to cover administrative costs incurred while procuring a replacement vessel. Cargo insurance covers goods on vessels in transport. It is usually obtained shipment by shipment, but can also be purchased for a set period of time. Cargo policies can be separated into three types of coverage: "all risk policies," "with average policies," and "free from particular average policies." "All risk" policies offer the most protection, covering all losses attributable to external causes. Though called "all risk" policies, misconduct and fraud normally prevent recovery. Additionally, insurers can also specify additional risks not to be included in the coverage. "With average" policies provide that, unless a stated percentage of the insured's cargo is lost due to injury, the insured is not entitled to coverage. An "average" is just another word for a partial loss. In an effort to protect themselves from losses sustained due to the inherent susceptibility of the goods, and/or the nature of shipping goods on vessels, insurers came up with the "average." For example, when shipping glassware or when shipping perishable goods, some will break and some will perish - but not due to a peril at sea. This average, or partial loss, is also called a "trade loss." If more than the assigned percentage is damaged, the inference is that a peril at sea caused the loss - not the cargo's inherent susceptibility to injury. It is important to note that the required percentage acts as a franchise, and not a deductable. If the loss is greater than the assigned percentage, the insured is compensated for the entire loss, because it is inferred the loss is due to a covered peril at sea. In plain language, "free from particular average" (FPA) coverage provides that an insured is not covered for a partial loss to his insured cargo unless it results from some enumerated event, occasion, or peril. These policies provide less protection for cargo by only covering partial losses if, and when, certain perils or events occur. Some FPA policies require the loss to be a direct result of the enumerated cause, while some only require that an event occurs, followed by a subsequent injury. It is important to talk to your broker about which provision your policy contains. If cargo will be going from a warehouse to another warehouse, or other inland destination, you may consider making sure your policy contains a "warehouse to warehouse" clause, which insures the cargo while being transported, moved, or loaded from, or onto, land. Depending on the carrier, this may also be called a "shore clause," and is made for anyone knowing their cargo will be moved
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inland in the course of its transport. As you can see, marine liability policies are tailored to address the specific needs of vessel operators. While you may or may not need certain coverage, it is important to know that they exist so that you can make an informed choice when purchasing insurance. In addition to this basic hull, cargo and P&I coverage, many insurers have specialty policies for stevdore liability, wharfinger liability, terminal operator's liability, ship repairer's liability, ship builder's liability, charterer's liability, etc. and cover different exposures specifically related to the nature of each industry. In addition to these traditional marine policies, many insurers are beginning to offer what is called a "Marine General Liability" policy. These policies combine a traditional "Commercial General Liability" policy with other coverage specific to the marine industry, such as P & I coverage, or different legal liability coverage. While these relatively new policies address the unique needs of vessel operators, it is important to watch out for insurers limiting the policy coverage which you would normally expect from a Commercial General Liability policy. So, while a Marine General Liability may look and feel like it is providing typical Commercial General Liability coverage, it may in fact have many limitations on the insurer's possible exposure to liability. For the cautious vessel owner, many insurers provide excess insurance policies. Excess insurance is also known as an Umbrella policy, and in the marine market may also be referred to as a "Bumbershoot Policy." These policies provide higher limits for primary liability coverage, such as general liability, P & I, legal liability, etc. Once the primary coverage is exhausted, the excess insurance policy steps in and provides coverage. While this article is by no means an exhaustive explanation of the intricacies of marine insurance, it aims to inform vessel owners about some of the common policies available, and what to be aware of when obtaining insurance. Due to the increasing cost of insurance and the payment of claims, this is an area where a little knowledge can go a long way towards maintaining the profitability of your fleet.
Lawrence R. DeMarcay, III is a partner at Fowler Rodriguez Valdes-Fauli in the firm's New Orleans, Louisiana office. He can be reached at 504-595-5122 or ldemarcay@frvflaw.com.
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