5.3 Ocean Marine Insurance & Maritime Loss Adjusting

5.3 Ocean Marine Insurance & Maritime Loss Adjusting

Quick Reference: Ocean marine is written on four interests — Hull (the vessel), Cargo (the goods), Freight (the shipping revenue that is lost if the voyage fails), and Protection and Indemnity, or P&I (the vessel owner's liability). Marine uses vocabulary found nowhere else in property and casualty insurance. Average means partial loss. Particular average is a partial loss that falls on one interest alone. General average is a partial loss deliberately incurred for the common good and therefore shared by everyone the sacrifice saved. A Texas all-lines adjuster is authorized to handle marine losses, and the Gulf Coast guarantees the encounter.

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1. The Four Insurable Marine Interests

Freight confuses candidates. In marine usage, "freight" is not the cargo — it is the money earned for carrying the cargo. If a vessel is lost mid-voyage and the carrier's right to collect the freight dies with it, the freight interest is the covered loss.

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2. Perils, the Inchmaree Clause, and Implied Warranties

Perils of the Sea

The traditional insuring language covers perils of the sea — fortuitous accidents peculiar to the sea: heavy weather, stranding, sinking, collision, and the like. It does not mean every peril that occurs on the sea. Ordinary wave action, predictable wear from salt water, and the inevitable consequences of a voyage are not perils of the sea. Traditional forms also name fire, jettison, barratry (the willful misconduct of the master or crew against the owner), assailing thieves, and the "all other like perils" clause.

The Inchmaree (Additional Perils) Clause

Named for an 1887 English case, the Inchmaree clause extends hull coverage to losses that are not perils of the sea at all:

• Latent defect in the hull or machinery (the defect itself is excluded; the resulting damage is covered);
• Negligence of the master, officers, crew, or pilots;
• Bursting of boilers and breakage of shafts;
• Accidents in loading, discharging, or handling cargo, and in taking on fuel.

The Three Implied Warranties

Marine insurance is the last major line that still enforces implied warranties — promises read into the contract whether or not they are written:

1. Seaworthiness — the vessel is reasonably fit for the intended voyage, properly manned, equipped, and supplied. In a voyage policy the warranty attaches at the start of the voyage; in a time policy the modern rule is that the owner may not knowingly send an unseaworthy vessel to sea.
2. No deviation — the vessel will not depart from the customary or agreed route without necessity. An unjustified deviation can suspend coverage from the moment of departure.
3. Legality — the venture is lawful. Smuggling voids the coverage.

The Sue and Labor Clause

The insured must take reasonable steps to avert or minimize an impending loss — hiring a tug, pumping a flooding compartment, salvaging wet cargo. Sue and labor expenses are payable in addition to the policy limit, which is unusual in property insurance and heavily tested. The clause protects the insurer's interest, so the insurer pays for it even if the effort ultimately fails.

3. Average: The Core Marine Concept

Average = partial loss. Everything else in this section flows from that single definition.

Particular Average

A particular average is a partial loss that is accidental and that falls on one interest alone — the owner of the damaged property, or that owner's insurer. Seawater ruins one container of textiles; the textile owner bears it or recovers from its own cargo policy. Nobody else contributes.

Cargo policies describe how much particular average they will pay through average terms:

• FPA — Free of Particular Average: partial losses are not paid unless the vessel strands, sinks, burns, or collides (and in the American conditions, the loss need not be caused by that event; the event merely opens the door).
• WA — With Average: partial losses are paid, often above a stated percentage franchise.
• All Risk cargo terms: the broadest, subject to exclusions for inherent vice, ordinary leakage, improper packing, delay, and war and strikes (which are bought back by separate clauses).

General Average — The Rule of Shared Sacrifice

A general average loss is a voluntary and intentional sacrifice of property, or an extraordinary expenditure, made in a time of peril for the common safety of the entire venture. Because the sacrifice saved everyone, everyone who was saved contributes.

The three elements an adjuster must establish:

1. A real and substantial peril common to the whole venture (not a minor inconvenience);
2. A voluntary and intentional sacrifice or extraordinary expenditure, reasonably made; and
3. Success — at least some property was actually preserved. If everything is lost anyway, there is nothing to contribute.

Classic general average acts: jettisoning cargo to refloat a grounded vessel; intentionally flooding a hold to extinguish a fire; stranding the ship deliberately to prevent sinking; extraordinary salvage and towage; port-of-refuge expenses.

