14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)
Key Takeaways
- Ocean marine insures over-water commerce through four coverages: hull (vessel), cargo (goods), freight (shipping revenue), and protection & indemnity (maritime liability).
- The running-down clause within hull coverage pays the vessel owner's collision liability to another vessel - historically three-fourths, with the remainder under P&I.
- General average shares a voluntary sacrifice for common safety pro rata among all parties; particular average is an accidental partial loss borne by the owner alone.
- The sue and labor clause reimburses loss-minimization expenses in addition to the policy limit.
- Ocean marine enforces implied warranties of seaworthiness, no deviation, and legality; breach can void coverage.
The Oldest Insurance Line
Ocean marine insurance predates fire and life insurance by centuries; the modern market traces to Edward Lloyd's coffeehouse in 1680s London, where underwriters subscribed to portions of a voyage's risk - the origin of Lloyd's of London. Unlike most P&C lines, ocean marine is governed heavily by admiralty (maritime) law and long-settled doctrines such as average, sue-and-labor, and warranties of seaworthiness.
Quick Answer: Ocean marine insures vessels, cargo, shipping revenue, and maritime liability for over-water commerce, organized into four coverages: hull, cargo, freight, and protection & indemnity (P&I).
The Four Core Coverages
| Coverage | What It Insures | Key Clause / Detail |
|---|---|---|
| Hull | The vessel, machinery, equipment | Running-down (collision liability) clause |
| Cargo | Goods shipped by sea | Often "warehouse to warehouse" |
| Freight | Shipping revenue lost if cargo never arrives | Protects carrier's/shipper's income |
| Protection & Indemnity (P&I) | Maritime liability | Crew injury (Jones Act), pollution, dock/wreck damage |
The Running-Down Clause (RDC) inside hull coverage pays the insured vessel owner's liability for collision with another vessel - a liability item deliberately carried within the hull (property) policy. Historically the RDC paid only three-fourths (3/4) of collision liability, with the remaining quarter falling to P&I.
Average: General vs. Particular
In marine law, "average" means a partial loss. Two kinds appear constantly on the exam.
General Average
When property is voluntarily and reasonably sacrificed for the common safety of the whole venture, all parties - shipowner and every cargo owner - share the loss proportionally to value saved.
Example: A fire threatens a freighter; the captain jettisons 200 of 1,000 containers to save the ship and remaining cargo. Under general average, every cargo owner and the shipowner contribute pro rata, reimbursing the owners of the dumped containers.
Particular Average
A partial loss that is accidental and falls only on the owner of the damaged property - no sharing.
| Doctrine | Trigger | Who Pays |
|---|---|---|
| General average | Voluntary sacrifice for common safety | All parties, pro rata |
| Particular average | Accidental partial loss | Owner of the lost property alone |
Sue and Labor, Warranties, and a Worked Contribution
The Sue and Labor clause requires the insured to take reasonable steps to prevent or minimize a loss; the insurer reimburses those expenses in addition to the policy limit. Ocean marine also enforces strict implied warranties - of seaworthiness, no deviation from the agreed voyage, and legality of the venture. Breach can void coverage.
Worked General Average Contribution
A voyage's saved values: ship $6,000,000, Cargo A $2,000,000, Cargo B $2,000,000; total saved = $10,000,000. To save all, $500,000 of Cargo B is voluntarily jettisoned (the general average sacrifice).
- Contribution rate = $500,000 / $10,000,000 = 5% of each saved interest.
- Ship contributes 5% x $6,000,000 = $300,000.
- Cargo A contributes 5% x $2,000,000 = $100,000.
- Cargo B contributes 5% x $2,000,000 = $100,000 (but is also reimbursed $500,000 for its sacrifice).
- Net to Cargo B owner = $500,000 received - $100,000 contributed = $400,000 recovery.
General Average, Sue and Labor, and the Implied Warranties
Ocean marine is the oldest line and uses terms found nowhere else. The exam tests average and the implied warranties.
- General average: when cargo or equipment is deliberately sacrificed to save the whole venture (jettisoning cargo to refloat a ship), all parties to the voyage share the loss proportionally. Particular average is a partial loss borne by the owner of the damaged property alone.
- Sue and labor: the insured must take reasonable steps to minimize a loss; the insurer reimburses those expenses in addition to the loss.
Exam trap: General average spreads a voluntary, successful sacrifice across all interests; particular average is an accidental partial loss borne by one owner. Confusing the two is the classic ocean-marine error.
The Three Implied Warranties
Every ocean marine policy carries implied warranties of seaworthiness, no deviation (no unnecessary departure from the route), and legal purpose. Breaching an implied warranty can void coverage.
A ship's captain jettisons part of the cargo to save the vessel and remaining goods in a storm. Under marine law, the loss is shared proportionally by the shipowner and all cargo owners. This doctrine is:
Which ocean marine coverage responds to the insured vessel's liability for crew injury under the Jones Act and for pollution and dock damage?
Cargo Coverage and the Perils Insured
Cargo insurance commonly applies "warehouse to warehouse," following the goods from the shipper's warehouse, across the sea voyage, to the consignee's warehouse - far broader than the bare vessel-to-vessel period. Cargo is written on three traditional clause sets:
| Clause | Scope |
|---|---|
| "A" (All Risks) | Broadest - open-peril, subject to standard exclusions |
| "B" | Named perils plus some water/handling damage |
| "C" | Narrowest - major casualties only (fire, sinking, collision) |
Classic perils of the sea include sinking, stranding, collision, and heavy-weather damage. Exclusions across all clauses include inherent vice (the cargo's own tendency to deteriorate), ordinary leakage, delay, and war/strikes unless those clauses are added back by endorsement.
Coinsurance and a Worked Cargo Settlement
Ocean cargo policies frequently carry a coinsurance / valuation clause requiring the insured to declare full value. If underinsured, recovery is reduced by the standard coinsurance formula: (amount carried / amount required) x loss.
Worked example: A shipment's insurable value is $500,000. The shipper insures only $400,000 on a policy requiring 100% of value (a $100,000 shortfall). A partial loss of $200,000 occurs.
- Coinsurance factor = $400,000 / $500,000 = 0.80.
- Recovery = 0.80 x $200,000 = $160,000.
- The shipper retains the uninsured $40,000 as a coinsurance penalty.
This is identical in mechanics to property coinsurance: insure to value or share the loss. Combined with general-average contributions and the sue-and-labor add-on, marine settlements can layer several adjustments on one voyage.