14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)

The four ocean marine coverages

Ocean marine insures property and liability exposures of waterborne commerce. Unlike most P&C lines, ocean marine is largely unregulated as to form and rate - it is hand-tailored and heavily influenced by English law and London market wording (e.g., Institute Cargo Clauses). The exam tests the four traditional coverages:

Freight is the most misunderstood: it is not 'cargo' but the income the carrier earns for carrying it; if the voyage fails and freight is not collected, freight insurance responds.

Implied warranties and key clauses

Ocean marine uniquely imposes three implied warranties the insured must satisfy even if unwritten - a heavily tested topic:

1. Seaworthiness - the vessel must be fit for the voyage and properly crewed/equipped.
2. No deviation - the vessel must follow the customary or agreed route without unreasonable departure.
3. Legality - the venture must be lawful.

Breach of an implied warranty can void coverage. Other clauses to know:

• Perils clause: insures 'perils of the seas' - storms, stranding, sinking, collision (not ordinary wear).
• Free of Particular Average (FPA): excludes partial losses below a threshold; only total losses are paid.
• With Average (WA): covers partial losses once a stated percentage franchise is met.
• Sue and Labor clause: requires/reimburses the insured for reasonable efforts to minimize a loss.
• General Average vs. Particular Average (next paragraph).

Average, deductibles, and a worked General Average

In marine law, 'average' means partial loss.

• Particular Average = a partial loss borne entirely by the owner of the lost/damaged property.
• General Average = a partial loss voluntarily and intentionally incurred to save the whole venture (e.g., jettisoning cargo in a storm). The cost is shared proportionally by all parties (hull, cargo owners, freight) in proportion to the value saved.

Worked General Average contribution

A captain jettisons $100,000 of cargo to save the voyage. Total saved values: ship $2,000,000, remaining cargo $1,500,000, freight $500,000 = $4,000,000 total interest. The $100,000 sacrifice is shared in proportion to value:

Every saved interest contributes its proportional share - this proportional sharing is the defining feature of General Average and a classic exam calculation.

Coinsurance, valuation, and how ocean marine differs

Ocean marine cargo policies frequently carry a coinsurance clause set at 100%, requiring the insured to value the shipment to full value or share partial losses proportionally - stricter than the 80% commonly seen in commercial property. Cargo is usually valued on an agreed/valued basis (often invoice cost plus freight plus a markup, e.g., CIF plus 10%), so the parties fix the recoverable amount in advance and avoid disputes at sea.

Key structural differences to lock in for the exam:

• Largely exempt from state form/rate regulation - rates and wordings are negotiated, unlike admitted personal and commercial lines.
• Warranties are strictly enforced - a minor, even immaterial, breach of an express warranty can void the policy, a stricter standard than most other P&C lines.
• Running Down Clause (RDC) / collision liability - hull policies cover collision liability to another vessel, while liability to crew, passengers, pollution, and cargo damage falls to P&I.
• Inchmaree clause - extends hull coverage to certain machinery breakdown and crew negligence losses not within 'perils of the seas.'

Finally, distinguish ocean marine from inland marine on the boundary question: once goods leave the ocean voyage and move purely overland, inland marine (transit floaters) takes over, while the vessel and the sea leg remain ocean marine.

The Four Ocean Marine Coverages

Ocean marine, the oldest insurance line, splits into four coverages the exam expects you to name: Hull (physical damage to the vessel), Cargo (the goods being shipped), Freight (the shipping revenue the carrier loses if cargo is not delivered), and Protection & Indemnity (P&I) — the vessel owner's liability for bodily injury and damage to other property, the marine equivalent of CGL.

Implied Warranties and Average Clauses

Ocean marine uniquely imposes implied warranties the insured must meet or coverage voids: seaworthiness (the vessel is fit for the voyage), no deviation from the agreed route, and legality of the venture. Loss-sharing terms are also tested: General Average spreads a voluntary sacrifice (jettisoning cargo to save the ship) proportionally among all parties with an interest in the voyage; Particular Average is a partial loss borne only by the owner of the damaged property. A Free of Particular Average (FPA) clause limits the insurer's exposure for partial losses below a threshold.