the vessel is fit for the voyage, properly crewed and equipped.
• No deviation — the vessel will not depart from the agreed or customary route without necessity.
• Legality — the venture is a lawful one.

General Average vs. Particular Average

These admiralty doctrines are heavily tested:

General average requires three elements: (1) a real peril to the whole venture, (2) a voluntary, deliberate sacrifice (e.g., jettisoning cargo or flooding a hold to fight fire), and (3) a successful result that saves the rest. The loss is then apportioned among all saved interests in proportion to their saved values.

Worked Example: General Average Contribution

A ship must jettison $200,000 of one shipper's cargo to survive a storm. The total saved values are: vessel $2,000,000, remaining cargo $1,500,000, and freight $500,000 — a saved total of $4,000,000. Each interest contributes in proportion to its saved value. The shipper whose cargo was jettisoned bears its own share too; for the vessel, the contribution is $2,000,000 / $4,000,000 = 50% of the $200,000 sacrifice = $100,000. Remaining cargo contributes $1,500,000 / $4,000,000 = 37.5% = $75,000, and freight contributes $500,000 / $4,000,000 = 12.5% = $25,000.

Cargo Partial-Loss Clauses: FPA vs. WA

Cargo policies define how partial losses are handled:

• Free of Particular Average (FPA) — the insurer pays total losses and general-average contributions, but not ordinary partial (particular-average) losses unless caused by a named accident such as stranding, sinking, burning, or collision.
• With Average (WA) — covers partial losses as well, often subject to a percentage franchise (e.g., losses of 3% or more are paid in full; smaller losses are not).

A franchise differs from a deductible: once the loss reaches the franchise percentage, the insurer pays the loss in full (the franchise is not subtracted), whereas a deductible is always subtracted from every loss. Modern cargo policies increasingly replace average clauses with all-risk (open-peril) terms under the Institute Cargo Clauses, but the FPA/WA distinction remains squarely on the licensing exam.

Common Exam Traps

• Freight = income, not goods. Freight insurance protects the carrier's shipping revenue.
• P&I is liability, not property. It covers third-party injury/damage, including crew injuries and collision liability.
• General average is shared; particular average is not. Shared sacrifice vs. solo accidental loss.
• Implied warranties bind without being written — breach of seaworthiness, deviation, or legality can void coverage.
• FPA excludes ordinary partial losses; WA includes them (often subject to a franchise).

General vs. Particular Average

Particular average is a partial loss borne by the one party whose property was damaged. General average is a partial loss voluntarily and reasonably incurred for the common safety (jettisoning cargo to save the ship), shared proportionally by all parties — ship, cargo, and freight interests. The "everyone contributes to a sacrifice made for the common good" idea is the most-tested ocean-marine concept.

Implied Warranties Unique to Ocean Marine

Ocean marine policies carry implied warranties the insured must satisfy or coverage fails: seaworthiness (the vessel is fit for the voyage), no deviation (the ship follows the customary route), and legality (the venture is lawful). Breach of an implied warranty can void coverage even without a written condition — a feature peculiar to ocean marine that the exam contrasts with land-based property forms.