14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

The Four Ocean Marine Interests

Ocean marine insurance is the oldest line of insurance and covers ocean-going vessels and the voyages they undertake. Coverage is organized around four traditional interests:

• Hull - physical damage to the vessel itself, including its machinery and equipment. A hull policy may be written for a single voyage or for a time period (annual). It typically includes a narrow collision-liability clause.
• Cargo - the goods being transported aboard the vessel. Cargo can be insured for a single shipment, on an open (reporting) policy, or on a special marine policy/certificate.
• Freight - the income the shipowner earns for carrying cargo. If the voyage fails and the freight is not earned, the shipowner loses that revenue, so freight is an insurable interest.
• Protection and Indemnity (P&I) - the vessel owner's liability to third parties: crew injury, passenger injury, illness, pollution, and damage the vessel causes that the hull policy will not pay.

Memorize the four interests as a set - questions often ask you to identify which interest covers the shipowner's lost carrying revenue (freight) or injury to a crew member (P&I).

Ocean marine is non-filed like much inland marine, so forms and rates are largely set by the marine market (including London/Lloyd's tradition) rather than state filings. It is also a mixed line - it includes both first-party property interests (hull, cargo, freight) and third-party liability (P&I) in one body of practice, which is unusual in property-casualty.

Maritime Doctrines You Must Know

Ocean marine carries doctrines found nowhere else in property-casualty:

• Utmost good faith (uberrimae fidei) - the insured must disclose every material fact, even unasked. A breach lets the insurer void the policy. This is a higher standard than the ordinary good faith in other lines.
• Implied warranty of seaworthiness - the vessel is warranted fit for the voyage; if it is unseaworthy, coverage can be denied.
• Implied warranty of legality - the venture must be lawful.
• Franchise clause - an older deductible-like device: the insurer pays nothing until the loss reaches a stated percentage/amount, then pays in full from the first dollar (unlike a true deductible, which is always subtracted).

These maritime warranties are implied - they apply even if not written into the policy - which is why they are favorite exam material.

Particular Average vs. General Average

Average in marine insurance means loss. There are two kinds, and distinguishing them is heavily tested:

The rule for general average has three requirements: the sacrifice must be (1) voluntary, (2) necessary to save the common venture, and (3) successful (something must be saved). When met, all interests contribute in proportion to the value saved.

Worked general-average example: A ship and cargo are valued at $10,000,000 total. To refloat the grounded vessel, the crew jettisons $1,000,000 of cargo, saving the venture. The sacrificed cargo loss is shared across all saved interests. If your saved interest is worth $2,000,000 (20% of the $10,000,000), you contribute 20% of the $1,000,000 sacrifice = $200,000. Each interest pays its proportional share rather than the unlucky shipper bearing the entire jettison.

Hull Collision Liability and P&I

A hull policy includes a narrow liability provision often called the Running Down Clause (RDC) or collision clause. It covers the insured vessel's liability for striking another vessel - but it is limited: it typically pays only collision with other vessels and historically only a portion (e.g., 3/4ths) of that liability, leaving gaps.

Protection and Indemnity (P&I) fills those gaps. P&I covers liabilities the hull policy excludes:

• Bodily injury, illness, or death of crew and passengers
• The remaining 1/4 collision liability not paid by the hull RDC (in 4/4ths arrangements)
• Damage to piers, docks, and other fixed objects (non-vessel property)
• Pollution and cleanup liability
• Cargo liability owed to shippers

So the exam pairing is: hull = the vessel; cargo = the goods; freight = the carrying income; P&I = the broad liability that the hull policy's narrow collision clause leaves uncovered. If a question asks who pays for a longshoreman's injury or oil pollution from the vessel, the answer is P&I, not hull.

Finally, distinguish ocean marine from inland marine on the exam: ocean marine covers water-borne vessels and voyages on the high seas and navigable waters, while inland marine, despite the shared word, covers land-based mobile property. The Nationwide Marine Definition governs which property each may write, and the two lines together form the modern marine field that began with a single ocean cargo policy centuries ago.

Also remember the Inchmaree clause, a hull endorsement that extends coverage to loss from latent defects in the hull or machinery, crew negligence, and boiler bursting - perils a bare hull policy might otherwise exclude. Its name comes from a famous British court case. Pairing the Inchmaree clause with hull coverage and the Running Down Clause with collision liability rounds out the hull section the exam tests most often.