Marine Insurance Law
Complete study guide for marine insurance and maritime law topics tested on the USCG OUPV and Master captain's license exam. Covers hull and machinery, P&I, cargo, OPA 90, Jones Act, general average, maritime liens, and limitation of liability.
What's on This Page
1. Types of Marine Insurance
Marine insurance divides into four primary categories. Each covers a different exposure. A commercial vessel operator typically carries at least H&M and P&I; cargo operators also carry cargo coverage.
Hull and Machinery (H&M)
Physical loss or damage to the vessel, machinery, equipment, fittings
Third-party liability, cargo loss, crew injury
Valued policy (agreed value at inception)
Required by lenders; covers perils of the sea, fire, theft, collision
Protection and Indemnity (P&I)
Third-party liabilities: crew injury, cargo damage, collision with fixed objects, pollution, wreck removal
Own hull damage (that is H&M)
P&I Clubs (mutual associations) or commercial market
Essential for commercial operators; covers Jones Act exposure
Cargo Insurance
Loss or damage to cargo in transit by sea
Inherent vice, delay, willful misconduct of cargo owner
Institute Cargo Clauses A, B, or C (A is broadest)
Covers all risks (A) or named perils (B/C); war and strikes separate
Freight Insurance
Loss of freight income if cargo is not delivered due to a covered peril
Commercial risk of cargo not being shipped
Time or voyage policy
Protects carrier's revenue; less common for small vessels
Builders Risk
Vessel under construction: material, labor, machinery installed
Faulty design or workmanship (the defect itself)
Valued or unvalued; voyage basis during trials
Transitions to H&M after delivery and acceptance
2. Policy Types and Structures
Marine insurance policies come in several structural forms. The type of policy determines how coverage attaches, how losses are valued, and how long coverage lasts.
Valued Policy
Insured value agreed at inception. If total loss, agreed value is paid regardless of actual market value. Standard in marine H&M.
Unvalued Policy
No agreed value. Insurer pays actual cash value at time of loss. Used in some cargo policies.
Voyage Policy
Covers a specific voyage from port A to port B. Coverage ends when voyage ends.
Time Policy
Covers the vessel for a specific period (usually 12 months). Most H&M policies are time policies.
Open Cover
Standing cargo policy — automatically covers all shipments declared under the policy. Shipper declares each shipment; premium is paid periodically.
Floating Policy
Cargo policy with a declared limit; specific shipments are declared against it until the limit is exhausted.
- Agreed value set at policy inception
- In total loss: insurer pays agreed value, no argument about market value
- In partial loss: loss calculated as proportion of agreed value
- Standard for H&M policies — eliminates valuation disputes
- Over-insurance is possible (agreed value exceeds actual value)
- No agreed value; actual cash value determined after loss
- Requires proof of value at time of loss
- More common in cargo insurance
- Insured bears burden of proving loss amount
- Prevents windfall if vessel's market value dropped
3. Core Insurance Principles
Five fundamental principles govern marine insurance. These are tested on the exam and also underlie how claims are handled in practice. Understand not just the definition but the consequence of each.
Utmost Good Faith (Uberrimae Fidei)
Both parties must disclose all material facts
Concealment or misrepresentation voids the policy ab initio (from the beginning)
What happens if the insured fails to disclose a prior grounding? Policy voids.
Insurable Interest
The insured must have a financial stake in the subject matter at the time of the loss
No insurable interest = no valid claim; policy is void
Seller of vessel insured it after title passed — no insurable interest
Indemnity
The insured should be restored to the same financial position as before the loss — no more
Over-insurance is controlled; insured cannot profit from a loss
Valued policies in marine insurance are an exception — agreed value is paid regardless of market
Subrogation
After paying a claim, the insurer steps into the insured's shoes to recover from third parties
Insurer can sue the party that caused the loss
Insurer pays H&M claim for collision damage, then sues the at-fault vessel owner
Contribution
When multiple policies cover the same loss, each pays a proportional share
Prevents double recovery
Two H&M policies covering the same vessel — each contributes ratably
Uberrimae Fidei — Deep Dive
Marine insurance was built on utmost good faith because underwriters historically could not inspect a vessel before issuing a policy — the ship might be halfway around the world. The insured had superior knowledge of the risk. The law therefore imposed a higher duty than in ordinary contracts.
