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

The Four Ocean Marine Coverages

Ocean marine insurance covers vessels, their cargo, and related exposures on the seas and inland waterways. It is the oldest insurance line and remains largely non-admitted/non-filed, governed heavily by maritime law and custom. Four traditional coverages make up an ocean marine program:

• Hull - physical damage to the vessel itself (and its machinery), including collision via the running-down clause (collision clause).
• Cargo - the goods/merchandise being transported, often on an open cargo policy with certificates of insurance issued per shipment.
• Freight - the shipping income (revenue) the vessel owner loses if cargo is not delivered.
• Protection & Indemnity (P&I) - the owner's liability for bodily injury (including crew), illness, and damage to other property/cargo not covered by the hull collision clause.

These four can be written separately or combined. A vessel owner typically buys hull on the ship and P&I for liability; a shipper or freight-forwarder buys cargo coverage on the goods. Freight insurance protects the carrier's earnings - if cargo is lost en route, the freight charge that would have been earned on delivery is also lost, and freight coverage replaces it. Understanding which party has an insurable interest in each coverage (owner in hull/freight/P&I, cargo owner in cargo) is a recurring exam theme, as is recognizing that maritime law and longstanding custom, not state form filings, govern most ocean marine disputes.

Implied Warranties and Perils

Ocean marine uniquely imposes implied warranties that exist even if not written into the policy:

• Seaworthiness - the vessel is fit for the voyage and properly crewed/equipped.
• No deviation - the vessel will not depart from the customary route without necessity.
• Legality - the venture is lawful.

Breach of an implied warranty can void coverage. Covered perils of the sea include weather, sinking, stranding, and collision. Perils on the sea (such as fire, jettison, piracy, and barratry) are also covered. Two key adjustment doctrines:

• General Average - intentional sacrifice (e.g., jettisoning cargo to save the voyage) is shared proportionally by all parties (ship, cargo, freight).
• Particular Average - a partial loss borne only by the owner of the damaged property.

Cargo Loss Clauses

Ocean cargo policies historically used average clauses to allocate partial losses, and Institute Cargo Clauses (A/B/C) in many international placements:

A franchise is a threshold below which no claim is paid but above which the full loss is paid (unlike a deductible, which is always subtracted). Distinguishing the franchise from a deductible is a recurring exam point.

Worked Example: General Average

A vessel carries cargo from three shippers. Total values at risk: Ship $4,000,000, Cargo A $2,000,000, Cargo B $1,000,000, Freight $1,000,000 - total $8,000,000. To avoid sinking in a storm, the captain jettisons $400,000 of Cargo C-type goods (a general-average sacrifice).

Under General Average, all interests contribute proportionally. The contribution rate is:

$400,000 ÷ $8,000,000 = 5% of each interest's value.

• Ship contributes 5% × $4,000,000 = $200,000
• Cargo A: 5% × $2,000,000 = $100,000
• Cargo B: 5% × $1,000,000 = $50,000
• Freight: 5% × $1,000,000 = $50,000

Total contributions = $400,000, reimbursing the sacrificed owner. This proportional sharing - versus a particular average loss borne solely by one owner - is the most tested ocean marine numeric.

The Four Ocean Marine Coverages

Ocean marine is the oldest line and uses its own terminology. Most policies combine four coverages:

Ocean marine is largely unregulated as to rate/form because it is a sophisticated, international market, giving the parties wide freedom to negotiate terms.

Average Clauses and Implied Warranties

Ocean marine introduces concepts tested nowhere else. General average is a deliberate, voluntary sacrifice (jettisoning cargo to save the ship) shared proportionally by all parties whose property was saved; particular average is a partial loss borne by the owner of the damaged property alone. Three implied warranties attach automatically: seaworthiness of the vessel, no deviation from the planned route, and legality of the venture.

A worked point: if cargo is thrown overboard to lighten a grounded ship and refloat it, that is a general-average act, and every cargo owner and the shipowner contribute to reimburse the sacrificed cargo's owner in proportion to the value saved. Breach of an implied warranty (an unseaworthy vessel) can void coverage.

Perils of the Sea and Coverage Scope

Ocean marine cargo and hull policies cover perils of the sea — heavy weather, stranding, sinking, collision — and often perils on the sea such as fire, jettison, piracy, and barratry (wrongful acts by the master/crew). Coverage can be written all-risk for cargo or on named perils. The Inchmaree clause extends hull coverage to losses from latent defects in machinery and crew negligence that ordinary 'perils of the sea' wording would exclude.

Knowing that ocean marine blends physical-damage perils with the P&I liability coverage — and that it is a lightly regulated, internationally negotiated market — rounds out the line for the exam.