Inland Marine: Misnamed and Misunderstood
Don’t let the name throw you. Inland Marine owes its origins — and misnomer — to the 17th century insurance for cargo-shipping on the high seas. Today, Inland Marine provides coverage for a wide variety of commercial exposures even those far from the salt sea air.
Because Inland Marine may or may not be part of a commercial package policy, it is worth asking an informed insurance broker about its advantages in specific situations.
Three Elements
Loss exposure is the possibility of financial loss. According to Volume One of Principles of Risk Management and Exposure, every loss exposure has three elements. They are:
- ITEM &mdash subject to loss
- PERIL &mdash cause of loss
- IMPACT — potential financial loss
Inland Marine insurance is a complicated subject and these elements will provide the substance for a basic overview.
Moveable Property
Inland Marine enhances standard commercial property insurance by covering moveable property or property that floats (not literally) from location to location. In 1986, the Insurance Services Office — a statistics-gathering organization located in New York — organized Inland Marine coverage into several categories.
- Builders Risk
- Cargo
- Equipment Dealer Policies
- Fine Arts
- Musical Instruments
- Signs
The list suggests the diversity of business and industry items subject to risks that could be financially mitigated by Inland Marine insurance.
Defined Coverage
Another, more extensive, but not all-inclusive definition of items is entitled “Nation-Wide Marine Definition.” It was issued in 1976 and describes the kinds of risk and coverage identified as Marine, Inland Marine or Transportation insurance under state insurance laws.
This defined list includes imports, exports and domestic shipments, provided the insurance company issuing coverage includes hazards of transportation. The definition includes a range of potential items, from outdoor cranes to fine arts, from pipelines to electronic data. The details in each category specify exclusions and restrictions. The exclusion of motor vehicles designed for highway use is noteworthy among moveable property policies.
Perils Approach
Brokers and buyers of Inland Marine insurance must pay careful attention to what perils are included and/or excluded in the policy. Two methods of statement define what is in and what is out of coverage.
All-risks is a common approach for Inland Marine policies. Rather than list what perils are covered, the all-risks policy states the causes of loss that are not covered. If a loss occurs and the insurance company cannot prove the peril was specifically excluded, the insurance company must pay.
Named perils policies cover only causes of loss named in the policy. Named perils are not automatically covered, because the insured must prove loss with this approach.
Loss causes or perils that may be covered by Inland Marine insurance include forces of nature, such as lightning, flood, landslide, and earthquake. Given recent weather trends, this type of protection has increased appeal. In addition, Inland Marine may cover derailment, bridge collapse, collision and theft. The matter of perils, proof and payment hinge on important distinctions of definition and law. Unclear policies can spill over into unnecessary courtroom dramas.
Financial Impact
The aim of Inland Marine insurance is to reduce the financial impact of loss, repair and replacement on property owners, lease holders, carriers, bailees, and lenders. By definition, a bailee is someone entrusted with someone else’s property. Auto repair, antique restoration, and trucking companies serve as examples of those who can be liable for damage to moveable property in their care.
Secured lenders retain certain rights to properties and may require borrowers to purchase a policy that specifies the lender as loss payee.
Property loss can wreak financial harm in a variety of ways. It can increase expenses through repair costs, reduce income by lost capacity or inoperable equipment, and reduce value because of damage.
Inland Marine insurance typically measures value in one of three ways: invoice cost; actual cash value; or, agreed value. Broker and buyer need to understand the implications of each form of measurement before the policy is drafted, signed and in force rather than at the time of loss. This can be complicated by the fact that some items covered by Inland Marine insurance have fluctuating values, such as tools, jewelry, furs, art and antiques.
Inland Marine insurance has complex coverage and important impacts to consider, contact a Holmes Murphy broker today for assistance.
This newsletter is from a risk management standpoint and does not necessarily reflect laws applying in specific states. Readers are advised to seek legal counsel or other appropriate expert advice before taking any action based on the information contained in this newsletter.