14.3 Inland Marine and Nationwide Marine Definition

Origins and the Nationwide Marine Definition

Inland marine insurance is an outgrowth of ocean marine. As cargo left the dock and continued inland by rail and truck, marine underwriters extended coverage to property on land that was in transit or otherwise movable. To prevent inland-marine writers from competing on property that belonged in fire (property) lines, regulators adopted the Nationwide Marine Definition, a model promulgated through the NAIC and last substantively revised in 1976.

The Definition lists the classes of risk eligible for inland marine: (1) imports and exports, (2) domestic shipments, (3) instrumentalities of transportation and communication (bridges, tunnels, pipelines, transmission lines, radio/TV towers), (4) personal property floaters, and (5) commercial property floaters. If a risk does not fit a listed class, it should be written as property/fire coverage instead - a frequent exam trap is assigning a fixed building to inland marine.

Filed vs. non-filed classes

The Definition divides inland marine into controlled (filed) and uncontrolled (non-filed) classes:

• Filed/controlled classes have standardized rates and forms filed with the state (for example, ISO commercial inland marine forms). Examples: accounts receivable, valuable papers and records, signs, physicians and surgeons equipment, EDP/electronic data processing.
• Non-filed/uncontrolled classes are not subject to filed rates and may be manuscript-rated and broadly tailored. Examples: jewelers block, furriers, contractors equipment, motor truck cargo, and many commercial floaters.

Because non-filed classes allow custom underwriting, inland marine is prized for broad, open-peril, often agreed-value coverage on hard-to-value or highly mobile property. The general structure of an inland marine policy combines the Commercial Inland Marine Conditions (CM 00 01), one or more coverage forms, and the Common Policy Conditions.

Common inland marine forms and floaters

A floater covers property that floats - it moves with the insured or is portable - and typically follows the property wherever it goes. Important forms:

Valuation varies: high-value or unique items (fine art, jewelry) often use agreed value, while equipment may use actual cash value (ACV) or replacement cost. Inland marine commonly insures on an open-peril basis with few exclusions, and many forms have no coinsurance or use agreed-value to suspend it.

Worked numeric: ACV on a contractors equipment floater

A contractor's loader has a replacement cost of $80,000, an expected life of 10 years, and is 4 years old. It is destroyed; the floater pays actual cash value with a $2,500 deductible. ACV = replacement cost minus depreciation.

The ACV is $48,000; after the $2,500 deductible the floater pays $45,500. Had the form used agreed value, the parties' stated value would control instead of this depreciation math.

Transit, bailee exposures, and inland marine traps

The transit side of inland marine deserves attention because it tests both the shipper's and the carrier's perspective. A Transportation/Annual Transit Policy covers an owner's goods while being shipped. A Motor Truck Cargo - Carriers Form covers the trucking company's legal liability for cargo it hauls, responding only where the carrier is legally responsible. A Motor Truck Cargo - Owners Form covers an owner's goods on the owner's own trucks. Confusing carrier liability with direct property coverage is a frequent trap.

Bailee coverage is another inland marine staple. A bailee (dry cleaner, jeweler doing repairs, warehouse) holds customers' property and can buy a Bailees Customers form to pay for damage to those goods regardless of the bailee's legal liability - a goodwill coverage. Compare this with warehouse legal liability, which pays only when the warehouse is legally at fault.

Valuation and limits worth memorizing:

• Valuable Papers and Records pays the cost to reconstruct or research documents, not the intangible value of the information.
• Accounts Receivable pays sums the insured cannot collect because records were destroyed, plus collection expense and interest on loans to offset impaired collections.
• EDP/electronic forms are open-peril and frequently add coverage for power surge and mechanical breakdown that property forms exclude.

The overarching inland marine trap: marine forms are broad and flexible, but they only attach to eligible classes under the Nationwide Marine Definition. A stationary building, finished stock sitting in the insured's own store, or autos licensed for road use generally belong in property or auto lines, not inland marine.

One more distinction examiners like: inland marine floaters follow property wherever it travels within the policy territory, whereas a Commercial Property form generally insures property only at the described premises. That portability is the practical reason a contractor insures equipment on a floater rather than a building form, and why a traveling exhibit, mobile medical unit, or fine-art collection on loan is an inland marine - not a property-line - exposure. Coverage territory on most commercial inland marine forms is the United States, its territories and possessions, and Canada.