Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

The Four Ocean Marine Coverages

Ocean marine is the oldest branch of insurance and the parent of all property-casualty coverage. It insures waterborne commerce and is built around four principal coverages:

Quick Answer: Hull = the boat; Cargo = the goods; Freight = the money the owner earns hauling the goods; P&I = the owner's liability to others.

Freight trips up candidates: it does not mean the cargo. It is the revenue the carrier loses if cargo is destroyed before delivery and the carrier is not paid. P&I is the liability section — covering injured crew/passengers, dock damage, and similar third-party exposures that hull coverage does not.

Because ocean marine is one of the least-regulated lines (largely exempt from state rate/form filing), terms are heavily negotiated and policies are usually valued (agreed-value) rather than ACV.

Average Clauses: General vs Particular

"Average" in marine insurance means loss, not a mathematical mean. Two doctrines dominate the exam.

General Average

When a deliberate, voluntary sacrifice is made for the common safety of the venture — say jettisoning some cargo to refloat a grounded ship — all parties who benefited share the loss proportionally. The cargo owner whose goods were thrown overboard does not bear it alone; the shipowner and other cargo owners contribute based on their saved values.

Worked example: A ship and its cargo are valued as follows — vessel $6,000,000, Cargo A $2,000,000, Cargo B $2,000,000 (total $10,000,000). To save the vessel, $500,000 of Cargo A is jettisoned. The general-average loss is shared in proportion to each interest's value:

• Vessel share: 6/10 × $500,000 = $300,000
• Cargo A share: 2/10 × $500,000 = $100,000
• Cargo B share: 2/10 × $500,000 = $100,000

Cargo A's owner ultimately bears only $100,000 of its own $500,000 sacrifice; the others contribute the remaining $400,000.

Particular Average

A partial loss that is NOT a voluntary sacrifice for common safety — e.g., seawater damages one shipper's crates in a storm. The loss falls on the owner of that property alone (and its insurer). No one else contributes.

Implied Warranties and the Perils of the Sea

Ocean marine policies impose three implied warranties the insured must satisfy or coverage fails: seaworthiness (the vessel is fit for the voyage), no deviation (the vessel will not depart from the agreed route without necessity), and legality (the venture is lawful). Coverage responds to perils of the sea (storms, sinking, stranding, collision) and enumerated perils, and frequently includes the Inchmaree clause for losses from latent defects, boiler bursting, or crew negligence that traditional sea-peril language would not reach.

Because ocean marine predates modern regulation, it is largely unregulated as to rate and form and often written in the surplus-lines market.

General Average, Sue and Labor, and Coverage Forms

The four coverages are hull (the vessel), cargo, freight (the shipowner's earnings), and protection and indemnity (P&I) (the owner's liability to crew and third parties, the marine answer to liability insurance). General average is a foundational doctrine: when cargo or vessel is voluntarily sacrificed to save the whole venture (jettisoning cargo in a storm), all parties contribute proportionally to the loss; contrast particular average, a partial loss borne by the owner of the damaged property alone.

The sue-and-labor clause reimburses the insured for reasonable expenses to minimize or prevent a loss, and FPA (free of particular average) and WA (with average) terms set how partial cargo losses are paid.

Sue and Labor, FPA/WA, and Implied Warranties

Sue and Labor Clause

This clause requires the insured to take reasonable steps to minimize or avert a loss (e.g., salvaging wet cargo, hiring tugs) and obligates the insurer to reimburse those expenses — even if the efforts ultimately fail and even in addition to the policy limit. It is the marine ancestor of the modern duty to mitigate.

Paying Partial Cargo Losses: FPA vs WA

• Free of Particular Average (FPA) — the insurer pays partial losses only if caused by a major peril (stranding, sinking, burning, collision); routine partial losses are excluded.
• With Average (WA) — broader; the insurer pays partial losses, often subject to a franchise (a percentage threshold; once met, the whole partial loss is paid).

Franchise example: A WA policy with a 3% franchise on a $200,000 cargo value pays nothing until damage reaches $6,000 (3%). At $6,500 of damage, the full $6,500 is paid — a franchise, unlike a deductible, is not subtracted once breached.

Implied Warranties (Unique to Ocean Marine)

Three warranties are implied by law even if unwritten; breach can void coverage:

1. Seaworthiness — the vessel is fit for the voyage.
2. No deviation — the vessel follows the planned route without unjustified detour.
3. Legality — the venture is lawful.

Trap: Candidates confuse a franchise (threshold; pays in full once exceeded, nothing subtracted) with a deductible (always subtracted). Ocean marine traditionally uses franchises.

Valuation and the Place of Ocean Marine

Because ocean marine is valued (agreed value), the policy states the insured amount in advance, and in a total loss the insurer pays that agreed figure without the ACV depreciation fight common in property claims. Cargo policies are frequently written on an open cargo (reporting) basis for shippers with continuous flows: shipments attach automatically as they leave, and the insured reports values periodically. Note the line boundary the exam loves — ocean marine ends and inland marine begins roughly where the waterborne voyage ends and the overland leg starts, which is exactly why the historic "inland" extension was created. P&I, finally, fills the liability gap hull coverage leaves: hull insures damage to the insured's own vessel, while P&I answers for injury to crew and passengers, illness, wrongful death, and damage the vessel causes to docks or other property — a distinction worth memorizing because questions routinely pair a liability fact pattern with hull as a distractor answer.