Texas Licensing Chapter 24
Types Ocean Marine Insurance Policies
1. Hull Coverage 2. Cargo Coverage 3. Freight Insurance 4. Protection & Indemnity (P & I)
Particular Average
Appropriates the loss to a particular company rather than each cargo owner sharing the loss.
Motor Truck Cargo policy
Coast-to-Coast Trucking is in the business of transporting fresh produce from farmers to markets all across the U.S. Which type of inland marine policy would best protect Coast-to-Coast Trucking's interest in the produce that it ships?
Cost, Insurance, and Freight (CIF):
Covers cargo when the seller is responsible for the cargo throughout shipment.
Cost and Freight (CF):
Covers the cargo when the buyer of the goods is responsible for the cargo throughout the shipment
Show Windows
Covers theft from a show window by cutting or smashing glass
Electronic Data Processing (EDP)
Covers: ○ hardware ○ data ○ media ○ recorded information ○ software ● Liability coverage also available
Inland Marine Insurance Eligibility
Eligible Property ● Movable ● In transit ● Instrumentalities of transportation or communication, including: ○ roads ○ bridges ○ tunnels ○ radio towers ○ power lines
Fine Arts coverage
Eligible items include private collections of: ○ paintings ○ etchings ○ pictures ○ tapestries ○ stained glass ○ rugs ○ statues ○ marbles ○ bronzes ○ antiques ○ rare books manuscripts ○ porcelains or rair glass ● Individual items must be scheduled, but blanket coverage available for small items or collections ● Agreed value coverage ● Newly acquired property automatically covered for 90 days at 25% of total limit of scheduled items ● No coverage for property on exhibit away from insured premises
Golfer's Equipment
Eligible items include: ○ clubs ○ equipment ○ clothing ● Blanket coverage
Silverware
Eligible items include: ○ silver ○ silver-plate items ○ gold ○ gold-plate items ● Items may get blanket or scheduled coverage
Cargo
The goods or property being moved in a shipment
Sue and Labor:
The insured party is required to attempt to prevent further losses once damage occurs
Trip Transit
Uncontrolled form similar to annual transit, but which only insures a single shipment ● Coverage applies from the trip origination point to destination
Implied warranties initiate a strict adherence to good maritime practices. Because insurers base their insurance coverage on the risks involved, the insurer will only indemnify damages to a ship if it adheres to these warranties.
What does "implied warranties" mean in the context of Ocean Marine Insurance?
The Particular Average clause appropriates the loss to a particular company, rather than spreading the loss among all cargo owners.
When XYZ Shipping's vessel sets off from port, it is carrying $150,000 in cargo for Sally's Salamander Oil, and $250,000 in cargo for Frank's Feline Air Fresheners. When a fire on deck totally destroys Frank's Feline Air Fresheners cargo, the insurer for Sally's Salamander Oil is not obliged to pay for any of the loss. This is because of the:
General Average Clause:
When the captain of a vessel decides to make a voluntary sacrifice of a part of the ship or its cargo in order to save the whole, all insurers for that ship must participate in the indemnification process
XYZ Autos assumes responsibility for the autos until they reach Tallahassee.
XYZ Autos sells 20 cars to a buyer across the country. As part of the deal, XYZ Auto ships the cars "FOB Tallahassee." Which of the following statements accurately explains what this phrase means?
