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

The Oldest Line of Insurance

Ocean marine traces to the merchants and underwriters of Lloyd's of London and predates fire and life insurance by centuries. Like inland marine it is a non-filed line: contracts are individually negotiated between sophisticated parties, so forms and rates are generally not subject to state filing. A single ocean marine policy is built from four principal coverages, each of which can stand alone or combine.

Hull pays for physical damage to the ship from perils of the sea. Cargo covers the goods, often on an open (reporting) policy that automatically covers every shipment. Freight protects the shipowner against loss of the money earned for carrying goods — if the cargo is lost and the freight charge is therefore not collected, freight coverage responds. P&I is the liability section: it covers bodily injury to crew and passengers, damage the insured vessel does to docks or other vessels beyond the collision clause, and pollution liability.

The Three Implied Warranties

Every ocean marine contract contains three implied warranties; breach can void coverage even if not written into the policy.

1. Seaworthiness — the vessel is properly built, equipped, crewed, and fit for the voyage.
2. No deviation — the vessel will follow the agreed or customary route without unnecessary departure or delay.
3. Legality — the venture (the voyage and its cargo) is lawful.

A tested scenario: a captain takes an unnecessary detour and the ship is then damaged. The deviation warranty is breached, and the hull insurer may deny the claim.

Particular Average vs. General Average

"Average" in marine insurance means partial loss, and the distinction is a frequent exam item.

• Particular average — a partial loss that falls on one interest alone (for example, seawater damages one shipper's cargo). Only that owner (or its insurer) bears it.
• General average — a partial loss deliberately and voluntarily incurred for the common safety of the whole venture. Classic example: the crew jettisons part of the cargo to lighten and save a grounding ship. Under the General Average clause, every interest saved (hull, the remaining cargo owners, freight) contributes proportionally to the sacrifice.

Worked General Average Allocation

A ship in peril jettisons $200,000 of one shipper's cargo to save the venture. Total values saved: Hull $4,000,000, Cargo $5,000,000, Freight $1,000,000 = $10,000,000. The $200,000 sacrifice is shared in proportion to value saved:

Each interest's insurer pays its proportional contribution, so the one shipper whose goods were thrown overboard recovers most of the loss from the others.

Average Clauses: FPA and WA

Cargo policies specify how partial losses are treated:

• Free of Particular Average (FPA): the insurer pays no partial loss (particular average) unless the vessel suffered a major peril such as stranding, sinking, burning, or collision; total losses are still paid. It is the narrower, cheaper option.
• With Average (WA): the insurer does pay partial losses, usually once they exceed a stated percentage (franchise) of value. Broader and more expensive.

Other core terms: perils of the sea (heavy weather, stranding, collision — fortuitous accidents of navigation, not the ordinary action of wind and waves), the running-down clause / collision clause (covers the insured's liability when its vessel strikes another), and the sue-and-labor clause (reimburses the insured for reasonable expenses to protect damaged property from further loss).

Open Cargo Policies and Valuation

Large shippers rarely insure one voyage at a time. An open cargo policy is a continuous contract that automatically covers every shipment the insured sends, with the insured reporting values periodically; this avoids gaps when a shipment leaves before a specific policy can be arranged. Cargo is usually written on a valued (agreed-value) basis — the agreed amount typically equals invoice cost plus freight plus an advance (often 10%) for anticipated profit, so a total loss pays a pre-set figure without arguing market value after the fact. Knowing that cargo is valued, not indemnity-after-the-loss, is commonly tested.

Coinsurance and Key Marine Clauses

Unlike most property forms, ocean marine cargo can carry a 100% coinsurance expectation because values are agreed and reported.

Several clauses round out the contract: the sue-and-labor clause reimburses the insured for reasonable expense to minimize a loss; the running-down (collision) clause within hull pays the insured's liability for striking another vessel; the Inchmaree clause extends hull coverage to losses from latent defects, boiler bursting, and crew negligence; and abandonment/constructive total loss lets the insured abandon a vessel to the insurer and claim a total loss when repair cost would exceed the insured value.

Common Traps

• General average is shared by all interests proportionally; particular average falls on one interest only.
• Breach of any implied warranty (seaworthiness, deviation, legality) can void the policy.
• FPA excludes ordinary partial losses; WA pays them — do not reverse these.
• Freight coverage protects the carrier's revenue, not the goods (that is cargo).
• An open cargo policy automatically covers every shipment; cargo is written on a valued basis.