5-D Ocean Marine Insurance
A cargo ships' hull policy has 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?
$150,000 WHY: A franchise deductible provides no insurance coverage to a policyholder until a certain level of financial damage or loss is met. When that level is met, the insurer pays the full cost for damage and the policyholder pays nothing.
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.
$150,000 WHY: The average deductible of $50,000 s subtracted from the first ship's loss, resulting in $50,000 in indemnification. The exceeds the franchise deductible of the second ship's loss. So, the insurer will pay the full $100,000. Adding both settlements together, we get a total of $150,000
Sam's Ocean Marine hull policy has a franchise deductible of $50,000. When Sam's ship suffers $75,000 in damage after being overtaken by pirates, how much indemnification can Sam expect to get from his insurer?
$75,000 WHY: If a covered loss exceeds the amount of the franchise deductible, the insurer pays for the entire loss, so Sam's policy will pay the full $75,000.
When the Coast Guard stops and boards a ship operated by XYZ Herbal Shipping, they find four pounds of contraband mixed in with other herbal supplements imported from South America. The Coast Guard seizes all the cargo and arrests the operators f the vessel. XYZ Herbal Shipping files a claim with its insurer for the seized cargo, but the claim comes back denied. Which implied warranty explains why this coverage was denied? - Legality - Condition of Cargo - No Deviation Voyage - Seaworthiness
- Legality WHY: Even though most of the cargo XYZ Herbal Shipping was carrying was, in fact, legal cargo, the presence of contraband criminalizes the voyage, voiding coverage.
Which of the following losses would NOT be covered under the hull coverage of an Ocean Marine policy? - A bolt of lighting damages the wheelhouse of a ship during a storm. - A ship catches fire and sinks 10 miles from the destination port. - A ship is hijacked by pirates and grounded in a war-torn country. - A ship wanders into a war zone, is fired upon, and is struck by a missile.
A ship wanders into a war zone, is fired upon, and is struck by a missile. WHY: Hull coverage exclude damage caused by acts of war, so the ship struck by a missile in a war zone would not be covered.
Jones' Auto in Dallas, Texas buys 50 cars from ABC Auto in Tokyo, Japan. They sign a contract whereby Jones' Auto assumes the risk of any damages to the cars until they are delivered. What term of sale have they agreed to?
Cost and Freight
In Ocean Marine insurance, this term of sale states that the seller of goods is responsible for damage to the cargo during shipment:
Cost, Insurance, and Freight (CIF)
Oversea Industries transports multiple shipments of goods every year, to and from ports all over the world. What type of cargo coverage would Oversea Industries purchase to protect its cargo?
Floating, Open or Long Term WHY: Floating, Open or Long Term Coverage provides extended coverage to accommodate multiple trips over a specified period of time.
"Sue and Labor" is a provision in ocean marine insurance that:
requires the insured party to attempt to minimize or prevent further losses if damage is caused by an insured peril. WHY: Sue and Labor is special provision in ocean marine insurance that requires an insured party to attempt to protect property from further losses if damaged by an insured peril.
Cost, Insurance, and Freight (CIF) coverage would be purchased by the _____ of goods.
seller WHY: Cost, Insurance, and Freight (CIF) coverage would purchase by the seller goods.
Which one of the following statements about freight insurance is TRUE? - Freight insurance protects the vessel owner in the event the fright costs are not paid. - Freight insurance protects the goods and property in transport - Freight insurance is a form if liability insurance that protects against damages or injuries in the event of a collision with another vessel - Freight insurance protects the owner of the shipped cargo if the freight costs are not paid.
Freight insurance protects the vessel owner in the event the fright costs are not paid. WHY: Freight insurance protects the vessel owner in the event the freight costs are not paid.
This provision in Ocean Marine insurance obligates insurers of various interests to share the cost of losses associated with a captain's decision to voluntarily sacrifice a part of the ship or its cargo.
General Average
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 painting and Roman artifacts. A cargo policy written on a/an _____ basis would best fit the needs of Thoroughfare Shipping.
agreed value WHY: Since the actual cash vale 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.
Which of the following statements about Protection and Indemnity (P&I) insurance is TRUE? - P&I insurance provides protection for the goods and property in transport. - P&I insurance protects the vessel owner in the event the freight costs are not paid. - P&I insurance provides liability coverage against damages or injuries caused by the ship. - P&I insurance protects the owner of the shipped cargo if the freight costs are not paid.
