Ocean marine hull insurance has been around since the spice trading days hundreds of years ago. Today, the marine industry abides by a giant body of law, just as old, that considers what types of hull damage is covered and why.
Generally, a ship’s hull is protected by an insurance policy that covers “perils of the sea.” Courts worldwide have argued what exactly constitutes a “peril on the sea” for hundreds of years. For example, rain is a peril on the sea but it also occurs on land so it may not be “of the sea.” Heavy seas that swamp the ship are a peril of the sea.
The word “pirate” used to bring to mind a swashbuckler with an eye patch from old Hollywood movies. Lately, pirates are a true peril of the sea. Modern hull policies still use “assailing thieves” as a covered peril.
Collision with another vessel is a covered peril of the sea but there’s an important twist. Normally we think that a collision only covers our own vessel (just as with car insurance). But in ocean marine insurance it covers our own hull damage plus damage to the vessel we hit. The key is that coverage of the other vessel’s damage is only up to the same amount as the insured value of our hull. If my hull is insured for $750,000 but the collision causes $900,000 damage to the ship I struck, there would be a coverage gap of $150,000 for the other ship.
When ships began moving away from wind propulsion, courts faced another dilemma. If a ship lost its sail rig due to high winds, it was a covered peril of the sea. If a ship powered by steam broke a shaft, propulsion would also be lost. So since the late 1800s, ocean marine hull policies added the “Additional Perils (Inchmaree) Clause” named for an English court case.
This modernized the hull policy by adding coverage for breakdown of machinery, breakage of shafts and a mysterious coverage called “latent defect,” which is actually hidden defect.
Claim surveyors I deal with have a homespun way of determining a true latent defect claim. They say “if you can’t see it, smell it, feel it, hear it or taste it and you've maintained it” you may have a covered claim.
