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

The four ocean marine coverages

Ocean marine is the original insurance line, covering vessels and cargo on the high seas and navigable waters. A complete ocean marine program assembles four traditional coverages:

Hull coverage

Hull insurance covers physical loss or damage to the vessel, including its machinery and equipment. Hull policies traditionally include a running-down clause (collision clause) that covers the insured's liability for damage to another vessel caused by collision - but it typically covers only a portion (often three-fourths) of collision liability and excludes injury to people and damage to cargo or fixed objects. Those gaps are filled by P&I.

Cargo and freight

Cargo insurance covers the goods being shipped, written on a single-voyage basis or under an open cargo policy that automatically covers all shipments of a regular shipper. Cargo can be all-risk or named-peril, and the standard perils include the classic marine perils of the seas, fire, jettison, and barratry. Freight insurance protects the shipping revenue (the freight charges) that a carrier or cargo owner stands to lose if cargo is not delivered as agreed.

Protection and Indemnity (P&I)

P&I is the shipowner's broad liability coverage. It responds to obligations the hull policy's collision clause does not cover, including:

• Bodily injury to crew, passengers, and third parties
• Damage to cargo carried
• Damage to docks, piers, and other fixed objects
• The portion of collision liability not paid by the hull running-down clause

Think of P&I as the marine equivalent of general liability for the vessel's operations.

Marine warranties

Ocean marine is unique in its reliance on warranties - promises by the insured that are conditions of coverage. Breach of a warranty can void coverage even if unrelated to the loss.

• Implied warranty of seaworthiness: the vessel is fit for the voyage.
• Implied warranty of no deviation: the vessel will not depart from the agreed/customary route without necessity.
• Express warranties: stated promises such as trading limits or layup periods.

Exam trap: in ocean marine, an immaterial breach can still defeat a claim - far stricter than the materiality standard in ordinary property insurance.

Average: particular vs general

In marine terms, average means a partial loss.

• Particular average: a partial loss accidentally suffered by, and borne entirely by, one interest (e.g., only the cargo owner whose goods were damaged).
• General average: a loss voluntarily and deliberately incurred for the common safety of the venture (e.g., cargo jettisoned to save the ship). The loss is shared proportionally by all interests - ship, cargo, and freight - according to their saved values.

The phrase free of particular average (FPA) means particular-average partial losses are not covered, while general average still is.

Worked example - general average contribution

During a storm the master jettisons one shipper's cargo worth $100,000 to lighten and save the vessel. The total saved values are: ship $3,000,000, remaining cargo $1,000,000. The sacrificed value is shared by all interests in proportion to saved value. Total saved value = $4,000,000. The ship's share = 3,000,000/4,000,000 = 75%, cargo's share = 25%. So the ship interest contributes $75,000 and the remaining cargo interests contribute $25,000 toward the $100,000 general-average sacrifice.

Perils of the sea and named exclusions

Ocean marine policies distinguish perils of the sea (extraordinary action of wind and waves, stranding, sinking, collision) from ordinary wear, leakage, and inherent vice of the goods, which are excluded. Classic insured marine perils also include fire, jettison, barratry (wrongful act of the master or crew), piracy, and theft. War and strikes are typically excluded but can be bought back through separate war risk and strikes, riots, and civil commotions (SRCC) endorsements - a coverage gap producers must flag for international shippers.

Deductibles, franchises, and open policies

Ocean marine historically used a franchise rather than a deductible: a franchise pays the whole loss once damage reaches a stated percentage (e.g., 3%), whereas a deductible always subtracts a fixed amount. Regular shippers use an open cargo policy that automatically covers every shipment as it sails, with the insured reporting values periodically - far more practical than buying a single-voyage policy for each shipment. This continuous, reporting-based structure is a hallmark of commercial ocean cargo programs.

General Average and the Four Coverages in a Loss Scenario

Ocean marine bundles Hull (the vessel), Cargo (the goods), Freight (the shipping revenue at risk), and Protection & Indemnity (P&I) (the vessel owner's liability for bodily injury, illness, and damage to other property). The exam's signature concept is average, meaning a partial loss. Particular average is a partial loss borne by the one party whose property was damaged.

General average is a partial loss voluntarily and reasonably sacrificed for the common safety of the venture — jettisoning some cargo to save the ship — and it is shared proportionally by all parties (ship, cargo, freight) in proportion to the value saved.

So if a captain jettisons $200,000 of one shipper's cargo to refloat a grounded vessel, that shipper does not bear the whole loss; every interest contributes its pro-rata share under the general-average adjustment. Ocean marine also relies on implied warranties — seaworthiness of the vessel, legality of the venture, and no deviation from the planned route — breach of which can void coverage. These warranties and the particular-versus-general-average distinction are the two most-tested ocean-marine points.