Material facts include: prior losses and claims, known defects or damage, unusual navigating area, dangerous cargo, qualifications of the master, prior refusals of insurance by other underwriters. The test is whether the fact would influence a prudent underwriter's decision — not whether the insured thought it was important.
4. The Seaworthiness Obligation
Seaworthiness is both an implied warranty in marine insurance and an absolute legal duty in maritime law. It operates differently in each context — understand both.
In Marine Insurance (Implied Warranty)
- The vessel must be seaworthy at the commencement of each voyage
- For time policies: seaworthiness at inception is less strictly implied; knowledge of unseaworthiness by the insured can void coverage
- Breach of seaworthiness warranty voids the insurer's liability from the point of breach
- The unseaworthiness must contribute to the loss to affect coverage in most modern policies
- Seaworthiness includes hull integrity, proper equipment, adequate provisions, and competent crew
In Maritime Law (Absolute Duty)
- The vessel owner has an absolute, non-delegable duty to provide a seaworthy vessel to crew
- No negligence is required — the condition itself creates liability
- The duty cannot be delegated to contractors or sub-contractors
- Applies at commencement of voyage and throughout
- Seaworthiness includes condition of all equipment, gear, tackle, and the competence of the crew
5. Coverage and Key Clauses
Marine insurance policies contain a set of standard clauses that either extend or limit coverage. The exam tests your knowledge of these clauses and the perils they address.
Perils of the Sea
The foundational covered peril in H&M policies. Includes fortuitous accidents of navigation: storms, collision, stranding, sinking, heavy weather damage. Does NOT include ordinary wear and tear, gradual deterioration, or inherent vice of the cargo. The loss must be fortuitous — an accident, not a certainty.
Inchmaree Clause
Named after the steamship Inchmaree (1887 House of Lords case). Extends coverage to losses caused by: latent defects in the vessel's machinery or hull (if not known to the insured), negligence of master or crew, boiler explosions, and shaft breakage. Without this clause, latent defects and crew negligence would not be covered as 'perils of the sea.'
Sue and Labor Clause
Requires the insured to take all reasonable steps to save and preserve the property after a casualty — even though the insurer may ultimately pay the loss. Reasonable expenses incurred in sue and labor are recoverable from the insurer in addition to the main loss, up to the policy limit. The insured who fails to take reasonable steps to mitigate may lose coverage.
Running Down Clause (RDC)
Covers the insured vessel owner's liability for collision with another vessel — specifically the three-fourths liability for damage to the other vessel. Some H&M policies cover 4/4 collision liability. Does NOT cover damage to fixed objects (piers, buoys, bridges) — that is a P&I matter. The RDC fills part of the gap between H&M and P&I.
War and Strikes Exclusion
Standard H&M policies exclude losses caused by war, civil war, piracy, and strikes. These risks are insurable separately through war risk policies (which typically attach as Institute War Clauses). The demarcation between perils of the sea and war risk can matter in disputed cases (e.g., sea mines, pirate attacks).
General Average Clause
Most H&M policies include general average coverage — the insurer pays the vessel owner's share of any general average declared during the policy period. Cargo insurers similarly cover their insured cargo owners' general average contributions. Without this clause, the insured would bear the general average contribution out of pocket.
6. General Average
General average is one of the oldest principles in maritime law — dating to ancient Rhodian sea law. It provides that a deliberate sacrifice to save the common adventure is shared by all who benefit. Modern general average is governed by the York-Antwerp Rules, most recently revised in 2016.
The General Average Formula
- 1. Extraordinary sacrifice or expenditure
- 2. Made voluntarily and reasonably
- 3. For the common safety of all interests
If everything is lost anyway, there is no general average. Some portion of the ship or cargo must reach port.