Cargo Coverage
insures cargo in transport
Average
standard, flat-rate deductible
Free on Board (F.O.B):
the seller of goods assumes responsibility for the cargo until it reaches the point of the delivery. ● If followed by a city name, it means that the seller is only responsible for the cargo until it arrives in that city ● At this point, the buyer becomes responsible for the goods
Loss Conditions
● Abandonment ● Appraisal ● Duties of the Insured ● Insurance Under 2 or More Coverages ● Property of Others ● Recovery or Salvage ● Rights of Recovery ● Reinstatement of Limit
Hull Policy Examples of Exclusions:
● Acts of war ● Rioting and civil commotion ● Employee strikes ● Confiscation ● Damage due to dampness or breakage
Total Loss Classifications:
● Actual Total Loss ● Constructive Total Loss
Jewelers Block Coverage Form
● Bailee form ● For jewelers with up to $250,000 in stock ● Covers: ○ insured's merchandise ○ property of others in insured's care ○ property in transit and in showcases
Tariff Liability
● Can apply to cargo in transit, such as on a truck, ship, or train ● Refers to rates, rules, conditions, and charges for transport of goods
Commercial Property Floater Risks
● Can be written on controlled or uncontrolled forms ● Includes: ○ Bailee forms ○ Equipment Floaters ○ Business Floaters ○ Dealer Policies
General Conditions
● Concealment, Misrepresentation, and Fraud ● Legal Action Against the Insurer ● No Benefit to Bailee ● Policy Period
Valuable Papers and Records
● Controlled ● Covers losses to important documents, manuscripts, or records ● Does NOT cover money and securities
Installation
● Controlled ● Often open peril ● Covers items that have been sold while they are being moved or installed, before being accepted by the buyer
Accounts Receivable
● Controlled ● Open peril ● Reimburses insured for money that cannot be collected because company records have been destroyed
Signs
● Controlled ● Covers all types of signs owned by insured and those belonging to others that are in the insured's care
Mail Coverage
● Controlled form ● Provides open peril coverage for property sent by registered mail ● Shipper must report property value accurately
Inland Marine Insurance
● Covers property in transport (other than ocean transport) ● Covers property involved in transportation ● Policies typically known as "floaters"
Commercial Inland Marine Policies Include:
● Domestic Shipments ● Instrumentalities of Transportation and Communication ● Commercial Property Floater Risks Written in similar commercial property format
Four Categories of Inland Marine Insurance
● Domestic Shipments ● Instrumentalities of Transportation or Communication ● Personal Property Floater Risks ● Commercial Property Floater Risks
Personal Articles Floater
● Insurers may write separate forms for specific property coverage ● Usually, coverage for several types of property is combined in a single Personal Articles Floater (PAF) ● PAF specifies coverage and premium for each property type
"Uncontrolled" lines:
● Insurers use their own forms, which can vary by company and by the individual risk ● Used to meet the needs of individual clients ● Not filed with the state department of insurance ● Common floaters: outboard motor boat floaters, gun floaters, sporting equipment floaters and wedding present floaters
Personal Articles Floater Characteristics
● Open-peril coverage (they are not named-peril policies!) ● Coverage is worldwide ● There is no deductible ● Valuation is determined using the least of the following (unless the insured has chosen agreed value coverage): ○ actual cash value ○ cost to repair or replace ○ coverage limits ● Subject to "pair and set" provision
Controlled Equipment Forms
● Physicians and Surgeons Equipment ● Theatrical Property ● Commercial Articles ● Contractors Equipment
Domestic Shipments
● Protect against losses occurring during shipment or transport of goods ● Includes travel by truck, train, ship, mail, or plane
Bailee Coverage
● Reimburses a bailee's customer for damage to the customer's property while in the bailee's control ● Provides coverage for Confusion of Goods (a loss makes it impossible to identify damaged property)
Equipment Floater
● Uncontrolled form ● May be open peril or named peril ● Covers heavy machinery and equipment
Instrumentalities of Transportation & Communication
● Uncontrolled form ● Pays for direct damage or loss of revenue due to covered loss ● Covers property directly related to transportation and communication, including: ○ bridges ○ tunnels ○ roads ○ dams ○ piers and docks ○ pipelines ○ power transmission lines ○ antennas and towers for radio and TV
Motor Truck Cargo
● Uncontrolled form ● Protects carrier of shipped goods while the shipment is in transit
Basis of Policies:
● Valued basis ● Unvalued basis ● Agreed value basis (or Valued Policy)
Three Types of Cargo Coverage
1. Single Risk Form: insures the cargo on a single shipment only 2. Floating, open or long term: insures multiple trips over a specific period of time 3. Warehouse-to-warehouse: insures cargo from point of origin to point of destination
$150,000
A cargo ship's hull policy has a franchise deductible of $100,000. The vessel sustains $150,000 worth of damage due to a fire. How much will the insurer be responsible for?
Business Floaters
Accounts Receivable Valuable Papers and Records Installation Electronic Data Processing (EDP) Signs
Musical Instruments
Each item must be individually scheduled, but blanket coverage available for accessories ● Newly acquired property automatically covered for 30 days
Cameras
Eligible items include: ○ photography equipment ○ binoculars ○ telescopes ○ microscopes ● Each item must be individually scheduled, but blanket coverage available for accessories ● Newly acquired property automatically covered for 30 days
Stamps & Coin Collection
Eligible items include: ○ postage stamps ○ rare and current coins ○ paper money ○ banknotes ● Can provide blanket or scheduled coverage ● Special limits: ○ $1,000 for any unscheduled coin collection ○ $250 for any individual item ● Additional exclusions apply to stamps or coins that are: ○ faded ○ defective ○ damp ○ depreciated ○ over-handled ○ lacking part of a set ○ in the custody of a transport company (except registered mail) ○ not part of a collection
constructive total loss.
