14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)
Key Takeaways
- Ocean marine is largely non-standardized and manuscripted; the four core coverages are hull, cargo, freight, and Protection & Indemnity (P&I).
- Freight insures the vessel owner's earned shipping revenue, not the goods; P&I is the marine liability coverage.
- Implied warranties of seaworthiness, no deviation, and legality can void coverage if breached.
- Key clauses include FPA, With Average, Sue and Labor, Inchmaree, and the perils clause; cargo is typically written on a valued (agreed value) basis.
- General average is a shared partial loss contributed proportionally by all interests; particular average falls solely on the interest that suffered it.
The Four Ocean Marine Coverages
Ocean marine is the oldest line of insurance and remains largely non-standardized and manuscripted, governed by maritime law and historic clauses rather than ISO forms. The national exam expects you to identify the four traditional ocean marine coverages:
- Hull - physical damage to the vessel itself, including machinery and equipment. Often written with a collision (running down) clause that adds liability for damage the insured vessel does to another vessel.
- Cargo - the goods being transported by water (and connected land legs). Written on a voyage or open (reporting) basis, frequently with all-risk/open-perils wording.
- Freight - the revenue/shipping charges the vessel owner earns for carrying cargo; if the voyage fails and freight is not earned, this coverage protects that lost income.
- Protection and Indemnity (P&I) - the liability coverage of ocean marine: bodily injury to crew/passengers/longshoremen, illness, and property damage liability not covered by the hull running-down clause.
A frequent trap: candidates confuse freight (the carrier's earned revenue) with the cargo itself. Freight insures the income from carriage, not the goods.
Implied Warranties and Key Clauses
Ocean marine policies impose strict implied warranties that, if breached, can void coverage:
- Seaworthiness - the vessel is fit for the voyage (sound hull, proper equipment, competent crew).
- No deviation - the vessel will not depart from the agreed/customary route without necessity.
- Legality - the venture is lawful.
Clauses you must recognize:
| Clause | Effect |
|---|---|
| Perils clause | Lists the traditional named marine perils (perils of the sea, fire, jettison, barratry, pirates) |
| Free of Particular Average (FPA) | Excludes partial losses; pays only total losses |
| With Average (WA) | Covers partial losses above a stated percentage/franchise |
| Sue and Labor | Insured must take reasonable steps to minimize loss; insurer reimburses those costs |
| Inchmaree | Extends to losses from latent defects, machinery breakdown, crew negligence |
| General Average | Sacrifice/expense for common safety is shared proportionally by all interests |
| Particular Average | A partial loss borne solely by the owner of the lost interest |
General average vs. particular average is heavily tested: general average is a shared partial loss (everyone contributes); particular average is borne by the single interest that suffered it.
Valuation and a Worked General Average Contribution
Ocean marine cargo is usually written on a valued (agreed value) policy, so the stated value is paid for a total loss without an ACV debate. The valued-policy approach distinguishes ocean marine from most inland property forms.
A ship in peril jettisons one shipper's cargo to save the voyage, a deliberate sacrifice for the common safety - a classic general average act. Total values at risk after the sacrifice: ship $4,000,000 + freight $1,000,000 + cargo $5,000,000 = $10,000,000. The sacrificed cargo was worth $500,000.
- General average contribution rate = sacrifice / total values = $500,000 / $10,000,000 = 5%.
- Each interest contributes 5% of its value: ship pays $200,000; freight pays $50,000; remaining cargo interests pay $250,000.
- The shipper whose cargo was sacrificed is reimbursed $500,000 through these contributions, so the loss is shared proportionally.
Contrast this with particular average: if that cargo had simply been water-damaged by an accidental wave (not a deliberate sacrifice for common safety), the loss would fall only on that cargo owner and their insurer.
Total Loss Concepts and Modern Marine Forms
Ocean marine recognizes distinct total loss concepts the exam likes to separate:
- Actual total loss: the property is destroyed, gone, or so damaged it ceases to be the thing insured (a sunk vessel).
- Constructive total loss (CTL): the cost to recover/repair exceeds the insured value, so the insured may abandon the property to the insurer and claim a total loss. Abandonment requires notice; the insurer then takes title and any salvage.
Salvage and subrogation flow from these: after paying a total loss, the insurer takes the salvage and any recovery rights against third parties. The Sue and Labor clause works alongside this, reimbursing the insured for reasonable expenses to protect property and minimize loss even if those efforts ultimately fail.
Where Marine Meets Other Lines
Modern marine writings include yacht and boat policies (a hull, P&I, and medical-payments package for pleasure craft) and marina operators' legal liability. Be ready to separate P&I (third-party bodily injury and property-damage liability) from the collision/running-down clause under hull (which covers liability the insured vessel causes to another vessel by collision). A single allision or collision question may require splitting the loss between the hull running-down clause and P&I.
Exam Strategy
When a fact pattern mentions a deliberate sacrifice for common safety, answer general average. When it mentions partial damage to one interest from an accident, answer particular average. When it mentions earned shipping charges at risk, answer freight. When it mentions injury to a longshoreman or crew member, answer P&I. These four reflexes resolve most ocean marine questions quickly.
An ocean cargo owner asks which ocean marine coverage protects the shipping revenue the vessel owner expects to earn for transporting goods. Which is it?
During a storm, the crew deliberately jettisons part of the cargo to keep the vessel afloat and save the remaining interests. How is this loss treated?
Implied Warranties and the Free-of-Capture Clause
Ocean marine policies carry three implied warranties the insured must satisfy or coverage fails: seaworthiness (the vessel is fit for the voyage), no deviation (the voyage follows the customary route without unjustified departure), and legality (the venture is lawful).
The Free of Capture and Seizure (FC&S) clause excludes war and seizure perils, which are then bought back through separate war risk coverage. General average spreads a voluntary sacrifice (jettison) proportionally among all interests saved, while particular average is a partial loss borne by the owner of the damaged property alone — a classic exam distinction.