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

The Oldest Line of Insurance

Ocean marine is the original form of insurance, predating fire and life coverage by centuries and rooted in the Lloyd's of London coffeehouse market. It insures vessels, their cargoes, and the legal liabilities of waterborne commerce. Ocean marine is not filed in the same way other lines are; rates and forms follow international custom, and admiralty law and the doctrine of utmost good faith (uberrimae fidei) apply with unusual force - a material non-disclosure by the insured can void the policy even without intent to deceive.

The line is built from four traditional coverages, each of which can be insured separately or packaged:

• Hull - physical damage to the vessel itself.
• Cargo - the goods being transported.
• Freight - the shipping revenue/income earned for carrying cargo.
• Protection & Indemnity (P&I) - the shipowner's legal liability to others.

The Four Coverages in Detail

The running-down clause (RDC), also called the collision clause, extends the hull policy to pay for damage the insured vessel does to another vessel in a collision - a property-damage liability built into a physical-damage form. P&I then picks up the broader liability exposures (injury, pollution, cargo of others) that hull and the RDC do not reach.

Marine Perils, Warranties, and General Average

Ocean marine policies traditionally insure the perils of the sea - heavy weather, sinking, stranding, collision - plus named extensions. Three concepts dominate the exam:

1. Implied warranties - unique to marine. The insured impliedly warrants seaworthiness of the vessel, no deviation from the agreed voyage/route, and legality of the venture. Breach can void coverage.
2. Particular average - a partial loss borne by the owner of the damaged property alone.
3. General average - a partial loss voluntarily and reasonably incurred to save the whole venture (e.g., jettisoning cargo in a storm). The sacrifice is shared proportionally by all parties to the voyage (ship, cargo, freight).

Quick Answer: "General" average = everyone shares the loss; "particular" average = only the owner of the lost property bears it.

Worked Numeric: General Average Contribution

A vessel in a storm jettisons one shipper's $100,000 of cargo to lighten the ship and save the voyage. The total values at risk are: ship $3,000,000, total cargo $1,500,000, and freight $500,000 - a combined $5,000,000 in the venture.

Under general average, the $100,000 sacrifice is shared proportionally to each interest's value:

• Each interest's share = (its value / $5,000,000) x $100,000.
• Ship: ($3,000,000 / $5,000,000) x $100,000 = $60,000.
• All cargo: ($1,500,000 / $5,000,000) x $100,000 = $30,000.
• Freight: ($500,000 / $5,000,000) x $100,000 = $10,000.

The shipper whose cargo was jettisoned recovers contributions from the other interests (and the parties' marine insurers pay their insured's share), so no single party bears the full $100,000 - the essence of general average.

Trap: If the same cargo had been damaged by seawater without a voluntary sacrifice for the common good, that is particular average - borne solely by that cargo's owner and insurer, with no contribution from others.

The Four Ocean Marine Coverages

Ocean marine insurance covers ships, cargo, and associated liabilities and is written on broad, lightly regulated terms. The four traditional coverages the exam expects you to name are:

• Hull - physical damage to the vessel itself.
• Cargo - the goods being shipped (often a valued/agreed-amount basis).
• Freight - the shipping revenue/income the carrier loses if cargo is not delivered.
• Protection and Indemnity (P&I) - the shipowner's liability to others (injury to crew/passengers, damage to docks and other vessels, pollution), functioning as the marine liability coverage.

Implied Warranties and Marine Perils

Ocean marine retains strict implied warranties that do not appear in most modern P&C forms: seaworthiness (the vessel is fit for the voyage), no deviation (the ship will not stray from the planned route), and legality (the venture is lawful). Breach can void coverage. Covered perils of the sea include heavy weather, stranding, sinking, collision, and jettison.

The famous concept of general average requires all parties to a maritime venture (shipowner and cargo owners) to share proportionally in a loss voluntarily incurred to save the whole - if cargo is jettisoned to lighten a grounded ship, every interest contributes to the sacrifice.

Particular Average, Deductibles, and Valuation

Particular average is a partial loss borne by the one party whose property was damaged (contrasted with general average, which is shared). Ocean marine cargo is frequently written on a valued policy basis - an agreed amount paid regardless of actual value at the time of loss, often computed as invoice cost plus freight plus a markup (commonly 10 percent). A franchise or deductible may apply, and free-of-particular-average (FPA) clauses limit recovery on partial losses. Distinguishing general average (shared) from particular average (borne alone) is the classic ocean-marine exam item.