9.2 Ocean Marine Insurance, Aircraft Hull, Watercraft & Difference in Conditions (DIC)
Key Takeaways
- The four major ocean marine coverages are hull (the vessel), cargo (the goods), freight (the carrier's revenue for transporting goods), and protection and indemnity (the shipowner's liability).
- Ocean marine policies carry implied warranties of seaworthiness, no deviation from the intended voyage, and legality of the voyage.
- General average is a voluntary sacrifice or extraordinary expense to save the voyage, shared proportionally by the ship, cargo, and freight interests; particular average is a partial loss borne by the interest that suffers it.
- Aircraft hull coverage insures physical damage to an aircraft and is typically written on an 'all risk' basis with options such as not-in-motion, ground-and-flight, or in-flight coverage.
- A difference in conditions (DIC) policy is an open-perils policy written to fill gaps left by the insured's basic property policy, often adding flood and earthquake.
Ocean Marine: The Oldest Line of Insurance
Ocean marine insurance covers vessels, the cargo they carry, and the associated liabilities on the high seas and in ports. New York's ports, marinas, and commercial shippers generate ocean marine claims, and the Series 17-62 outline expects public adjusters to know the vocabulary.
Major Ocean Marine Coverages
| Coverage | What it insures | Typical claim |
|---|---|---|
| Hull | The vessel itself, including machinery and equipment. Hull policies often include a running down (collision) clause covering the owner's liability for damage to another vessel in a collision. | A tug is holed in heavy weather |
| Cargo | Goods being shipped. Regular shippers use an open cargo policy that automatically covers all shipments, with the shipper reporting them. | Containers of electronics are lost overboard |
| Freight | The carrier's revenue for transporting the goods. It is lost if the goods are not delivered. | Freight charges forfeited when cargo is lost |
| Protection and indemnity (P&I) | The shipowner's liability: injury to crew and passengers, damage to piers and docks, wreck removal, and certain pollution liability | A crew member is injured and a pier is struck |
Implied Warranties
Ocean marine policies contain implied warranties, promises the law reads into the contract even if not written:
- Seaworthiness: the vessel is properly constructed, equipped, crewed, and supplied for the voyage when it begins.
- No deviation: the vessel will follow the customary or agreed route without unjustified deviation.
- Legality: the voyage and its purpose are lawful.
A breach of an implied warranty can defeat coverage, which is why marine claim investigations begin with the vessel's condition, route, and purpose.
Perils
Ocean marine perils include perils of the sea (heavy weather, stranding, sinking, collision), fire, jettison (throwing cargo overboard to save the vessel), barratry (wrongful acts of the master or crew against the owner), pirates and thieves, and other listed perils. Ordinary wear, leakage, and inherent vice are not perils of the sea.
General Average and Particular Average
- General average: when part of the ship or cargo is voluntarily sacrificed, or an extraordinary expense is incurred, to save the whole venture from a common peril, all interests (ship, cargo, and freight) share the loss in proportion to their values. Under the York-Antwerp Rules, the adjusting is done by an average adjuster.
- Example: in a storm, the master jettisons $100,000 of deck cargo to keep the vessel afloat. The ship is worth $2,000,000, the remaining cargo $700,000, and freight $100,000; with the sacrificed cargo, total contributing value is $2,900,000. Each interest contributes its share: the ship pays about 69%, or $68,966, of the sacrifice.
- Particular average: a partial loss that falls only on the interest that suffers it (for example, seawater damage to one shipper's cargo). A policy written free of particular average (FPA) does not pay partial losses except in specified circumstances.
Aircraft Hull
Aircraft hull insurance covers physical damage to the aircraft, usually on an "all risk" (open perils) basis subject to exclusions. Coverage may be written as:
- Not in motion: covers the aircraft only while it is on the ground and not moving under its own power.
- Ground and flight (not in flight): covers the aircraft on the ground, including taxiing, but not while in flight.
- In flight or all risk ground and flight: covers the aircraft in all phases, including in flight.
Aircraft hull policies commonly value the aircraft at an agreed or stated amount. Coverage can be suspended if the pilot does not meet the pilot warranty (licensing and experience) in the policy.
Watercraft
Small boats receive limited coverage under a homeowners policy: a $1,500 special limit on watercraft, including trailers, furnishings, equipment, and outboard motors, and restricted perils (Section 6.1). Owners of larger boats buy boatowners or yacht policies. These cover physical damage to the hull, machinery, and equipment on an open-perils basis, add liability coverage similar to P&I, and include navigation limits and lay-up warranties.
Difference in Conditions (DIC)
A difference in conditions (DIC) policy is an open-perils policy written alongside a named-perils or limited property program to fill gaps. Features:
- Excludes perils already covered by the basic policy (such as fire and extended coverage) so the two don't overlap;
- Commonly provides flood and earthquake coverage, often with high deductibles and sublimits;
- Generally is not subject to coinsurance, and may cover property or locations the basic policy does not.
Adjusting point: on a large commercial loss, the PA should check whether the insured has a DIC policy before accepting a flood or earthquake denial under the primary property policy.
During a storm, the master of a cargo ship orders part of the deck cargo thrown overboard to keep the vessel from capsizing. The ship and remaining cargo arrive safely. How is the jettisoned cargo loss shared?
Which of the following is an implied warranty in an ocean marine policy?
A manufacturer's primary property policy is written on named perils and excludes flood and earthquake. What policy is designed to fill those gaps on an open-perils basis?