Hull, Cargo and Freight Insurance

In one line

Marine insurance is written on three things: the ship, the goods she carries, and the money the shipowner will earn by carrying them.

In the wording a student can write in an exam: the three principal subjects of marine insurance correspond to the first two limbs of the definition of a marine adventure in section 2(d) of the Marine Insurance Act, 1963; hull insurance covers the vessel and her machinery and, through the running down clause, part of the owner's collision liability; cargo insurance covers the goods in transit; and freight insurance covers the shipowner's earnings, freight being defined by section 2(b) to include the profit derivable from carrying his own goods but not passage money.

Hull insurance

What is insured. The vessel herself, her machinery, boilers, equipment and stores, valued under section 18(1) at her value at the commencement of the risk including outfit, provisions and stores for officers and crew, money advanced for seamen's wages and other disbursements to make her fit for the adventure, plus the charges of insurance.

Who insures. The shipowner, or a demise charterer who has taken the ship on terms that make him responsible for her.

Which policy. Almost always a time policy for twelve months, because a trading vessel does not sail one voyage and stop. Section 27(2) invalidates a time policy exceeding twelve months, which is why hull cover is renewed annually.

The consequence of the time form is the most examinable thing about hull insurance. By section 41(5) there is no implied warranty of seaworthiness in a time policy; the insurer escapes only where, with the privity of the assured, the ship was sent to sea unseaworthy, and then only from a loss attributable to the unseaworthiness.

What the standard cover adds. The running down clause, which covers a stated proportion of the owner's liability for damage done to another vessel by collision, and the Inchmaree or additional perils clause, which answers Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co., (1887) 12 App Cas 484, by extending the cover to latent defect and to the negligence of master, crew and repairers.

What it does not cover. Liability to cargo, to crew, for pollution, for wreck removal and for the part of collision liability the running down clause leaves out. Those are covered by a protection and indemnity club, which is a mutual association of shipowners and not an insurance company at all, and they fall within the third limb of section 2(d).

Cargo insurance

What is insured. The goods, valued under section 18(3) at prime cost plus the expenses of and incidental to shipping and the charges of insurance. Expected profit is not in that figure and must be insured separately under section 2(d)(ii), commonly as a percentage added to the invoice value.