5.6 Inland and Ocean Marine: Definitions, Personal Floaters, Commercial Floaters, and Valuable Papers

What "Marine" Means

Ocean marine insurance is the oldest form of insurance, covering ships and their cargoes. Inland marine grew out of it to cover goods moving over land and, later, property that is mobile or connected with transportation and communication. Because marine forms were historically flexible and less regulated, insurers tried to write ordinary fire risks as "marine." The Nationwide Marine Definition, adopted by the NAIC, now describes the risks that may be written as marine or inland marine insurance:

The Illinois mine subsidence law expressly excludes marine and inland marine policies from its definition of "policy," so those policies need not include mine subsidence coverage (215 ILCS 5/802.1(h)).

Ocean Marine Essentials

Average means partial loss:

• Particular average is a partial loss that falls on one interest, such as cargo damaged by seawater.
• General average is a voluntary sacrifice or extraordinary expense made to save the voyage, such as jettisoning cargo in a storm. All interests, including the ship and every cargo owner, share the cost in proportion to their values.
• Free of particular average (FPA) wording limits partial-loss coverage.

Ocean marine policies carry implied warranties: the vessel is seaworthy, there will be no deviation from the intended route, and the voyage is legal. Constructive total loss allows the insured to abandon a vessel or cargo to the underwriter when recovery or repair would cost more than its value, an exception to the ordinary property rule against abandonment.

Personal Inland Marine Floaters

A floater covers property wherever it is located, so the coverage "floats" with the property.

Personal Articles Floater (PAF)

The PAF, or a scheduled personal property endorsement to a homeowners policy, schedules valuable items by class and amount:

• Typical classes: jewelry, furs, cameras, musical instruments, silverware, golfer's equipment, fine arts, postage stamps, and rare and current coins.
• Perils: open perils ("risks of direct physical loss"), worldwide, generally including mysterious disappearance and accidental loss, subject to exclusions such as wear and tear, insects or vermin, inherent vice, war, and nuclear hazard. Fine arts usually exclude breakage of fragile items unless caused by specified perils.
• Deductible: often none.
• Valuation: most classes pay the least of actual cash value, the cost to repair or replace, or the scheduled amount; fine arts are usually written on an agreed value basis.
• Newly acquired property: typically covered automatically for 30 days (90 days for fine arts) up to a percentage of the class limit, if the insured reports it and pays premium.
• Pair or set clause: if one item of a pair or set is lost, the insurer may repair or replace it to restore the set, or pay the difference between the value of the set before and after the loss; it does not have to pay for the whole set.

Why it matters. Homeowners forms limit theft of jewelry to $1,500 and theft of firearms and silverware to $2,500. A floater removes those limits for scheduled items and covers losses, such as a ring falling down a drain, that named-peril personal property forms do not cover.

Personal Property Floater (PPF)

A personal property floater covers all of the insured's unscheduled personal property worldwide on an open-perils basis, with a deductible. It was more common before homeowners policies packaged personal property coverage; it is still used for people who travel or have no residence policy.

Commercial Inland Marine

Filed and nonfiled classes

ISO divides commercial inland marine into:

• Filed classes, written on standardized forms filed with regulators, such as accounts receivable, camera and musical instrument dealers, commercial articles, equipment dealers, film, floor plan, jewelers block, mail, physicians and surgeons equipment, signs, theatrical property, and valuable papers and records; and
• Nonfiled classes, written on insurer-drafted or manuscript forms, such as contractors equipment, bailee's customers, installation, transportation and transit, motor truck cargo, and electronic data processing equipment.

Common commercial floaters

Valuable Papers and Records

Valuable papers and records are inscribed, printed, or written documents, manuscripts, and records, such as abstracts, books, deeds, drawings, films, maps, and mortgages. Money and securities are excluded. Coverage is available as:

• a $2,500 coverage extension in the building and personal property form, to research, replace, or restore lost information (see 5.1); and
• the Valuable Papers and Records Coverage Form, a filed commercial inland marine form with higher limits and open perils.

How claims are measured. For scheduled irreplaceable items, the insurer pays the agreed or scheduled value. For unscheduled items, it pays the cost to research, replace, or restore the lost information, up to the limit, and generally only if it is actually replaced or restored. A public adjuster should document staff time, outside research costs, and reconstruction invoices.

Accounts receivable coverage is a separate filed class. It pays sums the insured cannot collect because records were destroyed, interest on loans needed to replace those funds, collection expenses above normal, and the cost to reconstruct the records.

Applying Inland Marine to Property Claims

When a client's loss involves property away from the premises, high-value items, contractors' tools, or customer goods, check whether an inland marine policy or endorsement applies before accepting a homeowners or commercial property sublimit. Floater coverage is often broader, frequently has no deductible, and may use agreed values that eliminate depreciation disputes.