Each party pays: (Saved Value of Their Interest / Total Saved Values) x Total G/A Loss
How General Average Works — Step by Step
Extraordinary sacrifice or expenditure is made voluntarily for the common safety
Peril must be real, not speculative; sacrifice must be reasonable and intentional
Adventure must be preserved — at least part of the cargo or ship must be saved
Master declares general average and secures general average bond or cash deposit from cargo interests
Average adjuster is appointed to calculate the total loss and each party's proportional contribution
Contributory value of each interest (ship, cargo, freight) is determined at port of destination
Each party pays its pro-rata share; cargo insurers typically pay on behalf of cargo owners
Classic General Average Examples
- Jettison: Throwing cargo overboard to lighten a grounded vessel
- Fire suppression: Flooding a cargo hold to fight a fire (cargo sacrificed, ship saved)
- Salvage costs: If the vessel is in danger and a salvor is called, salvage costs can be general average
- Port of refuge costs: Putting into an unscheduled port to make emergency repairs necessary for the voyage
- Extraordinary fuel costs: Engine damage forces diversion; extra fuel for the alternate route is general average
York-Antwerp Rules — Key Points
- International set of rules governing general average adjustments since 1890
- Most bills of lading incorporate York-Antwerp Rules by reference
- Rules lettered A-G govern fundamental principles
- Rules numbered I-XXII cover specific types of expenditure
- Rule Paramount (2004 version): GA not allowed if the incident resulted from an actionable fault of one party
- Average adjuster is typically a specialist in a professional association
7. Particular Average vs. General Average
The word 'average' in marine insurance means 'loss.' The distinction between particular average and general average determines who bears the loss and whether it is shared.
| Feature | Particular Average (PA) | General Average (GA) |
|---|---|---|
| Nature of loss | Accidental partial loss — happens to one interest | Intentional sacrifice for the benefit of all |
| Who bears the loss | The owner of the damaged property alone | Shared proportionally by all interests in the adventure |
| Cause | Peril of the sea, not voluntary | Deliberate act by master for common safety |
| Example | Wave damages cargo in hold during storm | Cargo jettisoned to save sinking ship |
| Insurance coverage | Insured's own cargo or hull policy pays | Each party's insurer pays that party's GA contribution |
| Adjustment | Straightforward claim; surveyor assesses damage | Average adjuster allocates among all interests |
Franchise Clauses (Particular Average)
A franchise clause sets a threshold below which the insurer pays nothing — but once the loss exceeds the franchise, the insurer pays the entire loss, including amounts below the threshold.
Example: 3% franchise on a $100,000 cargo policy. A $2,500 loss (2.5%) — insurer pays nothing. A $4,000 loss (4%) — insurer pays the full $4,000.
Compare to a deductible, which is subtracted from every claim regardless of amount.
Deductibles and Average
Modern H&M policies typically use deductibles rather than franchises. The deductible is subtracted from every claim. A $5,000 deductible means: $3,000 loss = insured pays all; $50,000 loss = insured pays first $5,000, insurer pays $45,000.
'Free of Particular Average' (FPA) cargo clauses exclude particular average losses entirely — only total losses and general average contributions are covered. Cheaper premium; significant coverage gap.
8. Maritime Liens and Priority
A maritime lien is a privileged claim against a vessel that follows the vessel regardless of changes in ownership. Unlike a land-based lien, a maritime lien need not be recorded to be valid — it arises by operation of law the moment the claim arises. When a vessel is arrested and sold, the proceeds are distributed in strict priority order.
| Priority | Lien Type |
|---|---|
| 1 | Preferred Maritime Lien — Crew Wages |
| 2 | Preferred Maritime Lien — Salvage |
| 3 | Preferred Maritime Lien — Maritime Tort (personal injury, property damage) |
| 4 | Preferred Maritime Lien — General Average Contributions |
| 5 | Preferred Ship Mortgage |
| 6 | Necessaries Lien (non-preferred) |
| 7 | Cargo Claims (contractual) |
Green = preferred maritime liens (rank above mortgage); Blue = preferred ship mortgage; Gray = non-preferred liens
Characteristics of Maritime Liens
- Secret: No recording required; exist without notice
- Travels with vessel: Survives sale to innocent purchaser
- In rem: Enforced by arresting the vessel in federal admiralty court
- Last-in-time priority: Among tort liens of the same class, the most recent ranks first
- Cannot be waived by crew: Crew wage liens cannot be contractually waived
Necessaries Liens
Under the Federal Maritime Lien Act (46 USC 31341), a person who provides necessaries to a vessel on the order of the owner or a person authorized by the owner has a maritime lien on the vessel.
Necessaries include: fuel, food, water, stores, dockage, towage, repairs, and other items needed to operate the vessel.
