Hull and machinery insurance: cover structure, limits and exclusions

Hull and machinery insurance, commonly known as H&M, primarily protects the physical value of a vessel: its hull, engines, machinery, equipment and other property described in the policy. It may respond to partial damage, total loss and certain related costs or liabilities, but it does not cover every breakdown or replace maintenance. The actual scope depends on the wording, insured perils, agreed value, deductibles and exclusions.

This guide explains what hull and machinery insurance covers, how an H&M policy is usually structured and what a shipowner should check before placement or renewal.

H&M policy structure at a glance

Section	What it determines	Question for the shipowner
Insured interest and property	Vessel, machinery and equipment included	Is every material item declared?
Insured perils	Events capable of triggering the policy	Is cover broad or based on named perils?
Recoverable loss	Partial damage, total loss and related costs	How will repair or loss be adjusted?
Liabilities	Collision and striking, depending on the clauses	Which part belongs to H&M and which to P&I?
Value and limits	Agreed value, sums insured and sublimits	Does the insured value reflect current exposure?
Deductibles	The share retained by the assured	Is there a separate machinery deductible?
Exclusions and warranties	Uninsured situations and obligations	Do trading, class and maintenance match reality?

Spain’s Law 14/2014 on Maritime Navigation allows the parties to agree the conditions of marine insurance and recognises vessels, cargo and civil liability, among other interests, as insurable. Consequently, two policies both described as H&M may respond differently.

1. Property that hull and machinery may insure

The vessel is at the centre of the cover. The review will normally consider:

• hull, decks, superstructure and structural components;

• main and auxiliary engines, gearboxes, shafts and propellers;

• generators, pumps, electrical, hydraulic and steering systems;

• navigation, communication and safety equipment;

• tackle, appurtenances, spares and declared specialist equipment;

• bunkers and lubricating oil where the wording includes them.

It should not be assumed that everything on board is included. Containers, leased equipment, fishing gear, contractors’ tools or items temporarily removed may require specific declaration or cover. The Nordic Marine Insurance Plan, for example, expressly defines the objects comprised in hull insurance and includes rules for equipment and spares. It is a useful international reference, not an automatic term of every policy.

2. Insured perils: the policy name is not enough

Cover may be built around named perils or broader conditions. Depending on the wording, it may address navigational accidents, heavy weather, grounding, collision, fire, explosion, ingress of water, contact with docks or objects, crew negligence and other fortuitous events.

“All risks” does not mean “every loss”. Four elements still have to align:

1. the damaged property is insured;

2. the cause falls within the wording;

3. no applicable exclusion operates; and

4. declarations, warranties and duties have been complied with.

Causation is particularly important in machinery claims. A bearing destroyed after an accidental ingress of seawater is not assessed in the same way as one exhausted through progressive wear.

3. Partial loss, actual total loss and constructive total loss

Partial damage

Where the vessel can be repaired, the policy may meet the reasonable cost required to restore insured damage, subject to survey, deductible and adjustment provisions. Labour, parts, transport, dry docking, towage, inspections and tests must be considered, together with any deductions for betterment or the replacement of old components.

Actual total loss

This may arise when the vessel is destroyed, ceases to be a thing of the kind insured or the owner is irretrievably deprived of it, subject to the governing law and policy terms. Settlement is generally linked to the insured value, but the precise calculation remains contractual.

Constructive total loss

A constructive total loss of a vessel may be considered where preservation, recovery or repair after an insured peril is economically disproportionate to the relevant value under the clauses. The threshold and procedure are not universal. Under English law, for example, constructive total loss is addressed by sections 60 and 61 of the Marine Insurance Act 1906, while other markets use different formulas.

Before committing to major repairs or treating a casualty as a total loss, the owner, broker, underwriters and surveyors should coordinate.

4. Machinery damage: sudden casualty versus wear


A frequent question is whether H&M insurance covers engine breakdown. The answer depends on the cause and the clauses purchased.