Adjustment. General average is adjusted under the York-Antwerp Rules, the international standard incorporated by reference into most bills of lading and marine policies. A specialist general average adjuster prepares the general average statement. Before cargo is released, each interest posts a general average bond or guarantee (often backed by its cargo underwriter) and sometimes a cash deposit.

Working a General Average Contribution

The contribution is proportional to each interest's saved value in the venture.

GENERAL AVERAGE WORKED EXAMPLE

A vessel grounds on a sandbar in the Gulf. To refloat her, the master
orders $200,000 of deck cargo jettisoned. All remaining property is saved.

Saved values at destination:
   Vessel (hull) ......................... $3,000,000
   Cargo saved ........................... $1,600,000
   Freight at risk ......................... $200,000
   Cargo sacrificed (added back in) ........ $200,000
   ------------------------------------------------
   Total contributory value .............. $5,000,000

General average LOSS to be shared ......... $200,000
General average PERCENTAGE = 200,000 / 5,000,000 = 4%

Each interest contributes 4% of its contributory value:
   Hull owner ........ 4% x $3,000,000 = $120,000
   Saved cargo ....... 4% x $1,600,000 =  $64,000
   Freight ........... 4% x   $200,000 =   $8,000
   Sacrificed cargo .. 4% x   $200,000 =   $8,000
   ------------------------------------------------
   Total collected ..................... $200,000

The owner whose cargo was jettisoned receives $200,000 from the fund and
contributes $8,000 back, for a NET recovery of $192,000. The sacrifice is
spread across everyone the jettison saved.

Exam Discipline: If the loss was accidental and fell on one interest, it is particular average. If the loss was deliberate and made for everyone's benefit, it is general average and everyone contributes. That one sentence answers most general average questions.

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4. Collision Liability: The Running Down Clause and P&I

The Running Down Clause (Collision Liability Clause)

The hull policy's running down clause covers the insured vessel owner's legal liability for damage caused by colliding with another vessel — damage to that other vessel and to the property aboard it. It is a liability coverage embedded inside a property policy, which is why candidates miss it.

What the running down clause does not reach is just as important:

• Injury or death of any person — crew, passengers, longshore workers;
• Damage to fixed and floating objects that are not vessels — piers, docks, wharves, bridges, navigational aids, drilling structures;
• Cargo carried aboard the insured's own vessel;
• Wreck removal, pollution, and fines.

Protection and Indemnity (P&I)

P&I is the vessel owner's broad marine liability coverage and it picks up exactly the gaps listed above. It is traditionally written by mutual P&I Clubs whose members are the shipowners themselves. P&I typically responds to:

• Bodily injury and death of crew (including Jones Act seamen), passengers, stevedores, and longshore workers;
• Damage to fixed and floating objects — the pier, the dock, the dolphin, the platform;
• Loss of or damage to cargo carried on the insured vessel;
• Wreck removal ordered by authority;
• Pollution liability, fines, penalties, and repatriation and maintenance-and-cure obligations to injured crew.

A TUG STRIKES A LOADED BARGE AND THEN A PIER. WHO PAYS WHAT?

Damage to the barge (another vessel) ........ HULL policy, running down clause
Damage to the pier (a fixed object) .......... P&I
Injury to the tug's deckhand (a seaman) ...... P&I (with Jones Act exposure)
Cargo aboard the insured's own tug ........... P&I
Damage to the insured tug itself ............. HULL policy, direct damage
Cost of hiring a salvage tug to prevent sinking ... SUE AND LABOR, paid in
                                                    addition to the hull limit

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5. Two Texas Statutes That Treat Marine Differently

Ocean marine sits outside two Texas consumer-protection regimes an adjuster otherwise applies daily:

• TIC § 542.053(a)(5) excludes marine insurance as defined by § 1807.001 from the Prompt Payment of Claims Act. The 15-day, 15-business-day, and 5-business-day clocks in Chapter 542 Subchapter B do not run on a covered ocean marine claim.
• TIC § 462.007(b)(7) excludes ocean marine insurance from the Texas Property and Casualty Insurance Guaranty Association. If the ocean marine carrier becomes insolvent, there is no Texas guaranty fund backstop, unlike an ordinary homeowners or auto claim.

Constructive Total Loss and Abandonment. Marine law recognizes a constructive total loss where the cost of recovery and repair would exceed the insured value. The insured may then serve a notice of abandonment and claim as for a total loss, transferring its interest in the wreck to the underwriter, who takes the salvage. This is the historical ancestor of the total-loss and salvage rules used in ordinary auto and property adjusting.