Inland and ocean marine on the P&C exam

Before each answer, place the property: at sea, in transit over land, or a structure that carries commerce.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

1. Item 01

   Ocean marine hull and cargo policies are usually written on which valuation basis?

   • AA replacement cost basis
   • BAn actual cash value basis
   • CA market value at time of loss basis
   • DA valued (agreed amount) basis
   1. AReplacement cost is a land property valuation, not the traditional basis for ships and cargo.
   2. BActual cash value is typical of property forms on land, not ocean marine.
   3. CMarket value at the time of loss is hard to prove for a ship or cargo lost at sea, which is why marine avoids it.
   4. DCorrect: ocean marine hull and cargo are traditionally written on a valued basis, with the amount agreed when coverage is written.

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2. Item 02

   In ocean marine insurance, hull coverage insures:

   • AThe vessel and its machinery
   • BThe owner's liability to injured crew
   • CThe charges for carrying the goods
   • DThe goods carried aboard
   1. ACorrect: hull insurance covers physical damage to the vessel itself, including its machinery and equipment.
   2. BLiability for crew injuries falls under protection and indemnity, not hull, though both belong to the shipowner.
   3. CThe charges earned for carrying goods are covered by freight insurance, not hull.
   4. DThe goods aboard are covered by cargo insurance, not hull.

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3. Item 03

   An insured vessel strikes and damages a dock while berthing. Which ocean marine coverage pays for the owner's liability to the dock owner?

   • ACargo coverage
   • BSue and labor
   • CProtection and indemnity
   • DThe hull running down clause
   1. ACargo coverage insures the goods aboard, not the shipowner's liability to others.
   2. BSue and labor reimburses costs to prevent or reduce a loss, not liability to a dock owner.
   3. CCorrect: protection and indemnity covers the shipowner's liabilities outside the hull, including damage to docks and piers.
   4. DThe running down clause covers collision with another vessel, not with a fixed object like a dock, which makes it the tempting trap.

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4. Item 04

   Under the Nationwide Marine Definition, a toll bridge is eligible for inland marine coverage because it is classified as:

   • AAn import or export exposure
   • BA transportation instrumentality
   • CA commercial property floater risk
   • DA domestic shipment
   1. AImports and exports are goods crossing borders, and a bridge does not move.
   2. BCorrect: the Nationwide Marine Definition treats bridges, tunnels and pipelines as instrumentalities of transportation, which inland marine may insure.
   3. CFloaters cover movable property that goes from place to place, not a fixed bridge.
   4. DA domestic shipment is property in transit, and a toll bridge is fixed.

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5. Item 05

   An insured freighter negligently collides with another ship. The hull policy's running down clause will pay for:

   • APhysical damage to the insured freighter
   • BLiability for damage to the other ship
   • CInjury to the insured freighter's crew
   • DDamage the freighter caused to a pier
   1. APhysical damage to the insured freighter itself is ordinary hull coverage, not the running down clause.
   2. BCorrect: the running down clause covers the owner's liability for damage the insured vessel does to another vessel in a collision.
   3. CCrew injuries fall under protection and indemnity, not the running down clause.
   4. DDamage to a pier is a P&I liability; the running down clause applies only to collisions with other vessels.

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6. Item 06

   After a ship runs aground, the owner of the insured cargo pays a salvage crew to move the goods to a dry warehouse before they are ruined. Which ocean marine provision reimburses this cost?

   • AThe general average clause
   • BThe running down clause
   • CThe sue and labor clause
   • DThe warehouse-to-warehouse clause
   1. AGeneral average applies to a sacrifice or expense for the common safety of the whole voyage, not one owner protecting its own goods.
   2. BThe running down clause covers collision liability of a hull, not cargo rescue costs.
   3. CCorrect: the sue and labor clause reimburses reasonable costs the insured spends to protect the property from further loss.
   4. DThe warehouse-to-warehouse clause sets how long cargo coverage lasts; it does not reimburse rescue costs.

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7. Item 07

   A contractor is hired to install a large HVAC unit in a client's building and wants the unit covered while it is shipped, stored at the site and being installed. Which coverage fits?

   • AAn installation floater
   • BA contractors equipment floater
   • CA bailee's customers form
   • DA builders risk form
   1. ACorrect: an installation floater covers machinery a contractor will install, in transit, in storage at the site and during installation.
   2. BA contractors equipment floater covers the contractor's own tools and mobile machinery, not property to be installed.
   3. CBailee's customers covers customers' goods left with a business for service, not equipment being installed.
   4. DBuilders risk covers a building under construction, not a unit being shipped and installed by a contractor.

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8. Item 08

   A dry cleaner's plant burns in a fire it did not cause, destroying customers' clothes. The dry cleaner wants to pay customers anyway to keep their goodwill. Which coverage pays without regard to fault?