Necessaries liens rank below preferred ship mortgages — a key difference from preferred maritime liens. Fuel supplier loses to the bank if the vessel is foreclosed.
9. Limitation of Liability Act
The Limitation of Liability Act (46 USC 30501) allows a vessel owner to cap their liability for a maritime casualty at the post-accident value of the vessel plus pending freight. The Act was designed to encourage investment in shipping by limiting catastrophic exposure. Understanding when it applies — and when it does NOT — is essential exam knowledge.
How to Limit Liability
- 1. File a Limitation of Liability petition in U.S. federal district court (admiralty jurisdiction)
- 2. Deposit the limitation fund: post-accident value of the vessel + pending freight
- 3. Court issues injunction stopping all other proceedings
- 4. All claimants must file their claims in the limitation proceeding
- 5. If total claims exceed the fund, claimants share pro-rata
- 6. Court determines whether owner had privity or knowledge
When Limitation Fails
- Owner had privity or knowledge of the negligence or unseaworthiness causing the loss
- For corporate owners: privity of a managing officer or director counts
- Owner was personally operating the vessel at time of accident
- Loss of life or personal injury on U.S. inland waters: claimants get $420 per ton minimum (separate statute)
- Jones Act wage claims may survive limitation
- OPA 90 has its own separate liability limits that override this Act for oil spills
Vessel FMV before accident: $500,000. Post-accident salvage value: $40,000. Pending freight: $0 (voyage incomplete).
Limitation fund = $40,000 + $0 = $40,000
Claims filed: personal injury $300,000 + property damage $200,000 = $500,000 total
If limitation is granted: each claimant receives 40,000/500,000 = 8% of their claim. Personal injury claimant gets $24,000; property damage claimant gets $16,000.
Note: A total-loss vessel with zero salvage value could mean a near-zero limitation fund — claimants receive essentially nothing despite large losses.
10. OPA 90 — Oil Pollution Act of 1990
The Exxon Valdez grounding on March 24, 1989 spilled 11 million gallons of crude oil into Prince William Sound, Alaska. Congress responded with the Oil Pollution Act of 1990 — the most comprehensive U.S. oil spill law. Every commercial vessel operator must understand OPA 90 liability exposure.
| Element | Detail |
|---|---|
| Full Name | Oil Pollution Act of 1990 (OPA 90), 33 USC 2701 et seq. |
| Trigger | Discharge or substantial threat of discharge of oil into U.S. navigable waters, shorelines, or EEZ |
| Responsible Party | Owner, operator, or demise charterer of the vessel at the time of discharge |
| Liability Basis | Strict liability — no proof of fault required |
| Liability Limit — Single Hull Tank Vessel | $3,000 per gross ton or $22 million, whichever is greater |
| Liability Limit — Other Vessels | $1,000 per gross ton or $1 million, whichever is greater |
| When Cap Is Eliminated | Gross negligence, willful misconduct, or violation of applicable federal safety regulations |
| COFR Requirement | Certificate of Financial Responsibility required for vessels over 300 GT in U.S. waters, or any vessel using deepwater ports or transporting oil |
| COFR Evidence | Insurance, surety bond, self-insurance, or financial test |
| Natural Resource Damages | Trustee agencies can recover for damage to fish, wildlife, and natural resources |
COFR Requirements
A Certificate of Financial Responsibility (COFR) is required for:
- Any vessel over 300 gross tons operating in U.S. waters
- Any vessel using a deepwater port
- Any vessel transporting oil in bulk as cargo
- Any vessel that, because of its nature, could cause substantial harm to the environment
COFR evidence: P&I insurance (most common), surety bond, self-insurance with financial test, or guarantee. Operating without a required COFR is a criminal violation.
OPA 90 Defenses — Very Limited
Strict liability applies except when the spill is caused solely by:
- Act of God (natural disaster beyond human control)
- Act of war
- Negligence of the U.S. government
- Act or omission of a third party (not employee/contractor), combined with owner's exercise of due care
Note: if the owner's own negligence contributed at all, even slightly, these defenses fail.
