Recap of Chapter Twelve

The Nationwide Marine Definition provides guidelines for classifying Inland Marine, Ocean Marine, and transportation-related insurance exposures. It organizes eligible property and risks into six classifications. Imports and exports fall within the Ocean Marine classification because Ocean Marine insurance covers goods and merchandise transported by vessels across domestic or international waters.

Ocean Marine policies are not standardized, but they are subject to several implied warranties that must be followed. A breach of an implied warranty may void the policy. The legality warranty requires the cargo and purpose of the shipment to be lawful. The seaworthiness warranty requires the vessel to be properly maintained, comply with safety requirements, and be operated by a qualified and competent crew. The no deviation from voyage warranty requires the vessel to follow the route disclosed to the insurer, except when a deviation is necessary because of an emergency.

Ocean Marine insurance provides four primary coverages. Hull insurance covers physical loss or damage to the vessel itself. It is commonly written on a named perils basis, covering causes of loss such as fire, lightning, explosion, heavy weather, piracy, and jettison, which is the intentional throwing of cargo overboard. The Running Down Clause adds liability coverage for collision damage the insured vessel causes to another vessel or its cargo. The Inchmaree Clause broadens hull coverage to include losses caused by events such as bursting boilers and broken propeller shafts. A Voyage Hull Policy covers the vessel during a specific voyage, while a Time Hull Policy covers the vessel for a stated period.

Cargo insurance covers physical loss or damage to merchandise while it is in transit. Under FOB Point of Shipment, the buyer assumes an insurable interest and the risk of loss when the shipment begins. Under FOB Point of Destination, the seller retains the insurable interest and risk of loss until the cargo reaches its destination. In Ocean Marine insurance, average losses are partial losses to cargo. A general average loss results from the voluntary sacrifice of cargo or the incurring of expenses to protect the vessel and all interests on board. Because everyone benefits from the sacrifice, the loss is shared among the affected parties. A particular average loss is an accidental partial loss that affects only a specific vessel, shipment, or property interest and is not shared by the other parties.

Freight insurance provides indirect loss coverage for prepaid freight charges or import duties that cannot be recovered following a covered loss to cargo.

Protection and Indemnity (P&I) insurance provides liability coverage under Ocean Marine insurance. It protects the insured against legal liability for bodily injury or death sustained by passengers or persons onshore, expenses associated with cleaning up and removing wreckage, and work-related injuries to crew members and qualifying non-crew maritime workers. It does not cover employee injuries that fall under a standard Workers’ Compensation policy.

Like Ocean Marine insurance, Aviation insurance provides both hull and liability coverage. Aircraft Hull insurance covers physical damage to the aircraft and is available at three levels. Ground Coverage applies while the aircraft is on the ground and not moving. Ground Including Taxi Coverage applies while the aircraft is stationary or taxiing. Ground and Flight Coverage provides the broadest protection, covering the aircraft while it is stationary, taxiing, or in flight.

Aircraft Liability insurance covers the insured’s legal responsibility for bodily injury or property damage arising from the ownership, maintenance, or use of an aircraft. Coverage may be selected for bodily injury or death sustained by non-passenger third parties, bodily injury or death sustained by passengers, and damage to property belonging to others. When these coverages are combined, the policy generally applies a combined single limit to each occurrence. The policy may also include a per person sublimit, which applies to each injured person, or a per passenger sublimit, which applies only to injured passengers.

Inland Marine insurance covers property transported over land, instrumentalities of transportation and communication, personal property floaters, and commercial property floaters. Controlled lines, also known as filed lines, use forms and rates that insurers must file with state insurance departments. Most Inland Marine coverage is written on uncontrolled, or nonfiled, forms whose rates and provisions are developed by individual insurers and are not filed with state insurance regulators. Coverage is generally written on an open perils basis, meaning direct physical loss is covered unless it is specifically excluded. Common exclusions include governmental action, war, nuclear hazards, consequential loss, and criminal or dishonest acts.

Property in transit may be insured under several specialized transportation coverage forms. Common and contract carriers can use two primary forms to protect cargo in their care, custody, or control. The Motor Truck Cargo Carriers Coverage Form applies when the carrier owns the motor truck but transports property belonging to others. The Motor Truck Cargo Owners Coverage Form applies when the named insured owns both the motor truck and the cargo being transported.

These transportation coverage forms are important because carriers may be legally responsible for cargo while it is in their care, custody, or control. Common carriers are held to a particularly high standard and are generally liable for cargo loss or damage, subject to only a few recognized exceptions. When a common carrier accepts property for transportation, it issues a bill of lading, which serves as both a transportation contract and a receipt for the goods. A straight bill of lading does not limit the stated value of the cargo, so the carrier may be responsible for the property’s full value. A released bill of lading establishes an agreed value limitation, restricting the carrier’s liability to the amount stated in the document.

Although carriers may insure cargo while it is in their care, the owners of the property should also consider purchasing coverage to protect their financial interest in the shipment. The Annual Transit Coverage Form is designed for insureds that regularly ship or receive cargo throughout the year. The Trip Transit Coverage Form is intended for insureds that need coverage for a single shipment.

Several Commercial Property Floaters are available to insure movable or “floating” business property. Businesses such as dry cleaners and repair shops may use the Bailees Customers Coverage Form to insure customers’ property while it is in their care, custody, or control. Cameras, projection equipment, musical instruments, and similar business property may be covered under the Commercial Articles Coverage Form. Computer equipment other than portable computers, along with data, media, and software, may be insured under an Electronic Data Processing Coverage Form. Billboards, street clocks, and similar signs may be covered under the Signs Coverage Form.

Specialized floaters are available for businesses that sell particular types of property. Jewelry retailers, wholesalers, and manufacturers may purchase Jewelers Block coverage to protect stock such as watches, gold, pearls, precious stones, and similar articles. Businesses that sell mobile agricultural or construction equipment may use the Equipment Dealers Floater. Both forms include a Records and Inventory condition, which requires the insured to maintain accurate inventory and sales records for at least 3 years after the policy ends. They also include a Protective Safeguards condition. If required safeguards are not properly maintained or operating at a location, coverage at that location may be automatically suspended until the safeguards are restored.

Businesses that use mobile equipment, hand tools, machinery, or similar property in contracting operations may insure that property under a Contractors Equipment Floater. Eligible newly acquired equipment is automatically covered for up to 60 days, subject to the policy’s applicable limit and reporting requirements. Electrical, plumbing, heating, and similar equipment intended for permanent installation may be insured under an Installation Floater while it is in transit to the job site and during the installation process.

The Valuable Papers and Records Floater protects important documents such as abstracts, books, deeds, maps, and similar records against covered loss or damage. When accounts receivable records are destroyed and the business is unable to collect amounts owed by customers, the Accounts Receivable Coverage Form may reimburse the insured for those uncollectible amounts and related recovery expenses.