Chapter Twenty-Nine

• Jurisdiction: New York

Chapter Twenty-nine

Inland Marine Insurance

Joseph M. Schnitter, Esq.

I. Historical Background

Marine insurance is one of the earliest forms of insurance and is an integral part of maritime law. Marine insurance provides protection for ships and their cargo from various risks, including fire, explosion, collision, theft, perils of the sea, seizures and confiscations, malicious mischief, plus wrongful and negligent acts. This insurance affords protection for the vehicle itself, the goods carried on the vessel, property damage and personal injury or death.³⁹³⁵

Inland marine insurance was designed to cover goods that were shipped by rail, coach and wagon.³⁹³⁶ This insurance was expanded to include all manner of risks to goods the carrier or custodian had in his or her possession for the loss of which he or she faced personal exposure. Goods and merchandise were insured not only while in transportation but while on the premises of the owner, while stored or while in the custody of others. The coverage was expanded to include an “all-risk” policy, also known as a “floater” policy, intended to afford coverage to property as it changes geographic location. This policy covers damages caused by the elements, robbery, theft and burglary. The policy can also cover merchandise kept in homes and businesses. Floater forms can afford protection for one’s belongings, including, for example, tourists’ luggage, stamps, jewelry, wedding gifts, physician’s equipment, shotguns, radium or furs.³⁹³⁷

II. Definitions

A. New York State Definition

Inland marine insurance and marine protection and indemnity insurance are authorized in New York under the definitions set forth in N.Y. Insurance Law § 1113(a)(20). Insurance Law § 1113(a)(20) defines marine and inland marine insurance to mean insurance against any of the following kinds of loss or damage to:

(A) Vessels, hulls, craft, aircraft, cars, automobiles, trailers and vehicles of every kind, and all goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, bullion, precious stones, securities . . . valuable papers . . . and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit, or transportation . . . on or under any seas or other waters, on land or in the air, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting the same or during any delays, storage, transshipment, or reshipment incident thereto, including marine builder’s risks and all personal property floater risks;

(B) Person or property in connection with or appertaining to marine, inland marine, transit or transportation insurance, including liability for loss of or damage to . . . the construction, repair, operation, maintenance or use of the subject matter of such insurance . . . ;

(C) Precious stones, jewels, jewelry, gold, silver and other precious metals . . . ;

(D) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their improvements and betterments, furniture and furnishings, fixed contents and supplies held in storage), including auxiliary facilities and equipment attendant thereto; . . .

In 2000, the New York State Insurance Department issued Circular Letter No. 22 recognizing that the following risks would be considered protected by inland marine insurance:

1. Bridges, tunnels, [and other instrumentalities of transportation or communication] . . .

2. Structures protected by builder’s risk and/or installation risk policies . . . until the earliest of the following events:

(a) Occupancy of the structure by any tenant for the purpose for which the structure was intended;

(b) Delivery to, or acceptance by, the owner of the structure;

(c) Completion of the structure; or

(d) Issuance of a Certificate of Occupancy or Completion covering the structure, by any appropriate governmental authority.

3. Domestic bulk liquids . . .

4. Difference in condition (DIC) policies . . . only if all of the underlying policies also qualify as inland marine. . . . A DIC policy written to fill the gaps of an underlying inland marine policy would qualify as inland marine. . . .

5. Electronic data processing policies . . . if the equipment being insured is of a relatively transportable nature. . . . Equipment that is intended to be used as part of a larger network or system does not qualify as inland marine.

For example, a laptop or similar portable personal computer would qualify as inland marine. Personal computers designed to be used as terminals for a larger, mainframe network would not qualify as inland marine.

Insurance Law § 1113(a)(20) also addresses the difference between inland marine insurance and ocean marine insurance, providing that inland marine insurance does not protect vessels, crafts, their cargoes, marine builders’ risks, or other similar risks, commonly insured only under ocean marine insurance policies. Circular Letter No. 22 further provides that inland marine insurance “pertains to the insuring of property in transit over land; the insuring of property which is mobile by nature and for which there is no fixed situs; and the insuring of property which are instruments of communication or transportation such as bridges, tunnels, piers or television antennas.”³⁹³⁸ Ocean marine insurance, however, is “insurance covering damage to ships, vessels and the goods they carry while on the ocean or inland waters.”³⁹³⁹ New York State has also adopted the 1976 Nation-Wide Marine Definition, adopted by the National Association of Insurance Commissioners, with certain exceptions. In Circular Letter No. 22, the Insurance Department indicates that “[i]f a particular class or type of insurance cannot reasonably be categorized within the Nation-Wide Marine Definition or § 1113(a)(20) of the Insurance Law, it should not be classified as inland marine.”³⁹⁴⁰

B. National Association of Insurance Commissioners Definition

The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the fifty states, the District of Columbia and five U.S. territories.³⁹⁴¹ Although the NAIC definition is not dispositive in New York, it provides a “fixed point of reference” in defining inland marine and the insurance of cargo, goods, and other property when not inconsistent with the New York definition. NAIC does not address the insurance of vessels, but instead focuses on instrumentalities on land or connected to the land in some way.

The NAIC definition divides marine and inland marine insurance into the following four categories: (1) property in transit; (2) bridges, tunnels and other instrumentalities of transportation; (3) personal property floaters; and (4) commercial property floaters.³⁹⁴² The first category, property in transit, includes both imports and exports. The definition specifically addresses when an import/export ceases to be an import/export. The second category specifically excludes buildings, their improvements, furniture, furnishings, fixed contents and supplies held in storage. The third category excludes items such as furniture and other items that would be commonly covered by fire policies. Finally, the fourth category expressly excludes the following areas: (a) storage of the assured’s merchandise; (b) merchandise in the course of manufacture; (c) furniture, fixtures, improvements/betterments; and (d) monies and/or securities kept in a safe, except when in the course of transportation.

III. ISO-based Forms

A commercial inland marine policy can stand independently to provide insurance protection. Alternatively, a commercial inland marine policy can be used in conjunction with other policies such as commercial property, liability, crime, boiler and machinery, or business income in a multi-line format.³⁹⁴³

An inland marine policy affords open perils coverage, where a specific item of property does not need to be identified.

An inland marine policy only affords protection for the named insured. The policy does not cover the liability of any other person or organization, such as the liability of a bailee for property in the bailee’s possession. Inland marine policies may encompass the risk of fire damage as part of all-risk coverage. However, Insurance Law § 3404(b), which sets forth minimal requirements for fire insurance policies delivered on property in New York, does not apply to inland marine insurance policies.³⁹⁴⁴ Accordingly, inland marine policies are not required to incorporate standard warranties for fire policies in New York.

In Kron v. Hanover Fire Ins. Co.,³⁹⁴⁵ the insured tugboat owner commenced an action to collect for the destruction of the boat by fire. The marine policy had a warranty clause that no gasoline or explosives would be kept or used aboard the vessel. The tugboat owner at trial acknowledged using a gasoline blowtorch to remove paint from the boat and further acknowledged that at the time of the fire there was a gallon and a half of gasoline in a five-gallon can. Based upon expert testimony, the trial court concluded an explosion occurred aboard the tug, followed by fire, that resulted from the ignition of gasoline or some other explosive substance. The trial court concluded that the insured was not entitled to a recovery because the insured had not complied with the “literal performance” rule which required strict compliance with the warranty that barred storing gasoline or explosives on board. The court observed that a breach of warranty is applied more strictly in a marine policy of fire insurance relative to an ordinary policy of fire insurance.

There may be personal and commercial inland marine classifications of inland marine insurance. Items that would be included in personal classifications may include...