Marine Insurance

A marine insurance contract will be interpreted in accordance with the law of the state in which it was formed unless there is a controlling and specific federal rule, or, in the absence of such rule, there is a compelling reason to create a federal rule. Where, however, a state’s insurance law is materially different than federal maritime law, the state law will not govern a marine insurance dispute.

Cargo Insurance

Cargo insurance is often written as an “all risks” policy. Cargo policies often cover the goods from the shipper’s warehouse to the consignee’s warehouse. However, cargo policies often contain exclusions. “Notwithstanding the all-inclusive nature of the words “all risks”, not all risks are covered, only those arising from fortuitous accident or casualty resulting in damage or loss attributable to an external cause. Cargo insurance is often written on open policies that enable the assured to issue certificates to its consignee.

Hull and P&I Insurance

The hull policy is primarily, but not exclusively, first-party coverage. Its purpose is to cover damage to or loss of a vessel. However, its coverage is broader because of the policy’s “running down” clause indemnifies an owner for liability to a third party resulting from a collision. Protection and indemnity coverage is primarily third-party coverage in that its purpose is to indemnify a vessel owner for liabilities incurred to third persons—these liabilities include personal injury and death, property damage not covered under the running down clause, and damage to cargo. Pollution insurance, which traditionally had been part of P&I coverage, has emerged as a separate coverage in the United States in part because of the enactment of the Oil Pollution Act of 1990 (OPA 90). OPA 90 establishes a strict liability regime on vessel owners and operators of facilities that discharge oil into the navigable waters of the United States. Liability is imposed not only for clean-up costs, but also for natural resource damages. There are also provisions for private parties to recover damages.

General Average

General Average is a means of equitable sharing, between shipowner and cargo interests, of certain losses and expenses that occur during a voyage. Its origins are rooted in the notion that a voyage is a common adventure between the vessel owner and the cargo owners. As an equitable doctrine, the law of general average holds that some parties to the joint venture should not benefit from the misfortunes of the other parties to the venture. For example, the master of a vessel confronting a storm may decide that some cargo must be jettisoned to lighten the vessel, thereby giving it a better chance to avoid sinking. If some cargo is sacrificed and the vessel and remaining cargo survive the storm, the later will have benefited at the expense of the sacrificed cargo. Under the rules of general average, all parties to the venture, including the shipowner and all owners of cargo, must absorb a proportionate share of the loss suffered by the owners of the sacrificed cargo. The law of general average is not statutory and is part of the general maritime law of the United States.

Historically, a party seeking to recover a claim of general average had to establish three factors: (1) there was imminent, common danger or peril; (2) there was a voluntary jettison of the claimant’s portion of the joint venture for the purpose of avoiding the peril; and (3) the attempt to avoid the peril was successful. In more recent times, the circumstances in which general average may be declared have expanded. General Average is no longer restricted to situations of jettison; other sacrifices will support a claim. Extraordinary expenses are those that are necessary for the safe completion of the voyage and may include costs of repairs, discharging and reloading of cargo, additional wages, and other expenses incurred during any necessary interruption of a voyage. The rules on general average have been “codified” in the form of various versions of the York-Antwerp Rules.

Excerpts from Admiralty and Maritime Law by Professor Robert Force (Federal Judicial Center 2004).