14.4 Ocean Marine Coverages
Key Takeaways
- Ocean marine is the oldest insurance line, developed at Lloyd's, and is largely unregulated as to form, so exams focus on its four coverages and key clauses rather than ISO form numbers.
- The four coverages are Hull (the vessel, with a running-down/collision clause), Cargo (the goods), Freight (lost shipping revenue), and Protection and Indemnity (broad owner liability).
- Three implied warranties - seaworthiness, no deviation, and legality - must be honored or coverage is void.
- General average shares a voluntary sacrifice for common safety proportionally among all saved interests; particular average falls only on the interest that suffered the partial loss.
- Compute general-average contributions by dividing the sacrifice by total saved value to get a rate, then applying that rate to each interest's value.
The Oldest Line of Insurance
Ocean marine insurance is the original form of insurance, predating fire coverage by centuries and developing at Lloyd's of London. It insures vessels and their cargoes against the perils of the sea and is largely unregulated as to form - ocean marine policies are negotiated manuscript contracts rather than ISO standard forms, which is why exam questions emphasize the four coverage divisions and key clauses rather than form numbers.
The four principal ocean marine coverages are: Hull, Cargo, Freight, and Protection and Indemnity (P&I). Each insures a different financial interest in a marine venture.
The Four Coverages
- Hull - physical damage to the vessel itself (the ship, its machinery, equipment). Hull policies usually include a Running Down Clause (RDC), also called the Collision Clause, covering the insured's liability for damaging another vessel in a collision.
- Cargo - physical loss or damage to the goods being transported. May be written on a single-voyage basis or as an open cargo policy that automatically covers all shipments.
- Freight - the shipping revenue or charges the carrier loses if cargo is not delivered (the income at risk during the voyage).
- Protection and Indemnity (P&I) - broad liability coverage for the vessel owner: bodily injury to crew/passengers, illness, pollution, and damage to piers/docks - the liabilities not picked up by the hull policy's collision clause.
Marine Perils, Implied Warranties, and Average Clauses
Ocean marine covers perils of the sea (storms, sinking, stranding, collision) and named extraneous perils (fire, jettison, barratry, piracy). It is built on three implied warranties the insured must honor or coverage voids:
- Seaworthiness - the vessel is fit for the voyage
- No deviation - the ship follows the customary route without unjustified departure
- Legality - the venture is lawful
Loss settlement uses average clauses:
| Term | Meaning |
|---|---|
| Particular Average | A partial loss borne by one interest |
| General Average | A loss voluntarily incurred for common safety, shared by all interests |
| Free of Particular Average (FPA) | Partial losses not covered unless caused by a listed peril |
| With Average (WA) | Partial losses covered above a stated percentage |
General Average and a Worked Numeric
General average is the most tested marine concept. When property is voluntarily sacrificed (e.g., cargo jettisoned to refloat a grounded ship) for the common safety of the venture, the loss is shared proportionally by every saved interest - ship, cargo owners, and freight.
Worked example. A vessel grounds and the crew jettisons $200,000 of one shipper's cargo to refloat and save the venture. The total value of all saved interests is: ship $4,000,000 + remaining cargo $5,000,000 + freight $1,000,000 = $10,000,000. The general-average sacrifice is $200,000. Each interest contributes its proportional share:
- Contribution rate = $200,000 / $10,000,000 = 2%
- Ship pays 2% of $4,000,000 = $80,000
- Cargo owners pay 2% of $5,000,000 = $100,000
- Freight pays 2% of $1,000,000 = $20,000
The shipper whose cargo was sacrificed is reimbursed by these contributions, so no single interest bears the whole loss. Particular average, by contrast, falls entirely on the one interest that suffered the partial loss.
Valuation, Coinsurance, and Excluded War/Strike Risk
Ocean marine cargo is usually written on a valued (agreed value) basis - the policy states the cargo's worth, often the invoice cost plus freight plus 10% for anticipated profit, and that figure is paid in a total loss without depreciation arguments. This contrasts with the open-peril, ACV-leaning approach common in inland marine.
Unlike most property forms, ocean marine policies frequently carry a coinsurance requirement of 100% - the insured must value the cargo to full value or face a proportional penalty on partial losses. Hull policies often include a deductible (the franchise or excess) that absorbs minor scrapes.
Two perils are excluded from the base policy and bought back by endorsement:
- War risk - written under a separate war risk policy because rates swing with geopolitics
- Strikes, Riots, and Civil Commotions (SR&CC) - added by endorsement when needed
Finally, the Inchmaree Clause is a hull extension covering losses from latent defects in machinery, boiler bursts, and crew negligence - perils that are not strictly perils of the sea but routinely damage vessels. Knowing these named clauses (Running Down, Inchmaree, SR&CC, war risk) is enough for most exam questions on ocean marine breadth.
To refloat a grounded ship, $100,000 of cargo is voluntarily jettisoned. Saved values are: ship $3,000,000, remaining cargo $1,500,000, freight $500,000. Under general average, how much does the ship owner contribute?
Which ocean marine coverage protects the vessel owner against liability for crew injury, pollution, and damage to docks - exposures the hull policy's collision clause does not cover?
The Four Coverages, Implied Warranties, and General Average
Ocean marine is the oldest insurance line and rests on four coverages the exam expects you to name: Hull (the vessel), Cargo (the goods), Freight (the income the shipowner earns carrying cargo), and Protection & Indemnity (P&I) — the marine liability coverage for bodily injury, illness, and damage to other property, including crew (Jones Act) exposures.
Three implied warranties are automatically part of every ocean marine contract: seaworthiness (the vessel is fit for the voyage), no deviation (the ship will not stray from the agreed route), and legality (the venture is lawful). Breach can void coverage.
General average – worked numeric: Under the ancient rule of general average, when cargo or equipment is voluntarily sacrificed to save the whole venture (jettisoning containers in a storm), all parties share the loss in proportion to the value saved. If the saved property totals $10,000,000 and $500,000 of cargo is jettisoned, each interest contributes 5% of its saved value. A cargo owner whose goods (worth $2,000,000) survived contributes 5% x $2,000,000 = $100,000 toward the sacrifice. Particular average, by contrast, is a partial loss borne by the owner alone. War and strikes are excluded and bought back by separate war risk cover.