14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)
Key Takeaways
- Ocean marine is the oldest insurance line, organized into four coverages: Hull (the vessel), Cargo (goods at sea), Freight (the shipping revenue), and Protection & Indemnity / P&I (maritime liability).
- Perils of the sea cover storm, sinking, stranding, collision, and jettison; inherent vice, ordinary wear, and delay are excluded, and war requires separate coverage.
- General average forces all parties to share a voluntary sacrifice for the common safety proportionally; particular average is an accidental partial loss borne by the owner alone.
- The hull running-down clause covers vessel-to-vessel collision liability, while P&I covers crew injury (Jones Act), pollution, passengers, and damage to fixed objects like piers.
- The Sue and Labor clause pays loss-mitigation costs in addition to the limit, and implied warranties of seaworthiness, legality, and no deviation are strictly enforced.
The Oldest Insurance Line
Ocean marine insurance predates fire and life insurance by centuries; the modern market traces to Edward Lloyd's coffeehouse in 1680s London, the origin of today's Lloyd's of London. Unlike most property-casualty lines, ocean marine is governed heavily by admiralty (maritime) law and long-settled doctrines, so the exam rewards knowing the doctrines, not just the coverage names.
The Four Core Coverages
| Coverage | What it insures | Key clause/detail |
|---|---|---|
| Hull | The vessel, machinery, equipment | Running-down (collision liability) clause |
| Cargo | Goods shipped by sea | Often "warehouse to warehouse" |
| Freight | Shipping revenue lost if cargo never arrives | Protects the carrier's/shipper's income |
| Protection & Indemnity (P&I) | Maritime liability | Crew injury (Jones Act), pollution, dock damage |
The running-down clause (RDC) inside hull coverage pays the insured vessel owner's liability for collision with another vessel - a liability item carried inside a property coverage, which surprises candidates. Broader liabilities (crew, passengers, pollution, fixed objects such as piers) fall to P&I.
Perils of the Sea and Exclusions
"Perils of the sea" means fortuitous, accidental dangers - not every peril encountered on the sea.
| Covered (perils of the sea) | Excluded |
|---|---|
| Storm, heavy weather, sinking | Ordinary wear and tear |
| Stranding, grounding | Inherent vice (cargo that self-spoils) |
| Collision, jettison | Delay (even if a peril caused it) |
| Fire, lightning, piracy | War, strikes, riots (separate coverage) |
Inherent vice - fruit that rots, steel that rusts in humid holds - is a classic excluded trap: the cargo's own nature, not a sea peril, caused the loss.
Average: General vs. Particular
In marine law, "average" means a partial loss, and two kinds appear constantly.
General Average
When property is voluntarily and reasonably sacrificed for the common safety of the whole venture, all parties - shipowner and every cargo owner - share the loss proportionally to the value saved.
Worked example: A fire threatens a freighter, and the captain orders 200 of 1,000 containers jettisoned to save the ship and remaining cargo. Under general average, the loss is spread pro rata across all interests. If the total saved value is $10,000,000 and the jettisoned containers are worth $1,000,000, each surviving interest contributes its proportion of the saved value, reimbursing the unlucky owners of the dumped containers.
Particular Average
An accidental partial loss that falls only on the owner of the damaged property - no sharing. Seawater spoils one shipper's cargo in a storm; that shipper alone bears it.
| Doctrine | Trigger | Who pays |
|---|---|---|
| General average | Voluntary sacrifice for common safety | All parties, pro rata |
| Particular average | Accidental partial loss | Owner of the lost property alone |
The Sue and Labor Clause
The Sue and Labor clause requires the insured to take reasonable steps to prevent or minimize an insured loss, and the insurer reimburses those expenses in addition to the policy limit. If a grounded ship's owner pays $300,000 to a salvage firm to refloat the vessel, that cost is paid on top of the loss limit, encouraging salvage even near the limit.
Implied Warranties (Strictly Enforced)
Marine policies impose strict implied warranties; breach can void coverage even without causation:
- Seaworthiness - the vessel is fit for the voyage.
- Legality - the venture is lawful.
- No deviation - the vessel follows the customary route without unjustified detour.
Cargo Clauses, FPA, Valuation, and the Jones Act
Ocean cargo is shaped by standardized Institute Cargo Clauses (A, B, C): Clause A is the broadest open-peril form, while B and C are progressively narrower named-peril forms. A cargo policy typically attaches warehouse to warehouse, covering the inland legs at each end, not only while afloat. The Free of Particular Average (FPA) clause pays a partial loss only if it results from a major peril such as stranding, sinking, burning, or collision. Cargo is usually written on a valued (agreed-amount) basis, paying the stated value without depreciation.
Under the Jones Act, a seaman injured in the course of employment may sue the vessel owner for negligence, and these claims fall to P&I rather than workers compensation, because seamen are excluded from most state WC systems.
Freight Coverage and Coinsurance in Hull
Freight is the revenue a carrier earns for transporting cargo (or the charter hire an owner expects). If the cargo never arrives because of a covered peril, the carrier loses that income, and freight coverage replaces it - a distinct insurable interest separate from the goods themselves. Hull coverage, unusually for property candidates, may carry a coinsurance clause, because vessel owners are expected to insure to a high percentage of value; under-insuring the hull triggers a proportional penalty much like commercial property coinsurance.
Common Exam Traps
- General vs. particular average is the most-tested distinction - "general = shared, particular = owner alone."
- Hull running-down clause covers vessel-to-vessel collision; P&I covers crew, passengers, pollution, and fixed objects.
- Sue and Labor pays extra, not within the limit.
- Jones Act crew injury routes to P&I, not workers comp.
To save a burning vessel, the captain orders part of the cargo jettisoned. Under marine law, how is this loss allocated?
A cargo of bananas arrives partly rotted because the voyage ran longer than expected, and the cargo policy denies the claim. What is the most likely reason?