   • ACommercial general liability
   • BBusiness personal property
   • CLegal liability coverage
   • DBailee's customers coverage
   1. AThe CGL excludes property in the insured's care, custody or control, and the cleaner was not at fault anyway.
   2. BBusiness personal property covers the cleaner's own property, not its customers' clothes.
   3. CLegal liability coverage pays only when the bailee is at fault, and the cleaner did not cause the fire.
   4. DCorrect: bailee's customers coverage pays for customers' property in the insured's care regardless of fault, which preserves goodwill.

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9. Item 09

   Heavy seas damage one shipper's cargo in the hold, while the vessel and all other cargo arrive undamaged. No sacrifice was made. How is the damaged cargo's loss treated?

   • AAs a general average loss
   • BAs a particular average loss
   • CAs a sue and labor expense
   • DAs a constructive total loss
   1. AGeneral average requires a voluntary sacrifice or expense for the common safety, and none was made.
   2. BCorrect: a partial loss from an insured peril that falls only on the owner of the damaged cargo is a particular average loss.
   3. CSue and labor reimburses costs spent to prevent loss, not the damage itself.
   4. DA constructive total loss applies when recovery and repair would cost more than the property is worth, which is not described.

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10. Item 10

    A trucking company hauls goods owned by its customers. To cover its liability for damage to those goods in transit, it needs:

    • AMotor truck cargo coverage
    • BBailee's customers coverage
    • CBusiness auto physical damage
    • DTransit coverage for shippers
    1. ACorrect: motor truck cargo coverage protects a carrier for its legal liability for customers' goods it hauls.
    2. BBailee's customers covers goods left with a business for service, such as a dry cleaner, not freight in transit.
    3. CBusiness auto physical damage covers the trucks themselves, not the cargo.
    4. DTransit coverage for shippers is bought by the owner of the goods, not the trucking company, which makes it the closest trap.

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11. Item 11

    A fire destroys a firm's customer billing records, and it cannot collect some money its customers owe. Which inland marine coverage pays for the uncollectible balances?

    • AAccounts receivable coverage
    • BValuable papers and records
    • CBusiness income and extra expense
    • DElectronic data coverage
    1. ACorrect: accounts receivable coverage pays sums the insured cannot collect because its records were destroyed.
    2. BValuable papers pays to research and restore the documents themselves, not the money lost.
    3. CBusiness income covers lost earnings from a shutdown, not uncollectible customer balances.
    4. DElectronic data coverage pays to restore data, not the debts the firm can no longer collect.

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12. Item 12

    Which of the following is a filed class of commercial inland marine insurance?

    • AInstallation floater
    • BContractors equipment
    • CMotor truck cargo
    • DJewelers block
    1. AAn installation floater is a nonfiled class because exposures vary too much for standard rates.
    2. BContractors equipment is a nonfiled class, written on individually underwritten forms.
    3. CMotor truck cargo is a nonfiled class, not a filed one.
    4. DCorrect: jewelers block is a filed inland marine class, using rates and forms filed with the state.

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13. Item 13

    A vessel worth $600,000 carries cargo worth $300,000 for shipper A and $100,000 for shipper B. To save the voyage, $50,000 of shipper B's cargo is jettisoned. How much does the vessel owner contribute in general average?

    • A$30,000
    • B$15,000
    • C$50,000
    • D$25,000
    1. ACorrect: total value is $1,000,000, the vessel is 60% of it, so it contributes 60% × $50,000 = $30,000.
    2. B$15,000 is shipper A's share (30%), not the vessel's.
    3. C$50,000 treats the whole sacrifice as falling on the vessel alone.
    4. D$25,000 splits the loss evenly instead of in proportion to each interest's value.

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14. Item 14

    A cargo ship insured on a voyage policy leaves its agreed route, without necessity, to pick up extra cargo at another port, and is later damaged in a storm. How does this affect coverage?

    • ACoverage continues because the deviation did not cause the loss
    • BOnly the extra cargo picked up at the added port is excluded
    • CThe storm loss is covered because storms are perils of the sea
    • DCoverage may be void for breach of the no-deviation warranty
    1. AThe deviation did not need to cause the loss, because an unjustified deviation can void coverage on its own.
    2. BThe breach is not limited to the extra cargo; it can affect the whole voyage policy.
    3. CA storm is a peril of the sea, but that does not cure the breach of the no-deviation warranty.
    4. DCorrect: no deviation is an implied warranty in ocean marine, and an unjustified deviation can void coverage.

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15. Item 15

    Cargo insured under an ocean marine policy is damaged while on a truck taking it from the dock to the buyer's warehouse. Why is the loss covered?

    • AThe sue and labor (mitigation) clause
    • BThe running down clause
    • CThe Nationwide Marine Definition
    • DThe warehouse-to-warehouse clause
    1. ASue and labor reimburses loss-prevention costs; it does not extend coverage onto a truck.
    2. BThe running down clause covers a hull's collision liability, not cargo on land.
    3. CThe Nationwide Marine Definition decides what may be written as marine insurance, not how long a cargo policy lasts.
    4. DCorrect: the warehouse-to-warehouse clause covers cargo from the origin warehouse to the destination warehouse, including connected land transit.

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