Ocean and Inland Marine Insurance

Ocean marine (distinction between inland and ocean)

Marine insurance has two branches, and the distinction between them is the exposure each insures. Ocean marine insurance covers ships and their cargoes on the oceans and other navigable waters, together with the shipowner’s earnings and liability. Inland marine insurance covers property in transit over land, movable property that is often at different locations, and structures such as bridges and tunnels that transportation and communication depend on.

Ocean marine coverage is used for imports and exports being transported over waterways (oceans). These policies protect the ship itself (the hull), the cargo aboard it, the shipowner’s earnings from the voyage (freight) and the shipowner’s liability to others. Ocean marine insurance covers four basic risks:

1. Hulls are protected by hull insurance. This protects the owner against loss or damage to the ship itself.
2. Cargo insurance is written separately from insurance on the ship and protects the owner of the cargo for loss to shipments that may be damaged or destroyed.
3. Freight insurance indemnifies the owner for loss of income experienced when a ship is lost.
4. Protection and indemnity insurance provides liability coverage for the owner of a ship for injury or property damage to others due to the negligence of the owner and/or crew.

Hull policies name the perils they insure against, while cargo policies are written either for named perils or on broader “all risks” terms. Perils commonly named include perils of the seas, fire, lightning, pirates, assailing thieves, jettison, and barratry.

Various implied warranties apply to ocean marine insurance and must be observed. The following are considered the most important implied warranties:

• Seaworthiness
• Condition of cargo
• Legality
• No deviation in voyage

Typical exclusions include losses caused by war, strikes, riots, civil commotion, decay, deterioration, and inherent vice.

Commercial inland marine - purpose

Inland marine insurance was first developed as an extension of ocean marine coverage to provide coverage for cargo traveling over land instead of by sea.

The purpose of commercial inland marine insurance is to cover business property that a commercial property policy does not suit, because the property moves or is away from the insured’s premises. A commercial property form covers business personal property in or on the described building, or in the open (or in a vehicle) within 100 feet of the building or of the described premises, whichever distance is greater, and it does not cover personal property while airborne or waterborne. Commercial inland marine forms follow the property instead. They cover goods in transit, equipment that is used at changing locations (floaters), property in the custody of a bailee, and instrumentalities of transportation and communication. Accounts receivable records and valuable papers and records are also insured on commercial inland marine forms.

To help identify which risks are covered under inland and ocean marine, the National Association of Insurance Commissioners (NAIC) adopted the Nationwide Marine Definition. The definition lists six categories of eligible risks under marine insurance:

1. Imports
2. Exports
3. Domestic shipments
4. Instrumentalities of transportation and communication
5. Commercial property floater risks
6. Personal property floater risks

Transportation policies are also referred to as transit insurance. They cover owners of property against damage to their property while in transit by carrier.

A shipper’s form is available to cover property in transit that may be damaged in circumstances where the carrier has no legal obligation to pay the shipper’s loss.

A trucker or carrier form insures a trucker against legal liability for damage to the property of others that the trucker is transporting for hire.

An owner form insures property owners against damage to their own property while being transported on their own trucks.

A combination trucker’s and owner’s form is also available, which combines the protection provided by each of those forms.

Another form of transportation coverage is a trip transit policy. This policy is available for single shipments of merchandise, clothing, furniture, or livestock while in transit by motor truck or another covered type of transportation.

Instrumentalities of transportation & communication coverage provides coverage for damage to bridges, tunnels, pipelines, piers, docks, and radio and TV towers. While this property is not portable, it is directly connected to transportation and is subject to many of the same perils.

Bailee Forms

A bailment is the delivery of property by the owner to someone else to be held by the bailee for a special purpose and then returned to the owner. If the property is damaged while in the bailee’s custody because the bailee did not take reasonable care of it, the bailee is liable for the damage.

Equipment Floaters

• Contractor’s Equipment Coverage Form - a form designed to insure various types of construction equipment used by contractors. The type of equipment used by contractors varies with the nature of the project on which the contractor is working
• Commercial Articles Coverage Form - may be used to insure the interests of the owner of commercial cameras, musical instruments, and related equipment
• Physicians and Surgeons Equipment Form - covers equipment owned by those in the medical, surgical, or dental professions on an all-risk basis both on and off the premises

Valuable Papers and Records Form

Provides coverage for inscribed, written, or printed documents, manuscripts, or records, including abstracts, books, deeds, drawings, films, maps, or mortgages.

Installation Coverage Form

This policy covers property sold by the insured that must be transported to another location and installed before the purchaser accepts it. In some cases, this can take weeks or even months to complete. Machinery, equipment, building materials, and supplies are the types of property considered installation risks, and they may consist of elevators, air conditioning equipment, boilers, and similar building equipment.

Sign Coverage Form

A special form exists for insuring the value of signs, including neon, fluorescent, automatic, or mechanical signs.

Electronic Data Processing (EDP) Form

Insurance for electronic data processing equipment and media is becoming increasingly important. This coverage can be important because it covers both hardware and software, which are often sizable investments for a business.

Jewelers Block Form

It is used to insure high-end jewelry stores. It covers the insured’s merchandise held for sale, property in showcases, and customers’ property. It does not cover property while it is being worn by the insured, an employee of the insured, or a family member, relative or friend of either.

