16.6 Protecting Property in Transit: Inland and Ocean Marine

Protecting Property in Transit: Inland and Ocean Marine

Quick Answer: Marine insurance protects property that moves or is hard to insure in one fixed place. Inland marine covers goods in transit over land, mobile equipment, bailee exposures, and fixed instrumentalities of transportation and communication, such as bridges and towers. Ocean marine covers ships (hull), goods at sea (cargo), shipowners' liability (protection and indemnity), and freight. Carrier liability limits and doctrines such as general average explain why owners of goods insure them directly.

Why Marine Coverage Is Needed

Commercial property forms cover property mostly at described premises, with small off-premises and transit extensions. Businesses that ship products, use equipment at job sites, or hold customers' goods need coverage built for mobility. Marine forms also tend to be flexible, often written on an open-perils basis with valuation suited to the property.

What Inland Marine Covers

The NAIC's Nationwide Marine Definition describes the property that may be written as marine insurance:

1. Imports and exports at various stages of transit
2. Domestic shipments over land
3. Instrumentalities of transportation and communication: bridges, tunnels, piers, pipelines, power lines, radio and TV towers
4. Personal and commercial property floaters: mobile, specialized, or scheduled property, such as contractors' equipment, signs, and fine arts

Filed vs. Nonfiled Inland Marine Classes

Filed classes involve large numbers of similar risks, so standardized forms and rates make sense. Nonfiled classes are diverse enough that insurers write them with their own forms and rates, which gives underwriters flexibility.

Key Inland Marine Coverages

• Transit / motor truck cargo: Shippers' coverage for their own goods in transit. Carriers' legal liability coverage protects trucking companies for goods they haul.
• Contractors' equipment: Mobile equipment such as bulldozers, cranes, and tools, wherever located.
• Installation floater: Materials and equipment being installed by contractors, until the owner accepts the work.
• Bailee coverage: Customers' property in the insured's care, such as dry cleaners, repair shops, and warehouses. It may be written on a legal liability basis or to pay regardless of fault.
• Electronic data processing (EDP): Computer equipment, media, and data, often with broader perils than property forms.

Carrier Liability: Why Shippers Insure Their Own Goods

Common carriers are strictly liable for goods in their custody, subject to a few exceptions, such as acts of God, public enemies, the shipper's own fault, and inherent vice. Their liability is usually limited by tariffs, bills of lading, or statute:

• Interstate motor and rail carriers operate under the Carmack Amendment, which allows carriers to limit liability through agreed values in the bill of lading.
• Ocean carriers shipping to or from U.S. ports are covered by the Carriage of Goods by Sea Act (COGSA). It limits carrier liability to $500 per package (or customary freight unit) unless a higher value is declared.

Because recovery from carriers is limited and slow, shippers buy transit or cargo coverage, and the insurer then subrogates against the carrier.

Ocean Marine Coverage

General Average and Particular Average

• General average: When part of the cargo or ship is voluntarily sacrificed to save the voyage, such as throwing cargo overboard in a storm, all parties to the venture share the loss in proportion to their values.
• Particular average: A partial loss that falls only on the owner of the damaged property.
• Sue and labor: Reasonable expenses the insured incurs to prevent or reduce a loss, which the insurer reimburses.

Warehouse-to-Warehouse Clause

Cargo coverage commonly attaches when goods leave the shipper's warehouse and continues through ocean and connecting land transit until delivery to the consignee's warehouse. This closes gaps between ocean and inland legs.

Worked Scenario: A Machinery Exporter

A manufacturer ships a $600,000 machine from Ohio to Germany by truck and ocean vessel, then installs it at the buyer's plant.

1. Open ocean cargo policy with a warehouse-to-warehouse clause covers the Ohio truck leg, the ocean voyage, and delivery.
2. If the ship's crew jettisons containers in a storm, the manufacturer may be assessed a general average contribution even if its machine arrives undamaged. The cargo policy pays that contribution.
3. Because COGSA limits the ocean carrier to $500 per package without a declared value, relying on the carrier would leave most of the value unprotected.
4. An installation floater covers the machine during installation until the buyer accepts it.