5.5 Ocean Marine Insurance: Hull, Cargo, Freight and Protection and Indemnity
Key Takeaways
- Ocean marine comprises four coverages: hull insurance on the vessel, cargo insurance on the goods, freight insurance on the shipping revenue, and protection and indemnity for the vessel owner's legal liability.
- Perils of the sea are the extraordinary hazards of navigation such as heavy weather, stranding, sinking, collision and jettison, not the ordinary wear that wind and water inflict on a vessel over time.
- Marine contracts carry implied warranties of seaworthiness, no deviation from the intended voyage and legality, and breaching an implied warranty can void coverage even without an express policy provision.
- General average is a voluntary sacrifice or extraordinary expense incurred to save the entire venture, shared proportionally by all interests; particular average is an accidental partial loss borne by the owner of the property damaged.
- Protection and indemnity coverage fills the liability gap left by the running down clause, which pays only collision liability to another vessel and its cargo.
Quick Answer: Ocean marine has four coverages: Hull (the vessel), Cargo (the goods), Freight (the shipping revenue at risk), and Protection and Indemnity (P&I) (the owner's legal liability). It insures against perils of the sea — the extraordinary hazards of navigation, not ordinary wear. Marine contracts imply warranties of seaworthiness, no deviation and legality. A general average sacrifice made to save the whole venture is shared proportionally by every interest; a particular average partial loss falls on the owner of the damaged property alone.
Florida registers roughly a million vessels and moves an enormous volume of waterborne cargo through Miami, Jacksonville, Port Everglades and Tampa. The 6-20 blueprint includes ocean marine for a reason.
The Four Ocean Marine Coverages
1. Hull Insurance
Covers physical damage to the vessel itself — hull, machinery, tackle, furniture and equipment. Key features:
- Usually written on an agreed value basis: the parties fix the vessel's value at inception, and a total loss pays that figure without depreciation argument.
- Includes a collision or "running down" clause (RDC), which extends the hull policy to the vessel owner's legal liability for damage to another vessel and that vessel's cargo caused by collision. The RDC does not cover injury to people, damage to piers and docks, cargo on the insured vessel, or pollution.
- Sue and labor clause obligates the insured to take reasonable steps to prevent or minimize a loss and obligates the insurer to pay those expenses, often in addition to the policy limit.
2. Cargo Insurance
Covers the goods being shipped. Written three ways:
- Voyage policy — a single shipment from point to point.
- Open cargo policy — a continuous contract covering all shipments of a described kind, with the insured reporting values periodically. This is the working form for an importer or exporter.
- Trip transit — a single land-and-sea movement.
Cargo terms are commonly aligned to the Institute Cargo Clauses (A, B or C) or, in older American usage, to "all risks," "with average" (WA) or "free of particular average" (FPA) conditions. FPA is the narrowest: it excludes partial losses to the cargo unless caused by specified events such as stranding, sinking, burning or collision.
3. Freight Insurance
Protects the shipping revenue. If cargo is lost and the carrier is not paid its freight charge because delivery never occurred, the freight interest is a real economic loss. Freight may be insured by the shipowner or, where freight is prepaid and non-refundable, by the cargo owner.
4. Protection and Indemnity (P&I)
The liability coverage of the marine world, filling everything the running down clause leaves out:
- Bodily injury and death of crew, passengers and third parties
- Damage to piers, docks, bridges, buoys and other fixed and floating objects
- Damage to cargo carried on the insured vessel
- Wreck removal, quarantine expense, fines and, where written, pollution liability
Crew injury sits at the intersection of P&I and federal law: a seaman injured in service of the vessel may claim maintenance and cure and may sue under the Jones Act, while a shoreside worker may fall under the Longshore and Harbor Workers' Compensation Act rather than Florida Chapter 440.