11. Jones Act and Seaman Personal Injury
The Jones Act (46 USC 30104) gives seamen the right to sue their employer for negligence. Combined with the ancient maritime law doctrines of maintenance and cure and unseaworthiness, Jones Act seamen have three distinct remedies for work-related injuries — each with different standards of proof and different defendants.
| Element | Rule / Standard |
|---|---|
| Seaman Status | Must spend substantial time (at least 30% of work time) working on a vessel in navigation; vessel must be in navigable waters |
| Maintenance | Daily subsistence allowance while unable to work due to injury — covers food and lodging; currently typically $45-$60/day (courts set the rate) |
| Cure | Medical expenses until maximum medical improvement (MMI); employer cannot cut off cure prematurely without liability |
| Jones Act Negligence | Employer liability under a very low negligence standard — even a featherweight contribution by employer is sufficient; assumption of risk is not a defense |
| Unseaworthiness | Absolute duty of the vessel owner to provide a seaworthy vessel; applies to hull, equipment, gear, and crew competency; no negligence required |
| Comparative Fault | Plaintiff's own negligence reduces (but does not bar) recovery under both Jones Act and unseaworthiness claims |
Maintenance
Daily wage paid to injured seaman regardless of fault. Covers food and lodging only. Current rates set by courts: typically $45-$60/day. Must be paid until maximum medical improvement (MMI).
Cure
Medical expenses until MMI. Employer pays regardless of fault. Cannot be terminated while seaman is still improving. Employer risks punitive damages for willful failure to pay cure.
Jones Act Negligence
Employer negligence under a featherweight standard. Any contribution by employer suffices. No assumption of risk defense. Fellow servant rule abolished. Comparative fault reduces (not bars) recovery.
Who Is a 'Seaman' for Jones Act Purposes?
The Supreme Court (Chandris v. Latsis, 1995) established the test: a worker qualifies as a Jones Act seaman if:
Element 1 — Connection to Vessel
Must have an employment-related connection to a vessel in navigation. Can be a fleet of vessels under common ownership.
Element 2 — Substantial Time
Must spend substantial time (roughly 30% or more) working on the vessel. A harbor worker who only occasionally goes on a vessel is not a seaman.
Non-seaman maritime workers (longshoremen, shipyard workers) are covered by the Longshore and Harbor Workers' Compensation Act (LHWCA) — a no-fault workers' compensation scheme, not the Jones Act.
12. USCG Exam Focus Areas
The USCG OUPV and Master exam tests maritime law and insurance across multiple modules. Based on the USCG exam question bank, these are the highest-frequency topics.
Marine Insurance Concepts
- •Definition and effect of uberrimae fidei
- •Valued vs. unvalued policy
- •H&M vs. P&I — what each covers
- •Seaworthiness warranty in insurance
- •Sue and labor obligation
- •Subrogation after a claim payment
- •General average — who pays, when it applies
- •Particular average vs. general average
- •Franchise vs. deductible
Maritime Law — Injury and Liability
- •Jones Act seaman status test
- •Maintenance and cure — amount, duration, termination
- •Unseaworthiness — absolute duty, no negligence required
- •OPA 90 — strict liability, COFR, liability limits
- •When OPA 90 cap is eliminated
- •Limitation of Liability Act — privity/knowledge test
- •LHWCA vs. Jones Act — who is covered
- •Comparative fault in maritime injury cases
Maritime Liens
- •Priority order: crew wages > salvage > torts > mortgage > necessaries
- •Maritime lien — no recording required
- •Lien follows vessel through ownership changes
- •Necessaries lien — who can create it
- •Preferred ship mortgage priority
- •How to enforce a maritime lien (in rem action)
Documentation and Regulatory
- •COFR — who needs it, what satisfies it
- •Vessel documentation vs. state registration
- •Coastwise trade (Jones Act vessel requirements)
- •Passenger vessel liability requirements
- •Vessel mortgage recording requirements
- •Manning requirements and certificate of inspection
High-Yield Memorization Points
Crew wages rank #1 in maritime lien priority — above everything, including bank mortgages
Jones Act negligence standard is featherweight — any employer contribution suffices
OPA 90 strict liability; cap eliminated for gross negligence or regulatory violation
Uberrimae fidei: concealment of material fact = policy void from inception
Limitation of Liability = post-accident value; privity of owner defeats it
Unseaworthiness is absolute duty — no negligence required by crew member to win
COFR required for vessels over 300 GT in U.S. waters
H&M pays for your vessel; P&I pays for what your vessel does to others
General average requires voluntary, reasonable sacrifice for common safety
Franchise: pay nothing below threshold; pay all above it (differs from deductible)
13. Practice Problems with Solutions
Work through each scenario. Reveal the answer only after you have committed to your analysis. These problems mirror the reasoning required on the actual exam.