P&I insurance provides liability coverage against damages or injuries caused by the ship. WHY: P&I insurance provides liability coverage against damages or injuries caused by the ship.
When XYZ Shipping's vessel sets of 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:
Particular Average clause. WHY: The Particular Average clause appreciates the loss to a company, rather than spreading the loss among all cargo owners.
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:
constructive total loss. WHY: A "constructive total loss" refers to items that have been damaged beyond repair, and the cost to repair exceeds the cost to replace.
What does "implied warranties" mean in the context of Ocean Marine Insurance?
Strict adherence to goo maritime practices is required. WHY: 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.
XYZ Autos sells 2- acres cars to a buyer across the country. As a part of the deal, XYZ Auto ships the cars "FOB Tallahassee." Which of the following statements accurately explains what this phrase means? - To buyer and XYZ agree to split the cost of the auto delivery to Tallahassee. xx - The buyer of the cars is responsible for all transportation costs of the autos until they reach Tallahassee. - XYZ Autos assumes responsibility for the autos until they reach Tallahassee. - Once the cars reach Tallahassee, XYZ Autos will be responsible for any further transportation costs.
- XYZ Autos assumes responsibility for the autos until they reach Tallahassee. WHY: Free on Board (F.O.B.) means the seller of goods assumes responsibility for the cargo until it reaches the stated destination.
Which of the following does not describe one of the implied warranties of Ocean Marine Insurance? - The vessel must be seaworthy, and have a competent captain and crew. xx - The route of the voyage must be clearly stated prior to departure, and adhered to throughout the voyage. - The owner of the cargo must guarantee that the cargo is sound and loaded property. - The vessel must not travel in stormy or otherwise dangerous weather conditions.
... WHY: Shipowners are not required to avoid navigating their vessels in stormy or otherwise dangerous weather conditions.
All of the following are types of Cargo Coverage in Ocean Marine insurance, EXCEPT: - Single Risk Form. - Floating, Open or Long Term. - Warehouse-to-Warehouse. - All Risk Form.
All Risk Form.
Why are there implied warranties in an Ocean Marine contract?
It is difficult underwriters to fully investigate the risks involved in Ocean Marine insurance. WHY: Ocean Marine insurance comes with implied warranties because it is difficult for underwriters to fully investigate the risks involved.
Preparing for voyage, ABC Shipping loads its ship to maximum recommended capacity with shipping containers. When a client show p with an extra 300 containers of cargo, ABC Shipping 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 xx - Seaworthiness - Legality - Condition of Cargo
Seaworthiness WHY: 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.
Jim leases a vessel in order to ship a collection of antique cars from Los Angeles to Tokyo. He is only making one trip, but wants to purchase insurance on his cargo so he won't be found personally liable if anything happens to the valuable cars. What type of ocean marine policy might Jim purchase?
Single Risk Form coverage WHY: Because Jim only needs to insurer a single shipment, his best option would be Single Risk Form coverage.
Which of the following would NOT be covered under a typical Ocean Marine policy? - The vessel is robbed of its cargo by pirates. - The owner sustains a financial loss when her vessel is confiscated by the government. - The vessel's galley catches fire, and the fire spreads to the sleeping quarters. - A bolt of lightning strikes the vessel and fries its communication system
The owner sustains a financial loss when her vessel is confiscated by the government. WHY: Piracy is a covered peril in an ocean marine policy. However, confiscation is excluded.
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 happen?
The policyholder pays the appropriate portion of the premium on a pro rata basis WHY: If either the insurer or the policyholder cancels the policy before the premium is paid, the policyholder pays the appropriate portion of the premium on a pro rata basis.
Which of following is an implied warranty in Ocean Marine insurance polices? - The vessel must not carry cargo with values higher than the policy's limit coverage. xx - The vessel must not travel during stormy weather. - The route of the voyage must be clearly stated prior to departure, and the vessel must not deviate from that route. - The vessel must be insured for at least 80% of its replacement value.
The route of the voyage must be clearly stated prior to departure, and the vessel must not deviate from that route. WHY: The route of the voyage must be clarity stated prior to departure, and the vessel must not deviate from that route.
Mark has an ocean marine insurance policy with cargo coverage. The type and value of his cargo varies from one shipment to the next, so rather than having a set value for this coverage, the amount of his settlement is only determined after a covered loss. Mark's cargo coverage is written on a/an ______ basis.
unvalued
