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

The Four Ocean Marine Coverages

Ocean marine is the oldest branch of insurance and remains largely non-filed and manuscript - terms are negotiated for each vessel, voyage, or fleet. Policies are written by agreed value and are typically valued policies (the stated amount is paid in total loss). Four coverages make up a complete ocean marine program, and the exam expects you to match each to what it insures:

• Hull insurance - physical damage to the vessel itself (and often its machinery/equipment). Frequently includes a Running Down Clause (RDC)/Collision Liability paying the insured's liability for striking another ship.
• Cargo insurance - the goods/property being shipped; can be a single-voyage policy or an open cargo policy that automatically covers all shipments.
• Freight insurance - the shipping revenue/income the carrier loses if cargo is not delivered (the money earned to transport goods).
• Protection & Indemnity (P&I) - the broad liability coverage: bodily injury to crew/passengers/longshoremen, illness, and liabilities not covered by the hull RDC.

Implied Warranties and Perils

Ocean marine contracts carry implied warranties the insured must satisfy even though they are unwritten - violating them can void coverage:

• Seaworthiness - the vessel is fit for the voyage (sound hull, adequate crew/fuel/equipment).
• No deviation - the vessel will not depart from the agreed/customary route without necessity.
• Legality - the venture is lawful.

The policy lists perils of the sea (storms, sinking, stranding, collision) and often added perils via clauses. The Inchmaree Clause is heavily tested: it extends coverage to losses from latent defects, machinery breakdown, and crew negligence that are not 'perils of the sea' in the literal sense.

Average, General Average, and a Worked Contribution

Marine losses use the term 'average' to mean partial loss:

• Particular average - a partial loss borne by the owner of the damaged property alone.
• General average - a voluntary, deliberate sacrifice (e.g., jettisoning cargo to save the ship) or extraordinary expense for the common safety; the loss is shared proportionally by all parties to the voyage (ship, cargo owners, freight).

Worked example - general average contribution. To save a grounded vessel, the captain jettisons $200,000 of one shipper's cargo. The total saved values are: ship $4,000,000, remaining cargo $3,000,000, freight $1,000,000 - total at risk $8,000,000. Each interest contributes its share of the $200,000 sacrifice. A cargo owner whose goods are worth $1,000,000 contributes 1,000,000 / 8,000,000 = 12.5% x $200,000 = $25,000. The shipper whose cargo was sacrificed is reimbursed by these contributions.

Clauses and Exam Traps

Frequently tested clauses and traps:

• Free of Particular Average (FPA) - excludes partial cargo losses below a threshold; covers total losses and general average. With Average (WA) - covers partial losses above a stated percentage.
• Sue and Labor Clause - requires/permits the insured to take reasonable steps to minimize a loss; the insurer reimburses those expenses in addition to the loss payment.
• Coinsurance is generally not used the way it is in fire/inland forms - ocean marine relies on agreed/valued amounts.
• Do not confuse freight (shipping revenue) with cargo (the goods) - a classic distractor.
• P&I is liability, not vessel damage; hull RDC covers only collision liability to another vessel, leaving P&I to cover bodily injury and other liabilities.

Open Cargo Policies and Real-World Application

Most commercial shippers buy an open cargo policy rather than insuring each shipment separately. The open policy automatically covers all shipments meeting agreed conditions, with the insured reporting values periodically; this is efficient for businesses that ship continuously. Coverage attaches when goods leave the point of origin and continues during ordinary transit, often on a warehouse-to-warehouse basis until delivery, subject to time limits after the vessel arrives.

Know how the pieces fit together on a single voyage:

• The shipowner insures the vessel under hull, with the Running Down/Collision clause covering liability for striking another ship.
• The carrier may insure lost freight (the revenue earned only on delivery).
• The cargo owner insures the goods under a cargo policy, choosing FPA or With Average terms.
• P&I stands behind the operation for bodily injury and broad liabilities the hull policy excludes.

Because ocean marine is so heavily negotiated and uses valued (agreed amount) policies, the total-loss settlement is the agreed value with no ACV depreciation argument - a sharp contrast to property forms that pay actual cash value. This valued-policy nature, combined with the implied warranties and the average/general-average rules, is the heart of the ocean marine questions on the licensing exam.

The Four Ocean Marine Coverages

Ocean marine insurance, governed largely by admiralty law, provides four core coverages: Hull (physical damage to the vessel); Cargo (the goods being shipped, often on an open cargo policy that auto-covers all shipments); Freight (the shipowner's lost earnings if cargo is not delivered); and Protection & Indemnity (P&I) (the shipowner's liability for bodily injury, cargo damage, and collision not covered by the running-down clause). These four reappear verbatim on the exam, and P&I is the liability piece candidates most often misidentify.

Implied Warranties, Average, and General Average

Ocean marine policies impose three implied warranties: seaworthiness (the vessel is fit for the voyage), no deviation (the ship follows the customary route), and legality (the venture is lawful). Breach can void coverage.

Average means partial loss. Particular average is a partial loss borne by the one party whose property was damaged.

General average is the ancient rule that when cargo is voluntarily sacrificed to save the whole venture (jettison to refloat a grounded ship), all parties contribute proportionally to the saved value. Worked contribution: if $4,000,000 of total interests are saved and $200,000 of cargo is sacrificed, each interest contributes 5% of its saved value to reimburse the sacrificed owner. The "free of particular average" (FPA) clause limits the insurer's exposure to partial losses below a threshold.