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

The Oldest Line

Ocean marine is the original form of insurance, predating fire and life coverage by centuries. It protects against the perils of the sea — heavy weather, sinking, stranding, collision, and similar maritime risks — for property and liability arising from waterborne commerce.

Most ocean marine is written on manuscript (negotiated) forms rather than standardized ISO wording, reflecting the international and high-value nature of the business.

The Four Core Coverages

Hull functions like physical-damage coverage on the ship. Cargo follows the goods. Freight protects the money the carrier expects to earn — lost if the voyage fails. P&I is the liability section: injury to crew, damage to cargo, pollution, and harm to other vessels and property.

Implied Warranties

Ocean marine contracts contain three implied warranties that the insured must honor or coverage can void:

• Seaworthiness — the vessel is fit for the voyage (sound hull, competent crew, proper equipment).
• No deviation — the ship follows the planned route without unnecessary departure.
• Legality — the venture is lawful (no smuggling or illegal cargo).

Breach of an implied warranty is a frequent exam scenario: an unnecessary route change can suspend coverage during the deviation.

Average: Particular vs. General

In marine terms, average means a partial loss.

• Particular average — a partial loss that falls on one interest alone (e.g., seawater damages only one shipper's cargo). Borne by that party and its insurer.
• General average — a voluntary, deliberate sacrifice or expense to save the whole venture (e.g., jettisoning cargo to refloat a grounded ship). The loss is shared proportionally by all parties to the voyage based on the value saved.

Free of Particular Average (FPA) clauses exclude partial losses below a threshold.

Worked Example — General Average Contribution

During a storm a captain jettisons $100,000 of one shipper's cargo to lighten and save the vessel. Saved values are: vessel $600,000, remaining cargo $300,000, freight $100,000 — total saved $1,000,000.

• Each interest contributes in proportion to value saved.
• Vessel share = 600,000 / 1,000,000 = 60% -> $60,000.
• Cargo share = 300,000 / 1,000,000 = 30% -> $30,000.
• Freight share = 100,000 / 1,000,000 = 10% -> $10,000.

The sacrificed shipper recovers the $100,000 through these contributions, so no single party bears the whole loss.

Covered Perils and Exclusions

Ocean marine insures perils of the sea — those extraordinary actions of wind and water a prudent operator cannot guard against — plus listed perils such as fire, jettison, barratry (fraud by the master or crew), and piracy. It does not cover ordinary wear and tear, inherent vice (a defect in the goods themselves, like fruit that naturally spoils), delay, or losses from the insured's own willful misconduct.

Cargo clauses and the running-down clause

Ocean cargo is often written on standardized international clauses. Free of Particular Average (FPA) excludes partial losses unless the vessel strands, sinks, burns, or collides; With Average (WA) covers partial losses above a stated percentage; and an All Risks cargo clause is the broadest, covering physical loss or damage from any external cause not specifically excluded. On the hull side, the Running Down Clause (RDC), also called the collision clause, extends hull coverage to the insured's liability for damage to another vessel caused by collision - a liability the basic hull policy would otherwise leave to P&I.

Knowing that FPA is narrowest and All Risks broadest, and that the RDC handles collision liability, answers several cargo/hull questions.

P&I and the role of marine liability

Protection and Indemnity (P&I) is the vessel owner's third-party liability coverage and is typically provided through mutual P&I Clubs rather than standard insurers. It responds to crew injury (including maintenance-and-cure and Jones Act exposure), illness or death, damage to docks and fixed objects, cargo liability, wreck removal, and pollution from the vessel. Because the hull policy covers the ship itself and the RDC handles vessel-to-vessel collision, P&I fills the remaining liability exposures - people, cargo, the environment, and fixed property.

This division of labor among hull, cargo, freight, and P&I is the organizing framework the exam tests, alongside the three implied warranties and the particular-vs-general-average distinction.

Exam Tip: Memorize the four coverages (hull, cargo, freight, P&I), the three implied warranties (seaworthiness, no deviation, legality), and that general average is a shared, deliberate sacrifice while particular average falls on one interest.

Many policies once excluded war and strikes, restoring them only by endorsement. Sorting an insured peril of the sea from an excluded inherent-vice or wear loss is a recurring scenario.

Valuation, SR&CC, and Running Down Clause

Key ocean marine clauses include:

• Valued policy / agreed value — hull and cargo are typically written on an agreed-value basis stated at inception, so the figure is fixed at loss time.
• Sue and Labor clause — pays the insured's reasonable costs to minimize or avert a loss.
• SR&CC (Strikes, Riots, and Civil Commotions) — adds those perils by endorsement.
• Running Down Clause (RDC) / collision clause — within hull coverage, pays the insured's liability when its vessel collides with another.

P&I picks up the broader liabilities (crew injury, cargo, pollution) the hull collision clause does not reach.