Perils of the Sea
Perils of the sea are the extraordinary hazards of navigation, and the phrase is narrower than candidates expect:
| Covered as a peril of the sea | Not a peril of the sea |
|---|---|
| Heavy weather and unusually high seas | Ordinary action of wind and waves |
| Stranding and grounding | Gradual deterioration, rust and corrosion |
| Sinking and foundering | Wear and tear of machinery |
| Collision with another vessel or object | Inherent vice of the cargo |
| Jettison — deliberately throwing cargo overboard to save the venture | Ordinary leakage, breakage or shrinkage |
| Barratry — willful misconduct of the master or crew against the owner | Delay and loss of market |
Policies routinely add perils on the sea by extension: fire, lightning, pirates, rovers, assailing thieves, and takings at sea. Wars, strikes, riots and civil commotion are excluded by the free of capture and seizure (F.C. & S.) and strikes, riots and civil commotions (S.R. & C.C.) clauses, and must be bought back through war risk and strikes coverage.
The Implied Warranties
Marine insurance is unusual because certain warranties are implied by law into every contract, whether or not the policy prints them. Breach can void the coverage.
- Seaworthiness. The vessel must be reasonably fit for the intended voyage — structurally sound, properly equipped, adequately fueled and provisioned, and competently crewed. In a voyage policy the warranty attaches at the start of the voyage; in a time policy the standard is generally that the owner must not knowingly send an unseaworthy vessel to sea.
- No deviation. The vessel must not depart from the customary or agreed route without necessity. Justifiable deviations — to avoid a storm, to save life at sea, or because of a condition beyond the owner's control — do not breach the warranty.
- Legality. The venture must be lawful. A vessel used for smuggling has no marine coverage.
Average: General Versus Particular
"Average" in marine usage means partial loss, and the distinction between the two kinds decides who pays.
Particular average is an accidental partial loss to a specific interest, borne by the owner of that interest and its insurer alone. Seawater ruins one shipper's pallets; that shipper's cargo policy responds.
General average is a voluntary, intentional sacrifice or extraordinary expenditure made in a time of peril for the common safety of the entire venture. Three conditions must be met: the peril must be real and imminent, the sacrifice must be voluntary and intentional, and the effort must succeed in saving something. When it applies, every saved interest — hull, cargo, freight — contributes proportionally to the value it has at risk.
Worked General Average Example
A vessel worth $4,000,000 carries cargo worth $6,000,000. To free the ship from a sandbar, the master jettisons $500,000 of one shipper's containers. The venture is saved.
Total values at risk after the sacrifice: $4,000,000 hull + $6,000,000 cargo = $10,000,000. Hull's share: 40% × $500,000 = $200,000. Cargo interests' share: 60% × $500,000 = $300,000.
The shipper whose containers went overboard is made whole out of the general average contributions of everyone the sacrifice saved, including itself in proportion to its own saved value. A general average bond or guarantee is typically required before cargo is released, and an average adjuster computes the contributions.
Other Clauses an Adjuster Will Encounter
| Clause | Effect |
|---|---|
| Inchmaree (negligence) clause | Extends hull coverage to loss from latent defects in hull or machinery and from the negligence of master, crew, charterers or repairers |
| Free of particular average (FPA) | Excludes partial cargo losses unless caused by specified major events |
| With average (WA) | Covers partial losses, often only if they exceed a stated franchise percentage |
| Franchise deductible | Once the loss reaches the franchise percentage, the loss is paid in full rather than reduced by a deductible |
| Abandonment and constructive total loss | Where recovery or repair would cost more than the vessel's insured value, the insured may abandon to the insurer and claim a total loss |
| Both to blame collision | Allocates liability where two vessels are each partly at fault |
| Warehouse to warehouse | Extends cargo coverage from the shipper's warehouse to the consignee's warehouse, including the inland legs |
During a storm, the master of a cargo vessel deliberately jettisons 200 containers belonging to one shipper in order to lighten the ship and save the vessel and the rest of the cargo. The vessel and the remaining cargo reach port safely. How is the jettisoned cargo treated?
A vessel owner's hull policy contains a standard running down clause. The insured vessel collides with a pier, destroying the pier and injuring a dockworker. What does the running down clause cover?