OCEAN MARINE INSURANCE OVERVIEW

(January 2020)

INTRODUCTION

Ocean marine insurance coverage is unquestionably the first type of insurance. Traders realized early on that they could lose everything if they placed all of their property on a single vessel and it sank or was captured by pirates. They learned that a total loss was less likely if they sent their merchandise on several vessels instead of one. This simple concept of spreading risk became the basis for all property and casualty insurance. Formal insurance coverage forms and policies protecting vessel hulls and their cargo developed first because the risk of loss was so severe.

In general, ocean marine insurance consists of:

• Ocean Marine Hull Coverage - covers the vessel and its related property.

Related Article: Ocean Marine Hull Insurance

• Ocean Marine Cargo Coverage - covers vessel cargo (goods and other property).

Related Article: Ocean Marine Cargo Insurance

• Ocean Marine Liability Coverage - commonly referred to as Protection & Indemnity (P&I). It covers bodily injury and property damage to the general public as well as to the master and crew, and the legal liability for cargo.

Related Article: Ocean Marine Liability Insurance

A relatively recent addition to this line of business is the yacht policy. It is intended for smaller pleasure craft and combines all three of these coverages in a single policy.

Related Articles:

AAIS Yacht Coverage Form

ISO Yacht Coverage Form

OCEAN MARINE HULL INSURANCE

Ocean Marine Hull Insurance protects the ship owner or charterer's investment in the vessel, including that vessel’s related machinery and equipment. It is usually written on an annual basis and the insurance provided is against broad named perils for physical damage to the vessel. Rates and premiums charged are based on the type of vessel, its construction, age, size, and trading/navigating limits, along with its previous loss experience.

Hull coverage is written on many different kinds of commercial vessels that operate on rivers, lakes, harbors and other inland waterways, in addition to ocean-going vessels. Examples include tugs, lighters, various work vessels used to load or unload ships, river towboats, barges and miscellaneous classes of floating equipment used in and around coastal or inland ports. Hull insurance can also be used to insure offshore oil rigs and similar fixed property exposures in ocean settings, as well as stationary casino riverboats.

OCEAN MARINE CARGO INSURANCE

Merchandise that is waterborne during any part of its shipment may be covered under Ocean Marine Cargo Insurance. In fact, coverage applies to such shipments even when they are on dry land! Most cargo coverage is written on Open Cargo policies that cover all of a given insured's shipments during the policy period. The policy is usually insured on a continuous until cancelled basis. Such policies may be terminated by either the insured or the insurance company/underwriter. Coverage applies to every shipment the insured makes as long as it is reported based on the policy conditions. Open Cargo policies state the risks insured against, the geographical limits of coverage, and the limits of insurance. They can be customized to meet the requirements of a given insured by attaching various clauses. The coverage available is on a limited perils, broadened perils, or all risk basis.

OCEAN MARINE LIABILITY INSURANCE

Ocean Marine Liability Insurance is also referred to as Protection & Indemnity (P&I) Insurance. It is included with Hull Insurance to provide complete protection to the vessel's owner, master or charterer. It also covers the maritime liability exposures for other marine risks, such as Wharfingers, Terminal and Marine Operators, Ship Repairers, and Stevedores.

The vessel owner’s greatest responsibility is to its crew. The owner is responsible for injuries, including death, and paying maintenance or medical care for crew injuries that take place on board. Admiralty Law provisions allow seamen or their dependents to claim damages for injuries or death. Valid claims involve such injuries caused by the vessel's owner or operator, or by the vessel not being seaworthy. P & I also covers the owner's liability with regard to injuries or death to third parties arising out of the vessel's operation. P & I coverage also applies to damage to property of others, such as piers, bridges, jetties or docks, as well as the owner’s responsibility for loss or damage to cargo aboard the vessel.

INSURANCE ORGANIZATIONS

A variety of veteran organizations have historically influenced Ocean Marine coverage and do so today as well.

Lloyds of London was the first organization to formally write ocean marine coverage. It is a major force in this type of insurance. Insurance for ocean-going vessels is heavily reinsured. Because Lloyds arranges much of the reinsurance for these exposures, it is quite likely that it insures or reinsures a part of every ocean-going vessel.

Related Article: A Look at Lloyds

American Institute of Marine Underwriters (AIMU) is an important organization in the ocean marine insurance arena operating in the United States. It reviews coverage clauses, addresses important issues, and sponsors forums where its members meet and discuss important issues as they relate to the industry. While it does not involve itself with developing rates, it is an important research source.

Classification Societies are unique to ocean marine insurance. They are its loss prevention arm and exist solely to determine the seaworthiness of vessels. They provide marine engineering service with exacting standards. A vessel is classified based on its adherence to the standards. Because all classification societies are not the same, the United States Coast Guard monitors them to determine the ones that most accurately assess a vessel's seaworthiness. Hull coverage has an important warranty that voids coverage if a vessel’s classification is changed. The underwriter must be notified of any reclassification and decide if it desires to continue coverage based on the new classification.

Marine surveyors are another important group. As classification societies represent the ocean marine insurance loss prevention discipline, surveyors represent its claims side.

Example: Neptoon Insurers were about to sign off on providing coverage for a prospect. Neptoon’s underwriter noticed that the prospect was about to be involved with towing some semi-submersible oil rig equipment. She requested a marine survey before making a final decision.

These independent businesses review damage and submit recommendations to the insurance company/underwriter. Because they are independent businesses, the insurance company/underwriter must approve the recommendations before any action is taken.

Ocean marine insurance is a specialty line and a number of excellent brokers are available to assist agents with placing it. The Insurance Marketplace, a publication of The Rough Notes Company, Inc., is an excellent resource that lists a number of these brokers and resources.