An extension of coverage is provided for theft damage to buildings. The jewelers’ block form also covers loss of covered property from show windows at the premises from theft or attempted theft involving the smashing or cutting of the show windows. It also covers the loss of property by theft from locked safes or vaults at the premises when the safes or vaults have been broken into.

Aviation Insurance

Property and liability insurance may be purchased for aviation exposures. Aircraft hull insurance covers physical damage to the aircraft (hull), whether the aircraft is in motion or not in motion, and may apply both on the ground and in the air. Coverage is provided for loss occurring on the ground or in the air. Ground coverage includes:

• Hangar fire
• Damage by windstorm
• Theft when the aircraft is not in motion

Aircraft liability provides similar protection to that covered by commercial automobile liability. An insured may choose coverage for the bodily injury of passengers or may exclude passengers.

Additional types of aviation insurance include medical payments, products and cargo liability, premises and operations liability of an airport, and others.

Hangar keeper’s liability is a form of bailee coverage that protects an airport that is legally responsible for damage to an aircraft owned by another person while it is kept in the airport hangar.

Lesson Summary

Marine insurance consists of two main categories: inland marine insurance and ocean marine insurance. Ocean marine insurance covers property being transported over waterways like oceans, protecting hulls and cargo. It covers four basic risks:

• Hull insurance
• Cargo insurance
• Freight insurance
• Protection and indemnity insurance

It provides coverage against a variety of risks, including perils of the sea. Implied warranties include seaworthiness, condition of cargo, legality, and no deviation in voyage. Exclusions typically involve war, strikes, riots, decay, and inherent vice.

Inland marine insurance was developed to provide coverage for cargo traveling over land. The NAIC’s Nationwide Marine Definition lists six categories of eligible risks:

• Imports
• Exports
• Domestic shipments
• Instrumentalities of transportation and communication
• Commercial property floater risks
• Personal property floater risks

Transportation policies, including trucker, owner, and trip transit forms, cover property damage during transit. Equipment floaters cover various types of equipment, such as contractor’s equipment. A separate form covers valuable papers and records.

Aviation insurance covers property and liability for aviation exposures. Types include aircraft hull insurance, aircraft liability, medical payments, products liability, and hangar keeper’s liability.

• Aviation exposures are covered by property and liability insurance.
• Aircraft hull insurance covers physical damage to the aircraft on the ground or in the air, including hangar fire and theft.
• Aircraft liability mirrors commercial auto liability, with options for passenger coverage.
• Other types of aviation insurance include medical payments, products, and cargo liability, and premises and operations liability.

Chapter Vocabulary

Definitions

Aircraft Coverage

Coverage for aircraft (hull) and their contents; aircraft owners’ and aircraft manufacturers liability to passengers, airports, and other third parties.

Bailee

A person who received temporary custody of goods or property belonging to others.

Barratry

A wrongful act willfully committed by the master or crew of a ship to the prejudice of the ship’s owner or charterer. Barratry is one of the perils commonly named in ocean marine policies.

Common Carrier

A company or concern that offers to transport goods or persons for a fee to the general public.

Hull Insurance

Coverage for damage to a vessel or aircraft and affixed items.

Implied Warranty

Warranty made as part of an ocean marine contract without any expression on the part of the parties involved.

Inland Marine

Coverage for a property that may be in transit, held by a bailee, at a fixed location, a movable good that is often at different locations (e.g., off road construction equipment), or scheduled property (e.g., Homeowners Personal Property Floater), including items such as live animals, property with antique or collector’s value, etc. This line also includes instrumentalities of transportation and communication, such as bridges, tunnels, piers, wharves, docks, pipelines, power and phone lines, and radio and television towers.

Jettison

A voluntary action to rid a ship of cargo to prevent further damage or loss to the hull. Jettison is a covered peril in ocean marine policies.

Jewelers Block Coverage Form

Commercial inland marine form for jewelers. Covers the insured’s stock in trade and the property of others while it is on or off the premises.

Marine Insurance

Coverage for goods in transit and for the commercial vehicles that transport them on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance.

Motor Carrier Act of 1980

The Motor Carrier Act of 1980 requires certain for-hire and private motor carriers transporting hazardous materials or operating above specific weight thresholds to maintain minimum levels of public liability coverage. “Public liability” includes bodily injury, property damage, and environmental restoration. Proof of this financial responsibility is typically demonstrated through liability insurance, a surety bond, approved self-insurance, and - when a liability policy is used - the MCS-90 endorsement.

Ocean Marine

Coverage for ocean and inland water transportation exposures; goods or cargoes; ships or hulls; earnings; and liability.

Perils of the Sea

Fortuitous accidents or casualties of the seas. They do not include the ordinary action of the winds and waves. Fire, lightning, pirates, jettison and barratry are separate named perils, not perils of the sea.

Protection and Indemnity (P&I) Insurance

A broad form of marine legal liability insurance coverage.

Transit

Transporting from one location to another. Transportation policies are also referred to as transit insurance.

Travel Accident Insurance

Provides benefits for accidental injury while traveling, usually on a common carrier. A type of limited policy.

Trucker’s Form

An inland marine transportation form that insures a trucker against legal liability for damage to the property of others that the trucker is transporting for hire.