14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)
Key Takeaways
- Ocean marine is one of the oldest lines and includes four principal coverages: hull, cargo, freight, and protection & indemnity (P&I).
- Hull insurance covers the vessel itself; cargo covers the goods; freight covers loss of shipping revenue; P&I is the liability coverage.
- Ocean marine relies on warranties (express and implied) such as seaworthiness, legality, and no deviation, which are conditions of coverage.
- Losses are classified as particular average (partial loss borne by one interest) or general average (sacrifice shared by all interests).
- Perils of the sea, jettison, barratry, and fire are insured perils; ordinary wear, inherent vice, and delay are excluded.
The Four Ocean Marine Coverages
Ocean marine insures property and liability exposures arising from waterborne commerce. There are four principal coverages, and naming what each protects is a near-guaranteed exam question:
- Hull — physical damage to the vessel itself, its machinery, and equipment. Often includes a running-down (collision) clause for liability when the insured ship strikes another vessel.
- Cargo — physical loss or damage to the goods being shipped. May be written for a single voyage or as an open cargo policy automatically covering all shipments.
- Freight — the shipping revenue (freight charges) the carrier would lose if cargo is not delivered. Freight is the income at risk, not the goods.
- Protection & Indemnity (P&I) — the liability coverage of ocean marine: bodily injury to crew/passengers, damage to piers and cargo, pollution, and other third-party exposures not covered by the hull collision clause.
Implied Warranties
Ocean marine contracts are governed by warranties — statements or conditions that must be true for coverage to apply. Unlike most P&C lines, ocean marine recognizes implied warranties that exist even if not written into the policy:
- Seaworthiness — the vessel must be reasonably fit for the voyage (sound hull, adequate crew, proper equipment).
- No deviation — the vessel must follow the customary or agreed route without unjustified departure or delay.
- Legality — the venture must be a lawful one; insuring an illegal voyage voids coverage.
There are also express warranties written into the policy (e.g., trading limits, lay-up periods). Breach of a material warranty can suspend or void coverage, which is a stricter standard than the representations doctrine in ordinary property insurance — expect a question contrasting warranty (must be literally true) with representation (must be substantially true).
Particular Average vs. General Average
"Average" in marine terms means partial loss, and the distinction between the two types is one of the most-tested ocean marine concepts:
| Concept | Meaning | Who Bears the Cost |
|---|---|---|
| Particular Average | Partial loss accidentally suffered by one interest | Borne solely by that one interest (and its insurer) |
| General Average | Voluntary, intentional sacrifice or expense to save the whole venture | Shared proportionally by ALL interests (ship, cargo, freight) |
General average has three classic requirements: the loss must be voluntary/intentional, reasonable and necessary, and for the common safety of the venture. The textbook example: cargo is jettisoned (thrown overboard) to lighten a grounded ship so it can float free. Because the sacrifice saved everyone, all interests contribute to reimburse the owner whose cargo was tossed.
Free of Particular Average (FPA) clauses limit the insurer's obligation to pay partial losses below a stated threshold, while With Average (WA) terms broaden it.
During a storm, the captain orders 200 containers jettisoned to lighten a grounded vessel, saving the ship and remaining cargo. Under ocean marine principles, the loss of those 200 containers is treated as:
Insured Perils and Exclusions
Ocean marine policies insure perils of the sea — fortuitous, accidental events of the water such as heavy weather, stranding, sinking, and collision. Other named perils include fire, jettison, and barratry (fraudulent or unlawful acts of the master or crew against the owner). Many policies add an Inchmaree clause to cover latent machinery defects and crew negligence.
Excluded are losses that are not fortuitous:
- Ordinary wear and tear and gradual deterioration.
- Inherent vice — a quality of the goods that causes self-destruction (e.g., fruit that rots, chemicals that react).
- Delay and loss of market.
- War and strikes (often added back by separate endorsement).
Exam trap: perils of the sea are accidental events; perils on the sea (like onboard fire) are not automatically the same thing. And barratry is specifically wrongdoing by the master or crew, not by the owner.
A shipment of fresh bananas spoils during an otherwise uneventful voyage because the fruit ripened and rotted naturally. The ocean cargo insurer denies the claim. The most likely reason is:
Coverage Clauses and Settlement Terms
Ocean marine cargo is often arranged under an open cargo policy: a continuous contract that automatically covers every qualifying shipment, with the insured reporting values periodically. This avoids buying a new policy per voyage and is standard for importers and exporters.
Three settlement terms appear on the exam:
| Term | Effect on Partial (Average) Losses |
|---|---|
| Free of Particular Average (FPA) | Insurer pays no partial loss unless caused by a named major peril (stranding, sinking, fire) |
| With Average (WA) | Insurer pays partial losses once they exceed a stated franchise percentage |
| All Risks | Broadest; covers fortuitous physical loss subject to standard marine exclusions |
Coinsurance / valuation: ocean cargo is usually written on a valued policy basis, stating an agreed insured value (commonly invoice cost + freight + insurance + a markup, often 110%). A $100,000 invoice insured at 110% pays $110,000 on a covered total loss, reflecting the trader's lost profit and expenses.
General Average Contribution: A Numeric Illustration
When a general average sacrifice occurs, every saved interest contributes in proportion to its saved value. Suppose after a jettison the saved values are: ship $6,000,000, remaining cargo $3,000,000, and freight $1,000,000 — a total saved venture of $10,000,000. The sacrificed cargo owner lost $500,000.
Each interest contributes its share of the $500,000:
- Ship: 6/10 x $500,000 = $300,000
- Cargo: 3/10 x $500,000 = $150,000
- Freight: 1/10 x $500,000 = $50,000
The sacrificed owner is made whole through these contributions, and each party's ocean marine insurer typically pays its insured's general average assessment. This is why ocean marine remains a specialty line — it codifies centuries-old maritime law that no standard property form replicates.