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

The Four Coverages of Ocean Marine

Ocean marine is the oldest branch of property insurance, predating the modern policy by centuries. It insures interests connected with water-borne transportation and is organized around four traditional coverages.

Quick Answer: Hull = the boat; Cargo = the goods; Freight = the shipping money; P&I = the liability.

Freight and Protection & Indemnity Explained

Freight is easy to misread. It is not the cargo — it is the money the carrier expects to earn (or the charges the shipper has prepaid) that would be lost if the voyage is not completed. If freight is payable only on delivery and the cargo is destroyed mid-voyage, the carrier loses that revenue; freight insurance restores it.

Protection & Indemnity (P&I) is the liability coverage of ocean marine. Standard hull policies historically excluded much third-party liability, so P&I clubs (mutual associations of shipowners) developed to insure:

• Bodily injury and death of crew, passengers, and longshoremen
• Damage to docks, piers, and other fixed objects
• Pollution liability and wreck removal
• Cargo liability not covered by the cargo owner's own policy

P&I is the ocean marine answer to general liability on land.

Hull and Cargo in More Detail

Hull coverage insures the vessel and its machinery, typically open-peril subject to marine warranties, and often includes a collision (running-down) clause that pays the insured's liability for striking another vessel. Cargo insures the goods in transit over water and frequently extends warehouse-to-warehouse, picking up the inland legs at each end. Cargo can be written on a single shipment (a special cargo policy) or as an open cargo policy that automatically covers all shipments of a regular shipper, with values reported as voyages occur — the marine analog of a reporting form.

Average: General and Particular

"Average" in marine insurance means loss, not an arithmetic mean. The distinction governs who pays.

• General average — a voluntary, intentional sacrifice made for the common safety of vessel and cargo (e.g., jettisoning cargo to refloat a stranded ship). The loss is shared proportionally by all parties whose property was saved: the vessel owner, the cargo owners, and the freight interest contribute.
• Particular average — a partial loss that falls entirely on the owner of the lost or damaged property because it was not a sacrifice for the common good.

Worked General Average Example

A ship runs aground. To refloat, the captain orders $100,000 of one shipper's cargo jettisoned. Total saved values: vessel $2,000,000, remaining cargo $1,500,000, freight $500,000 = $4,000,000. The $100,000 sacrifice is shared in proportion to saved value. The shipper whose cargo was jettisoned bears only its own proportional share; the others contribute the rest, so a cargo owner holding $750,000 of saved goods contributes about $750,000 / $4,000,000 x $100,000 = $18,750.

Warranties, Perils, and Average Clauses

Ocean marine enforces implied warranties found nowhere else in property insurance. They are conditions: breach can void coverage even if unrelated to the loss.

Perils of the Sea vs. Perils on the Sea

• Perils OF the sea — extraordinary water-related events: heavy weather, sinking, stranding, collision.
• Perils ON the sea — events that occur during the voyage but are not unique to water: fire, jettison, barratry (wrongful acts by master or crew), piracy.

Average Clauses Set Partial-Loss Recovery

• Free of Particular Average (FPA) — the insurer pays only total losses (and general average), not partial losses, unless caused by a named major event such as stranding or fire.
• With Average (WA) — the insurer does pay partial losses, usually once they exceed a stated percentage (a franchise), broadening recovery.

Common Exam Traps

• Freight is not cargo. Freight insures the shipping revenue at risk, not the goods.
• General vs. particular average. General = shared voluntary sacrifice; particular = partial loss on one owner.
• Warranty breach. Breaching seaworthiness or deviation can void coverage even if it did not cause the loss.
• P&I is liability. It is the marine equivalent of general liability, not a hull or cargo extension.
• FPA narrows, WA broadens the payment of partial losses.

Why Ocean Marine Stands Apart

Ocean marine is regulated under federal admiralty (maritime) law rather than the state property rules that govern most P&C lines, which is why its doctrines feel foreign. Implied warranties operate as strict conditions, average rules allocate loss across multiple owners, and coverage follows centuries of merchant custom. For the licensing exam, treat ocean marine as a self-contained world: the vocabulary (hull, cargo, freight, P&I, general/particular average, FPA/WA, perils of/on the sea) and the proportional-sharing logic are what get tested, not state-specific statutes.