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

Ocean Marine Insurance

Ocean marine is the oldest branch of insurance, covering vessels and their cargo against the perils of the sea. It is largely non-filed and non-standardized - terms are negotiated, heavily influenced by English law and centuries of custom (the Lloyd's tradition). The four traditional coverages tested on the exam are Hull, Cargo, Freight, and Protection & Indemnity (P&I).

Ocean marine relies on classic principles: insurable interest, utmost good faith (uberrimae fidei), warranties (e.g., seaworthiness), and general average / particular average loss-sharing rules unique to marine.

The Four Ocean Marine Coverages

Note that Hull insurance typically includes a Running Down Clause (RDC) / collision liability covering damage the insured vessel does to another vessel, while P&I picks up the broader third-party liabilities (people, pollution, docks) not handled by the hull collision clause.

Average Clauses - General vs. Particular

Average is marine terminology for partial loss. The exam tests two:

• Particular average - a partial loss borne solely by the owner of the property that suffered it (e.g., one merchant's water-damaged crate).
• General average - a loss voluntarily and reasonably incurred to save the whole venture (e.g., cargo jettisoned to refloat a grounded ship). The sacrifice is shared proportionally by all parties (ship, cargo owners, freight interests) according to the value saved.

Worked example (General Average contribution): Ship + cargo total saved value = $10,000,000. To save the venture, $500,000 of cargo is jettisoned. A cargo owner whose goods are worth $1,000,000 (10% of saved value) contributes 10% x $500,000 = $50,000 toward the sacrifice, regardless of whose specific cargo was thrown overboard.

Coverage Forms, Perils, and Implied Warranties

Cargo can be written on a named-perils basis (perils of the sea: stranding, sinking, collision, jettison) or all-risk. Standard exclusions include inherent vice, ordinary wear, delay, and war/strikes (the latter added back by separate War Risk and Strikes clauses).

Implied warranties in ocean marine - violation can void coverage:

1. Seaworthiness - the vessel is fit for the voyage.
2. No deviation - the ship follows the customary/agreed route without unjustified detour.
3. Legality - the venture is lawful.

Unlike most P&C lines, marine warranties are strictly enforced; even a technical breach (an unjustified deviation) can suspend or void coverage. Combine this with uberrimae fidei - the insured must voluntarily disclose all material facts - and ocean marine is notably stricter than personal-lines contracts.

The Four Ocean Marine Coverages

Ocean marine insures waterborne property and liability and uses four classic coverages the exam tests by name:

Implied Warranties

Ocean marine policies carry implied warranties unique to marine insurance, breach of which can void coverage:

• Seaworthiness - the vessel is fit for the voyage.
• No deviation - the vessel follows the customary route without unjustified detour.
• Legality - the venture is lawful.

Average Clauses and General Average

Marine losses use the term "average" to mean partial loss. Particular average is a partial loss borne by the owner of the damaged property alone. General average is a partial loss voluntarily and reasonably incurred to save the entire venture (e.g., jettisoning cargo to save a sinking ship); under general average the loss is shared proportionally by all parties whose property was saved (ship, cargo, freight).

Worked Example

During a storm, a captain jettisons $200,000 of one shipper's cargo to lighten the ship and save the $2,000,000 vessel and the remaining $1,800,000 of cargo. Because the sacrifice was a voluntary, reasonable act to save the common venture, it is a general average loss shared proportionally among all saved interests rather than falling solely on the unlucky shipper. Each party contributes based on its share of the total saved value.

Distinguishing general average (shared) from particular average (borne alone), plus the implied warranties of seaworthiness, no-deviation, and legality, are the most heavily tested ocean-marine concepts.

Perils of the Sea and Coverage Triggers

Ocean marine hull and cargo policies cover perils of the sea - heavy weather, stranding, sinking, collision - plus listed extraneous perils (fire, jettison, barratry of the master/crew). Cargo can be written trip-by-trip or on an open cargo policy that automatically covers all shipments. The Inchmaree clause extends hull coverage to losses from latent defects, machinery breakdown, and crew negligence. These marine-specific terms - perils of the sea, barratry, Inchmaree, open cargo - are recurring exam vocabulary.

The exam tests Free of Particular Average (FPA) and With Average (WA) cargo clauses: FPA excludes partial losses below a threshold (covering total/general-average losses), while WA covers partial losses once a franchise percentage is met. The running-down clause (RDC) in hull coverage adds collision liability to another vessel, supplementing P&I.