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

The Four Ocean Marine Coverages

Ocean marine is the oldest line of insurance and covers vessels, their cargo, and related maritime exposures on the high seas, inland waterways, and while goods are waterborne. Unlike most U.S. property lines, ocean marine is largely unregulated as to form and rate, so coverage follows long-established admiralty custom and manuscript wordings.

Quick Answer: Ocean marine has four standard coverages - Hull, Cargo, Freight, and Protection & Indemnity (P&I) - covering the ship, the goods, lost transport revenue, and the owner's liability respectively.

Hull and the Running-Down Clause

Hull coverage insures the vessel and its machinery against perils of the sea. A defining feature is the Running Down Clause (RDC), also called the Collision Clause, which adds liability coverage for damage the insured vessel causes to ANOTHER vessel in a collision.

Trap: The basic hull policy covers damage to the OWN vessel; the Running Down Clause is what extends it to the insured's liability for damage to the OTHER vessel. Bodily injury and most non-collision liabilities are NOT in the RDC - they fall under P&I.

Hull policies are typically written on an agreed/valued basis - the insured value is fixed at policy issue, and that amount (less deductible) is paid for a total loss, avoiding post-loss valuation disputes.

Cargo, Freight, and the Perils Clause

Cargo insurance covers the shipped goods and is commonly written:

• Open cargo policy / reporting form - a continuous policy for ongoing shippers, with shipments reported and rated as they occur.
• Trip / voyage basis - a single shipment.

Freight coverage protects the revenue a carrier expects to earn for delivering cargo; if the voyage fails and the freight charge is lost, freight insurance responds. The ocean marine Perils Clause lists insured perils such as perils of the seas, fire, jettison, barratry (wrongful acts of the master/crew), and assailing thieves.

Note: "perils OF the sea" means extraordinary action of wind and water (storms, sinking, stranding) - NOT ordinary wear, leakage, or the mere action of the waves, which are "perils ON the sea" and excluded.

Average Clauses - General vs. Particular

"Average" in marine insurance means loss, and the distinction is heavily tested.

Worked Example - General Average Contribution

A ship and cargo are imperiled; the crew jettisons $100,000 of cargo to save the voyage. The total value saved (ship + remaining cargo + freight) is $2,000,000. A cargo owner whose surviving goods are worth $500,000 must contribute their share of the sacrifice:

• Contribution rate = $100,000 / $2,000,000 = 5%
• That owner's contribution = 5% x $500,000 = $25,000

Every saved interest contributes proportionally to reimburse the party whose property was sacrificed - that is general average.

Protection & Indemnity (P&I) and Maritime Liability

Protection & Indemnity (P&I) is the ocean marine liability coverage - it responds to the vessel owner's legal liability that the hull policy and Running Down Clause do NOT, including:

• Bodily injury to crew, passengers, and longshore workers
• Damage to docks, piers, and fixed objects
• Liability for cargo damage and pollution-related claims

P&I is the modern successor to the older Protection (people/property liability) and Indemnity (cargo liability) clauses, now usually combined.

The Jones Act is a frequently tested federal statute: it allows an injured seaman to sue the employer for negligence - a workers-comp-style remedy does not apply to seamen, so the Jones Act remedy is covered through P&I. Don't confuse it with the Longshore and Harbor Workers' Compensation Act (LHWCA), a true workers comp program for dock/harbor workers who are not seamen.

Ocean Marine Insurance and Its Four Coverages

Ocean marine is the oldest line of insurance and covers ships and cargo on the seas and connecting inland waterways. Candidates must know its four traditional coverages. Hull insures the vessel itself on an agreed-value, open-peril basis. Cargo insures the goods being shipped, often on a per-voyage or open-cargo (reporting) basis. Freight insures the shipping revenue the carrier loses if cargo is not delivered. Protection and Indemnity (P&I) is the ocean marine liability coverage, paying for bodily injury and property damage to third parties, including injury to crew, that hull coverage excludes.

Ocean marine carries doctrine the exam reliably tests. General average requires all parties to a voyage (ship, cargo owners, freight) to share proportionally a sacrifice voluntarily made for the common good — jettisoning some cargo to save the vessel — while particular average is a partial loss borne only by the owner of the damaged property. Standard clauses include Perils of the Sea, the Free of Particular Average (FPA) clause that limits recovery of partial losses, the General Average clause, the Sue and Labor clause requiring the insured to mitigate, and Running Down / collision liability wording.

Because ocean marine is largely unregulated as to rate and form, it is written with broad, negotiated terms unlike the standardized inland marine forms.