If insured cargo can be salvaged from a damaged vessel, but the cargo is damaged beyond repair and the repair costs would exceed the cost to replace, an insurer would consider the cargo a/an:
Annual transit policy
OBC Inc. is an online retail business that ships several thousand packages nationwide every year. Which type of Inland Marine policy would OBC Inc. likely use to protect their shipments until they reach their customers?
$150,000
Smith Shipping Co. owns two cargo ships. The first ship is covered by a hull policy with a $50,000 average deductible. The second ship is covered by a hull policy with a $75,000 franchise deductible. One very unlucky month, both ships catch fire, each ship sustaining $100,000 in damages. Smith Shipping Co. will be indemnified ______ (total) for their losses.
Freight
The charge for transporting goods, paid to the owner of the vessel.
Conditions of Cargo
The owner of the cargo must guarantee: ● the cargo is sound. ● everything is loaded properly
Seaworthiness
The vessel must be ● in a seaworthy condition ● fit for voyage (not be overloaded) ● have a competent captain and crew
Legality
The voyage must be legal ● Involvement of contraband, smuggling, or any other illegal activity will nullify the insurance contract
Free or Board (FOB) Destination Point
ownership of / responsibility for cargo transfers to buyer after buyer accepts cargo when it arrives at the buyer's destination
Free on Board (FOB) Shipping Point
ownership of / responsibility for cargo transfers to buyer as soon as cargo leaves shipper
Free of Particular Average Clause (FPA)
● Excludes coverage for all partial or accidental losses, except those caused by stranding, sinking, burning, or collision. ● Acts like a deductible: insurer is only liable for losses that exceed a set percentage of the value. ● Percentage is usually 10%.
Common Carrier Legal Liability
● Free on Board (FOB) Shipping Point ● Free or Board (FOB) Destination Point
Actual Total Loss
insured items that have disappeared or are not salvageable.
Constructive Total Loss
items that have been damaged beyond repair, and the cost to repair exceeds the cost to replace
Agreed value basis
or Valued Policy): the value of the vessel is determined at the issuance of the policy.
Commercial Articles
covers commercial photographic equipment and musical instruments
Contractors Equipment
covers construction machinery, like tractors, backhoes, and pavers
Hull Policy Deductibles
either average or franchise deductibles
Valued basis:
full amount of of policy is paid in the event of a total loss
Ocean marine insurance
oldest form of insurance Ocean Marine Policies are "Utmost Good Faith" contracts: ● It is difficult to investigate all the risks involved. ● therefore, ships are required to adhere to certain Implied Warranties in order to receive coverage.
Hull Policy Examples of Coverage
● Fire ● Lightning ● Earthquake ● Piracy - intentional theft of a vessel and/or its cargo, or intentional sinking or deserting of a vessel ● Fighting and piratry
Cargo Policy Examples of Coverage:
● Fire ● Lightning ● Earthquake ● Piratry (piracy) ● Fighting and piratry ● Jettisons - voluntarily removing cargo from a ship in an attempt to save the vessel or its crew
Two types of conditions for Commercial Inland Marine Policies
● General ● Loss
Franchise
● If damage amount exceeds deductible, the insurer pays the full cost for damages. ● If damage is less than deductible, the policyholder pays for all damages.
Jewelers Block Covers:
● Insured's stock in trade ● Jewelry sold, but not yet delivered ● Similar property of others in the insured's care ○ if such property is in jewelry trade, it is only covered up to insured's financial interest in the property ● Damage to building housing merchandise when damage is caused by theft, attempted theft, and collapse
Jewelry
Eligible items include: ○ items of personal adornment containing precious metals or jewels ○ pens ○ flasks ○ smoking equipment ○ trophies ● Each item must be individually scheduled ● Newly acquired property automatically covered for 30 days at 25% of coverage limit, up to $10,000
Protection & Indemnity Coverage (P & I):
Liability insurance that protects the ship owner in the event that the ship causes damages or injuries to a third party. ● Indemnifies the third party, not the policyholder ● Often included as part of hull coverage ● Covers carrier's liability for bodily injury or property damage to crew, passengers and sometimes cargo ● Does not cover claims that fall under state or federal compensation acts
Hull Policy
covers damages to, and loss of, a marine vessel. ● Policy period: one-year ● Establish a defined geographic area
Physicians and Surgeons Equipment
covers instruments and furniture of doctors, surgeons, and dentists
Pair and Set provision under Fine Arts coverage:
● Insurer pays full scheduled amount for pair or set ● Insured must surrender any remaining pieces of set to insurer
Ocean Marine Insurance Policies Coverage
● Loss of vessel ● Loss of cargo ● may extend to property stored on docks & piers
Dealer's Policies
● Open peril ● Covers dealers of: ○ jewelry ○ stamps ○ art ○ coins ○ furs ○ cameras ○ musical instruments ○ equipment ● Versatile coverage ○ reporting or non-reporting ○ property covered while on or off premises ○ property covered while controlled by employees or in transit ○ covers property of others in insured's custody
Freight Insurance:
● Protects the vessel owner in the event that the freight costs are not paid ● Often combined with Hull coverage.
