4.8 Ocean Marine Insurance: Hull, Cargo & Protection & Indemnity

4.8 Ocean Marine Insurance: Hull, Cargo & Protection & Indemnity

Ocean Marine Insurance is the oldest form of insurance, covering vessels and cargo exposed to "perils of the sea" on navigable waters. It is distinct from inland marine and is governed by traditional admiralty principles and open-perils hull forms.

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The Three Coverage Types

1. Hull Insurance

Covers physical damage to the vessel itself — the ship’s hull, machinery, boilers, and equipment.

• Valued Policy: Hull is written on a valued basis, meaning the insured value is agreed at policy inception; in a total loss, the agreed value is paid without depreciation arguments.
• Running Down Clause (Collision Liability): Covers the shipowner’s legal liability for damage to another vessel caused by collision, paid in addition to the hull value subject to a limit.
• Perils Covered: "Perils of the sea" — sinking, stranding, collision, heavy weather, fire, and piracy — generally on an open-perils basis with named exclusions.

2. Cargo Insurance

Covers the owner’s goods while in transit by sea.

• Voyage Policy: Covers a single trip from one port to another.
• Open Cargo Policy: Continuous automatic coverage for all shipments of an exporter/importer under a master contract with periodic reporting.
• Free of Particular Average (FPA): Excludes partial losses unless caused by a major peril (stranding, sinking, fire, collision) — a common cargo condition.
• General Average: A maritime principle in which all parties in a sea venture proportionally share a voluntary sacrifice (cargo jettisoned to save the ship).

3. Protection & Indemnity (P&I)

Marine liability insurance covering third-party liabilities not covered by the hull’s collision clause:

• Bodily injury to crew and passengers
• Illness and death of crew
• Damage to docks, piers, and other fixed objects
• Property damage to other vessels beyond the collision clause
• Pollution and oil-spill liability and cleanup costs
• Wreck removal when legally required

Adjuster Distinctions

• Ocean marine hull is a valued policy — contrast with property policies’ ACV/replacement-cost methods.
• General average contributions are a unique marine loss-sharing concept requiring a separate adjustment.
• Cargo coverage depends on the FPA vs. All-Risk condition; partial losses may not be covered under FPA.

Perils of the Sea and Covered Causes

Hull and cargo forms cover "perils of the sea" — heavy weather, stranding, sinking, collision, fire, lightning, earthquake, piracy, barratry (crew misconduct), and jettison — on an open-perils basis subject to named exclusions. Typical exclusions include wear and tear, inherent vice, capture and seizure, nuclear, war, and the master's willful misconduct.

FPA vs. All-Risk Cargo Conditions

• Free of Particular Average (FPA) — partial losses are NOT paid unless caused by stranding, sinking, burning, or collision. This keeps premium low for cargoes that routinely suffer minor handling damage.
• With Average (WA) / With Particular Average (WPA) — partial losses are paid subject to a small franchise deductible.
• All-Risk — broadest; covers all physical loss or damage except excluded perils.

General Average Adjustment

When a voluntary sacrifice saves the venture (jettisoning cargo to refloat a grounded vessel, or burning cargo to fight a fire), a general average adjustment apportions the sacrifice and extraordinary expenses among vessel, cargo, and freight interests in proportion to their saved values. A licensed average adjuster prepares the statement. Cargo insurers typically advance contributions on the insured's behalf.

Hull vs. P&I Boundary

• The hull policy's Running Down Clause pays the shipowner's liability for damage to the other vessel in a collision.
• P&I pays crew/passenger injury, dock damage, pollution, and wreck removal — liabilities the hull collision clause does not cover.
• The adjuster must determine whether a third-party loss flows from collision (hull) or from operation/ownership (P&I) to allocate correctly.

Cargo Loss Settlement and Average

Cargo is valued at invoice value plus freight and 10% unless otherwise agreed, plus insurance and incidental charges. A total loss pays the full insured value. A particular average is a partial loss borne by the cargo owner alone; whether it is recoverable depends on the FPA/WPA/all-risk condition. Constructive total loss occurs when the cost to repair and forward the cargo exceeds its arrived value, allowing the insured to abandon and claim a total loss.

Ocean Marine Loss Adjustment for the Adjuster

When an ocean marine loss is reported, the adjuster first determines which coverage responds — hull, cargo, or P&I — because each carries distinct valuation and conditions. For a hull claim, distinguish an actual or constructive total loss from partial damage; the valued policy pays the agreed insured value on a total loss without depreciation, and the Running Down Clause separately handles the shipowner's liability for damage to the other vessel up to its stated limit. For cargo, identify the condition: under FPA, partial losses are denied unless caused by stranding, sinking, burning, or collision; under WPA a franchise deductible applies; under all-risk, all physical loss is covered except excluded perils. Value cargo at invoice plus freight plus 10% unless otherwise agreed. When a general average act occurs (a voluntary sacrifice that saves the venture), the adjuster coordinates with a licensed average adjuster who apportions the sacrifice and extraordinary expenses among vessel, cargo, and freight by their saved values; cargo insurers advance the insured's contribution. For P&I, verify the liability falls outside the hull collision clause — crew injury, passenger bodily injury, dock and pier damage, pollution and oil-spill cleanup, and wreck removal — and confirm the loss arose from operation or ownership of the vessel. South Carolina's deepwater ports (Charleston and Georgetown) generate real hull, cargo, and P&I exposure, so the adjuster should understand how a container fire, a grounded vessel, or an oil-spill claim routes across the three coverage types and which limit responds.