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12.5 Ocean Marine Insurance

Ocean Marine insurance is the oldest form of property insurance. It covers goods and merchandise, including imports and exports, while they are transported by vessels across domestic or international waters. Coverage may also extend to inland or air transportation connected with the overall shipment. Unlike modern Inland Marine coverage, Ocean Marine insurance may also insure the vessel used to transport the cargo.

Ocean Marine insurance does not use standardized policy forms, and its forms and rates are generally not subject to the same regulatory requirements as many other types of insurance. However, covered property must be insured for its full value to receive full reimbursement for a covered loss. Although the policy may not contain a formal coinsurance clause, an underinsurance penalty applies at the time of loss. For example, if the insured carries insurance equal to only 50% of the property’s full value, the insurer will pay only 50% of a partial covered loss.

Warranties​

Ocean Marine policies contain warranties, which are promises made by the parties to the insurance contract. These warranties are uncommon in most other types of insurance and must be strictly followed. Coverage for a loss depends on compliance with the warranties, and the insurer may deny payment if a warranty is breached.

Ocean Marine policies recognize two types of warranties: express warranties and implied warranties. Express warranties are specifically written into the policy contract and may include provisions addressing war, strikes, riots, and civil commotion. Implied warranties may not appear in writing, but they are understood to be part of the insurance agreement and are binding on the parties. A breach of an implied warranty may void coverage. The primary implied warranties include:

  • Legality – The goods being transported and the purpose of the voyage must be lawful.
  • Seaworthiness – The vessel must be fit for the intended voyage, comply with applicable safety requirements, and be operated by a competent crew, including a qualified and experienced captain.
  • No Deviation in Voyage – The vessel must follow the course disclosed to the insurer when the policy was underwritten. A deviation may be permitted when necessary to avoid a storm or another danger that could damage the vessel or cargo, save human life, or obtain medical or surgical assistance for a person on board.

Ocean Marine Property Coverages​

Ocean Marine insurance provides three primary types of property coverage: Hull insurance, Cargo insurance, and Freight insurance.

Hull Insurance​

Hull insurance covers physical loss or damage to the vessel itself, including its machinery, equipment, and fittings. Coverage may be written on either an open perils or named perils basis, although named perils coverage is more common. Typical covered perils include fire, lightning, explosion, heavy weather, piracy, jettison, which means intentionally throwing cargo overboard, and other perils of the sea. Additional protection may be provided through the following clauses:

  • The Collision Clause, also known as the Running Down Clause, covers the insured vessel owner’s legal liability for physical damage to another vessel or its cargo resulting from a collision.
  • The Inchmaree Clause covers direct physical damage caused by events such as bursting boilers, broken propeller shafts, and errors or faults in navigation committed by the vessel’s crew.

Hull insurance may be written using either a Voyage Policy or a Time Policy. A Voyage Policy covers the vessel during one specified voyage, while a Time Policy covers the vessel for a stated period, typically 12 months.

Cargo Insurance​

Cargo insurance covers physical loss or damage to merchandise while it is in transit. Coverage may be written on either an open perils or named perils basis and applies during the period in which the insured has a financial interest in the property.

The point at which the buyer or seller has an insurable interest in cargo depends on the shipping terms. Under FOB Point of Shipment, the buyer assumes ownership and the risk of loss when the shipment begins. Under FOB Point of Destination, the seller retains ownership and the risk of loss until the cargo reaches its destination.

Cargo insurance may be written to cover a single shipment or on an open cargo basis, which automatically covers each shipment when the insured’s interest in the property begins. A Warehouse-to-Warehouse Clause may be added to extend coverage while the property is transported from the warehouse at the point of origin to the warehouse at its destination. Open cargo policies are generally written on a continuous basis and remain in effect until canceled.

Average Losses​

In cargo insurance, an average loss refers to a partial loss. These losses are classified as either general average losses or particular average losses. A general average loss results from the intentional sacrifice of cargo or the voluntary incurring of expenses to protect the vessel and everyone with property aboard. For example, cargo may be deliberately thrown overboard to prevent the vessel from sinking. Because all parties benefit from the sacrifice, the loss is divided among the shipowner and the owners of all cargo on the vessel. A particular average loss is an accidental partial loss involving a specific vessel or shipment of cargo. Because the loss affects only one party’s property interest, it is not shared among the other parties. Ocean Marine policies may apply special conditions to average losses or limit coverage to partial losses caused by specifically covered perils.

Note

Hull and cargo insurance are generally written on a valued basis, meaning the insured value is agreed upon in advance. For cargo, the insured value typically includes the invoice value of the goods, applicable import duties, and freight charges.

Freight Insurance​

Freight insurance, also known as freight revenue insurance, provides indirect loss coverage for prepaid freight charges and import duties when a voyage is not completed. It may also reimburse the shipper for import duties that cannot be recovered when the cargo sustains a partial covered loss.

Protection and Indemnity (P&I) Insurance​

In Ocean Marine insurance, liability coverage is known as Protection and Indemnity (P&I) insurance. P&I insurance covers the shipowner’s legal liability for bodily injury, property damage, and related expenses arising from the ownership or operation of the insured vessel. Covered liabilities may include:

  • Bodily injury to or death of passengers or persons onshore caused by the shipowner or crew
  • Loss of or damage to cargo resulting from the insured’s negligence
  • Damage to fixed property, such as wharves, piers, and docks
  • Damage to other vessels that is not covered by the collision protection provided under Hull insurance
  • Expenses associated with cleaning up and removing wreckage
  • Damage to property aboard the insured vessel resulting from a collision
  • Expenses arising from quarantine
  • Work-related injuries to crew members covered under the Jones Act and injuries to qualifying non-crew maritime workers covered under the Longshore and Harbor Workers’ Compensation Act

The Longshore and Harbor Workers’ Compensation Act applies to qualifying non-crew maritime workers, including stevedores and longshore workers who load or unload cargo, as well as workers who service or repair vessels. These maritime employment injuries are separate from injuries covered under a standard Workers’ Compensation and Employers Liability policy. P&I insurance does not cover employee injuries that fall within the standard Workers’ Compensation system.