1A vessel owner insures his boat for $200,000. He fails to mention to the insurer that the vessel was in a collision six months ago that resulted in a $30,000 repair. The vessel later sinks. Will the insurer pay the claim?
A vessel owner insures his boat for $200,000. He fails to mention to the insurer that the vessel was in a collision six months ago that resulted in a $30,000 repair. The vessel later sinks. Will the insurer pay the claim?
Almost certainly not. The prior collision and repair is a material fact that a prudent underwriter would want to know. Failure to disclose it violates the principle of utmost good faith (uberrimae fidei). The insurer can void the policy from inception and deny the claim. The insured's only argument would be that the prior repair was immaterial — difficult to sustain given the dollar amount.
2A cargo ship encounters a severe storm. The master jettisons 40 containers of electronics to keep the ship from capsizing. The ship and remaining cargo arrive safely. Who pays for the lost electronics?
A cargo ship encounters a severe storm. The master jettisons 40 containers of electronics to keep the ship from capsizing. The ship and remaining cargo arrive safely. Who pays for the lost electronics?
This is a classic general average situation. The voluntary sacrifice (jettisoning electronics) was made for the common safety of all interests. The loss is shared by all parties with a stake in the adventure: the shipowner, and all cargo owners whose goods survived. Each contributes in proportion to the saved value of their interest. An average adjuster calculates the shares. Electronics cargo owners whose goods were jettisoned receive compensation from the general average fund.
3A vessel collides with a dock. The post-accident value of the vessel is $50,000. Dock damage claims total $800,000. Crew injury claims total $200,000. Can the owner limit liability?
A vessel collides with a dock. The post-accident value of the vessel is $50,000. Dock damage claims total $800,000. Crew injury claims total $200,000. Can the owner limit liability?
The owner can attempt to limit under 46 USC 30501 by filing a Limitation of Liability petition and depositing the post-accident value ($50,000) as the limitation fund. IF the court finds the owner had no privity or knowledge of the negligence causing the collision, total liability is capped at $50,000 — shared among all claimants. However, crew wage claims (Jones Act) may survive limitation. If the owner was personally at the helm or knew of a dangerous condition, privity is established and limitation fails.
4A seaman is injured when a corroded ladder rung breaks. The vessel owner claims the seaman assumed the risk. What remedies does the seaman have?
A seaman is injured when a corroded ladder rung breaks. The vessel owner claims the seaman assumed the risk. What remedies does the seaman have?
The seaman has three remedies. First, maintenance and cure — the owner must pay daily living expenses and medical bills regardless of fault, until maximum medical improvement. Second, Jones Act negligence — the broken rung from corrosion suggests the owner or crew failed to inspect and maintain; only slight negligence is required, assumption of risk is not a valid defense. Third, unseaworthiness — a corroded ladder makes the vessel unseaworthy; this is an absolute duty with no negligence required. The seaman likely wins on all three theories.
5A tank barge discharges 500 gallons of diesel into a navigable waterway during a grounding. The Coast Guard determines the grounding was caused by the operator's failure to update charts. What is the owner's OPA 90 exposure?
A tank barge discharges 500 gallons of diesel into a navigable waterway during a grounding. The Coast Guard determines the grounding was caused by the operator's failure to update charts. What is the owner's OPA 90 exposure?
Under OPA 90, the responsible party (vessel owner/operator) is strictly liable for cleanup costs and damages. The $1,000 per gross ton liability limit could apply, but failure to use updated charts may constitute gross negligence or violation of federal operating regulations — which eliminates the liability cap entirely. The owner faces unlimited liability for all cleanup costs, natural resource damages, and economic losses to affected parties. They must also have a valid COFR on file; operating without one is a separate criminal violation.
6A vessel has two insurance policies: H&M Policy A for $300,000 and H&M Policy B for $200,000. The vessel sustains $100,000 in fire damage. How much does each insurer pay?
A vessel has two insurance policies: H&M Policy A for $300,000 and H&M Policy B for $200,000. The vessel sustains $100,000 in fire damage. How much does each insurer pay?
