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

The Four Insured Interests

Ocean marine is the oldest line of insurance and the parent of all property-casualty coverage. It insures four distinct interests in a maritime venture:

A shipowner may buy all four; a cargo owner buys cargo coverage; a charterer may buy freight coverage. Each interest is separately rated.

The hull policy also contains a running-down clause (collision clause) covering the owner's liability when the insured vessel strikes another vessel. Historically this clause paid only 3/4 of collision liability, leaving the remaining quarter and many other liabilities to be picked up by P&I. That historical split is a frequent exam detail.

Ocean marine is largely unregulated as to rates and forms in most jurisdictions because it is an admiralty/international line; underwriters use manuscript wordings and agreed values. This freedom is why ocean marine contracts read very differently from the standardized ISO property and liability forms used onshore, and why so much of the line rests on long-settled maritime custom rather than filed policy language.

Cargo Average Clauses: FPA, WA, and All-Risk

"Average" in marine insurance means partial loss. The breadth of cargo coverage depends on which average clause applies:

• Free of Particular Average (FPA) — The narrowest. The insurer pays total losses and general-average contributions but excludes partial (particular) losses unless caused by a listed peril such as stranding, sinking, burning, or collision. "Free of" means the insurer is free from paying ordinary partial losses.
• With Average (WA) — Pays partial losses once they exceed a stated franchise (often 3%). Below the franchise the partial loss is excluded; once the threshold is met, the loss is paid (sometimes in full).
• All-Risk — The broadest cargo form. Pays partial and total losses from any external cause not specifically excluded (excludes inherent vice, delay, war/strikes unless added back).

Worked Franchise Example

A cargo shipment is insured WA with a 3% franchise on a $200,000 value. The franchise threshold = 3% x $200,000 = $6,000.

• A $5,000 partial loss is below the franchise and is not paid.
• A $9,000 partial loss exceeds the franchise, so the insurer pays the loss (under a true franchise, often the full $9,000, not just the excess).

Contrast this with a deductible, which would subtract the threshold from every loss. A franchise is a gate: once crossed, the full loss is paid.

General Average, Implied Warranties, and P&I

General Average vs. Particular Average

• Particular average is a partial loss borne solely by the owner of the property that was damaged.
• General average is one of the oldest principles in marine law: when part of the cargo or vessel is voluntarily and reasonably sacrificed to save the entire venture (for example, jettisoning cargo to refloat a grounded ship), all parties with an interest in the voyage — vessel, every cargo owner, and freight — contribute proportionally to make the sacrificing party whole.

Worked example: A ship and cargo are worth $10,000,000 total. To save the venture, $400,000 of one shipper's cargo is jettisoned. Each interest contributes in proportion to its value. A cargo owner whose goods represent 20% of the venture's value contributes 20% x $400,000 = $80,000 toward the general-average loss; the shipper who lost the cargo is reimbursed by the pool.

Implied Warranties

Ocean marine policies contain three implied warranties that need not be written to apply. Breach can void coverage:

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

Protection and Indemnity (P&I)

P&I is the marine liability coverage. It responds to the shipowner's legal liability for bodily injury to crew and passengers, damage to cargo, damage to docks/piers, and the portion of collision liability the hull policy's running-down clause does not cover. Think of P&I as the marine equivalent of general liability for the vessel owner.

Coverage and Exclusion Recap

• Perils of the sea (storms, stranding, sinking, collision) are the core insured perils; perils on the sea that are ordinary and expected (normal wind and wave action) are not.
• Inherent vice (cargo that spoils or self-destructs by its own nature), ordinary leakage, delay, and war and strikes are typically excluded; war and strikes can be added back by separate endorsement at extra premium.
• Sue and labor clauses require the insured to take reasonable steps to minimize a loss, and the insurer reimburses those expenses even if the property is ultimately a total loss.

The broad exam lesson for the marine sections: ocean marine governs the saltwater voyage and rests on average clauses, general average, and implied warranties, while inland marine governs everything mobile or in transit once goods move overland.