Ocean marine insurance Premiums
● The policyholder has 45 days to pay the premium in full or develop a payment option that is acceptable to the insured and the insurer. ● Upon cancellation, the premium will be paid on a pro rata basis.
Inland Marine Exclusions
● War ● Nuclear hazards ● Wear and tear ● Insects and vermin ● Spoilage ● Gradual deterioration
Not Eligible with Inland Marine Insurance
Actual means of transport, such as: ○ trucks ○ airplanes ○ ships ○ forklifts ○ cranes
Trip Transit policy
Micah owns an antique grand piano that is worth $38,000, and he is planning to ship the instrument to a famous auction house, in the hopes of selling it for top dollar. If Micah wants to insure the piano against any damage during this shipment, which policy would best meet his needs?
Nationwide Marine Definition
Model regulation that defines six categories of eligible marine risks: 1. Imports 2. Exports 3. Domestic Shipments 4. Instrumentalities of Transportation or Communication 5. Personal Property Floater Risks 6. Commercial Property Floater Risks
The policyholder pays the appropriate portion of the premium on a pro rata basis.
Ocean Marine Insurance gives the policyholder 45 days to pay the full premium or develop a payment plan with the insurer. If the policyholder cancels the policy before paying the premium, what happens?
Since the actual cash value and the replacement cost value of rarities such as fine art and historical artifacts can be difficult to determine, an Agreed Value basis policy is preferable since the value is agreed upon before the ship sets sail.
Thoroughfare Shipping is about to undergo another long voyage across the Pacific and wants to insure their cargo in case anything goes wrong with the trip. Included in the cargo is a collection of rare impressionist paintings and Roman artifacts. A cargo policy written on a/an ___________ basis would best fit the needs of Thoroughfare Shipping.
Unvalued basis
amount of payment is determined after the loss
Furs
Includes both genuine and imitation fur ● Each item must be individually scheduled ● Newly acquired property automatically covered for 30 days
Bailee
Individual who holds someone else's property for a specific purpose and then returns it to the owner
Under the "Pair and Set" provision, if a damaged item is part of a set and the insurer cannot restore the set to its original value, the insurer will pay the difference between the ACV of the entire set before and after the loss. Before the loss, Melanie's set of vases was worth $2,800. Without the third vase, it is only worth $1,000. The insurer will pay the difference between these two amounts: $2,800 - $1,000 = $1,800.
Melanie owns a set of 3 antique crystal vases that is worth $2,800, but during her most recent move, one of the vases was broken. Melanie and her insurer have been unable to find a replacement vase to complete the set and bring it back to its original value. Without the broken vase, the remainder of the set is only worth $1,000. What should Melanie receive from the insurer under the Pair and Set provision of her Personal Articles Floater?
In overloading the ship beyond its recommended capacity, ABC Shipping violated the implied warranty of Seaworthiness, meaning the vessel must be in seaworthy condition, fit for voyage (which means not overloaded), and have a competent captain and crew
Preparing for voyage, ABC Shipping loads its ship to maximum recommended capacity with shipping containers. When a client shows up with an extra 300 containers of cargo, ABC Shipping decides to make some quick cash and take on the extra cargo, even though it will overload the ship. The weight proves too much for the ship, and it sinks just off the coast of England. All cargo is lost. Which implied warranty has ABC Shipping violated, potentially voiding their Ocean Marine Policy?
No Deviation in Voyage
The route of the voyage must be clearly stated prior to departure. ● The captain must adhere to this route to throughout the voyage, with no change in destination or unnecessary delays.
Theatrical Property
covers scenery, props, and costumes
Annual Transit
● Uncontrolled form that covers loss of goods in transit ● Applies to all of the insured's shipments during the year ● Choice of open-peril coverage or named-peril coverage against fire, windstorm, collision or theft
"Controlled" lines:
● Written on a standard provision form promulgated by a bureau and filed with the Department of Insurance for uniform use (for example, the ISO standard policy form) ● Disclose the rates being charged ● General property floaters: personal effects and personal property ● Specific property floaters: cameras, fine arts, golf equipment, jewelry and furs, musical instruments, stamp and coin collections, and silverware
