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

The Four Ocean Marine Coverages

Ocean marine is the oldest line of insurance. It 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 (negotiated) 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. Hull policies are typically written on an agreed/valued basis — the insured value is fixed at policy inception, and that amount (less deductible) is paid for a total loss, avoiding post-loss valuation disputes.

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 extends coverage 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.

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 — coverage for 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 — extraordinary action of wind and water (storms, sinking, stranding)
• Fire
• Jettison — deliberate throwing overboard to save the venture
• Barratry — wrongful acts of the master or crew
• Assailing thieves — robbery by force from outside the vessel

Critical distinction: "Perils OF the sea" means extraordinary action of the elements — storms, sinking, collision with ice. "Perils ON the sea" means ordinary action of wind and waves, wear, leakage, and vermin — generally excluded.

Average Clauses — General vs. Particular

In marine insurance, "average" means loss, and the distinction is heavily tested.

Worked Example — General Average Contribution

A ship and cargo are imperiled in a storm. The crew jettisons $200,000 of cargo to save the voyage. The total value saved (ship + remaining cargo + freight) is $4,000,000. A cargo owner whose surviving goods are worth $800,000 must contribute:

• Contribution rate = $200,000 ÷ $4,000,000 = 5%
• That owner's contribution = 5% × $800,000 = $40,000

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

The Free of Particular Average (FPA) clause limits recovery of partial losses unless caused by specified perils (such as stranding, sinking, burning, or collision), protecting insurers from small, routine partial damage claims.

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 not covered elsewhere
• Pollution-related claims and wreck removal

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

Jones Act vs. LHWCA

The Jones Act is a frequently tested federal statute: it allows an injured seaman to sue the employer for negligence. Workers' compensation does not apply to seamen, so the Jones Act remedy is covered through P&I.

The Longshore and Harbor Workers' Compensation Act (LHWCA) is a true workers compensation program for dock and harbor workers who are not seamen. Do not confuse the two — a longshoreman injured on the dock is an LHWCA claim; a deckhand injured at sea is a Jones Act claim.

Other Important Ocean Marine Clauses

• Sue and Labor Clause — requires the insured to take reasonable steps to mitigate loss after a peril; the insurer reimburses necessary expenses.
• General Average Clause — formalizes proportional contribution among ship, cargo, and freight interests.
• Both-to-Blame Collision Clause — addresses allocation when two vessels collide and both are at fault.

Because ocean marine is largely unregulated, policies are broad and negotiated, unlike the standardized ISO inland marine forms. Underwriters rely on Lloyd's market practice, Institute Clauses, and long admiralty tradition.

Exam Scenarios

Scenario A: Two vessels collide. The insured ship suffers hull damage and damages the other vessel. Hull pays own-ship damage; Running Down Clause pays liability for damage to the other vessel.

Scenario B: A deckhand is injured through employer negligence at sea. Jones Act claim covered by P&I — not workers compensation.

Scenario C: Cargo is jettisoned in a storm to save the ship. General average — all saved interests contribute proportionally.

Scenario D: A single crate of electronics is water-damaged without a general-average sacrifice. Particular average — loss borne by that cargo interest alone, subject to FPA terms.

National exam focus: Know the four coverages, RDC scope, general vs. particular average with contribution math, perils of vs. on the sea, and the Jones Act / LHWCA split for maritime workers.