The principle of contribution applies. Total insurance is $500,000. Policy A covers 300,000/500,000 = 60%; Policy B covers 200,000/500,000 = 40%. Policy A pays $60,000; Policy B pays $40,000. Together they pay the full $100,000 loss. The insured cannot collect more than the actual loss from all insurers combined — the indemnity principle prevents profit from a loss.
7A vessel is sold. The seller maintains his H&M policy for another month after closing. The vessel sinks. Can the seller collect?
A vessel is sold. The seller maintains his H&M policy for another month after closing. The vessel sinks. Can the seller collect?
No. At the time of the loss, the seller no longer owned the vessel and had no financial stake in it. He has no insurable interest at the time of the loss. Without insurable interest, there is no valid insurance claim. Note that insurable interest must exist at the time of the loss in property insurance — unlike life insurance where it must exist at policy inception.
14. Frequently Asked Questions
What is the difference between Hull and Machinery insurance and Protection and Indemnity insurance?
Hull and Machinery (H&M) insurance covers physical damage to the vessel itself — the hull, machinery, equipment, and gear. Protection and Indemnity (P&I) insurance covers the owner's third-party liabilities: damage to other vessels, cargo liability, crew injury claims, pollution liability, and wreck removal. H&M pays for your boat; P&I pays for what your boat does to others.
What is utmost good faith (uberrimae fidei) in marine insurance?
Uberrimae fidei — Latin for 'utmost good faith' — is the foundational principle of marine insurance. Both the insured and the insurer must disclose all material facts that would influence a prudent underwriter's decision to insure or the premium charged. Unlike ordinary contracts, the insured has an affirmative duty to volunteer all material information even if not asked. Concealment or misrepresentation of a material fact voids the policy from the start.
What is general average and who pays for it?
General average is a loss intentionally incurred or sacrifice made for the common safety of the ship and cargo. Classic examples: jettisoning cargo to save the ship, or flooding a cargo hold to fight fire. The loss is shared proportionally among all parties who had a financial interest in the voyage — ship owner, cargo owners, and freight interests. An average adjuster calculates each party's contribution. The York-Antwerp Rules govern most modern general average adjustments.
What does the Jones Act give a seaman the right to claim?
A Jones Act seaman (someone who spends substantial time working on a vessel in navigation) has three distinct remedies: (1) Maintenance and cure — the employer must pay daily living expenses and medical care until the seaman reaches maximum medical improvement, regardless of fault; (2) Jones Act negligence — the employer is liable under a negligence standard far lower than ordinary tort law; even a slight employer contribution to the injury is enough; (3) Unseaworthiness — the vessel owner has an absolute, non-delegable duty to provide a seaworthy vessel; proof of negligence is not required.
What is OPA 90 and what does it require of vessel owners?
The Oil Pollution Act of 1990 (OPA 90) was enacted after the Exxon Valdez disaster. It imposes strict liability on 'responsible parties' (vessel owners and operators) for oil spills into U.S. waters. The liability limit is generally $1,000 per gross ton (higher for tank vessels). Responsible parties must have a Certificate of Financial Responsibility (COFR) demonstrating ability to pay cleanup costs up to the limit. The limit is eliminated entirely if the spill was caused by willful misconduct, gross negligence, or violation of federal safety regulations.
What is the order of maritime lien priority?
Maritime liens follow a strict priority order when a vessel is sold in foreclosure: (1) Preferred Ship Mortgages rank senior only after maritime tort liens and preferred maritime liens; (2) Preferred maritime liens: wages of crew, general average contributions, salvage, and torts — in reverse chronological order (last incident first); (3) Preferred ship mortgage liens; (4) Non-preferred maritime liens (necessaries: fuel, stores, repairs, towage). Remember: crew wages and salvage trump mortgages.
What is the Limitation of Liability Act and how does a shipowner use it?
46 USC 30501 allows a vessel owner to limit liability for maritime accidents to the post-accident value of the vessel plus pending freight — IF the owner had no privity or knowledge of the negligence or unseaworthiness causing the loss. The owner files a petition in federal admiralty court, deposits the limitation fund, and all claimants must file there. The fund is the fair market value of the vessel after the accident (not before). A sunken vessel with zero post-casualty value means the fund could be near zero. Privity or knowledge by the owner breaks the limitation.
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