The wording may distinguish between:

• the defective part that initiates the failure;

• consequential damage to other machinery;

• a sudden external accident;

• a latent defect not reasonably discoverable;

• wear, corrosion, cavitation, fatigue or inadequate maintenance.

One policy may exclude the cost of correcting the defective component but cover specified resulting damage. Another may restrict machinery cover by age, require documented maintenance or impose a special machinery deductible. There is no single rule across all H&M wordings.

Maintenance records, oil analyses, alarms, repair history and preservation of failed parts are important evidence of causation. Insurance should not be treated as a substitute for preventive repair.

5. Costs associated with physical damage

In addition to repair, some H&M policies may address, subject to their terms and limits:

• reasonable measures taken to avert or minimise insured damage;

• salvage and maritime assistance;

• general average contributions attributable to the insured interest;

• emergency towage or removal to a port of refuge;

• survey, dry-dock and testing costs related to the repair;

• collision or striking liability to the extent provided.

These heads do not necessarily apply cumulatively or always sit outside the sum insured. Sublimits, deductibles and any separate liability limit need to be checked.

6. Agreed value, underinsurance and deductibles

Under Spanish maritime law, the value declared for ship insurance is presumed to be an agreed estimate binding on the parties, subject to the statutory exceptions. The owner should nevertheless set and update it on a defensible basis: market, condition, age, investment, equipment and reasonable repair or replacement cost.

An outdated value may affect a total loss settlement and the limit available for certain liabilities. An excessive value does not turn insurance into a source of profit.

A deductible is the portion of each claim retained by the assured. There may be:

• a general casualty deductible;

• a higher machinery deductible;

• percentage deductibles for weather or specified areas;

• special amounts or periods for navigation, towage or dry docking.

Comparing premium alone, without comparing deductibles and valuation provisions, can lead to a poor decision.

7. Exclusions that deserve express review

Although exclusions vary, particular attention should be paid to:

• ordinary wear, corrosion and gradual deterioration;

• inherent vice or the defective part, depending on the cover bought;

• wilful misconduct and specified forms of gross negligence;

• breach of class, seaworthiness, maintenance or manning requirements;

• trading outside geographical limits or undeclared use;

• war, strikes, terrorism, radioactive contamination and cyber risks unless extended;

• delay, loss of market and loss of earnings without specific insurance;

• fines, penalties and liabilities belonging to another policy.

Vessel downtime generally requires separate *Loss of Hire* insurance. Physical damage may be insured under H&M while income lost during repairs is not.

8. How H&M and P&I work together

H&M and P&I protect different exposures, although the same casualty can engage both.

Scenario	H&M may address	P&I may address
Damage to the entered vessel	Insured hull, machinery and equipment	Normally not its principal purpose
Collision with another vessel	Own damage and the collision liability fraction included in hull	Liability not covered by H&M, subject to entry and Rules
Contact with a dock	Own damage; liability if the wording includes it	Liability for external property left outside H&M
Injury to crew or a third party	Normally outside physical hull damage	May fall under P&I, subject to terms and legal relationship
Pollution or wreck removal	Not H&M’s principal function	May fall under P&I, subject to Rules and limits

The allocation of collision liability and damage to fixed or floating objects varies between English, Nordic and other market conditions. Gard’s explanation of the H&M and P&I interface shows why no universal split should be assumed.

To avoid gaps, Nautilux’s hull and machinery insurance should be reviewed together with Protection & Indemnity (P&I) insurance, especially for collision, striking, pollution and wreck removal.

9. Worked example: collision following propulsion failure

A vessel suffers a sudden propulsion failure, loses control and strikes a dock. Its engine and hull are damaged, the terminal installation is affected, and the authority requires preventive measures following a small spill.

The analysis is not a matter of sending the whole file to one policy:

1. H&M examines causation and damage to the engine and hull.

2. The hull clauses determine whether liability for the dock sits with H&M or P&I.

3. P&I may address liabilities and costs outside hull cover.

4. Loss of Hire insurance, if purchased, examines the period off hire.

5. Insurers coordinate surveyors, reserves, security and recoveries.

A mismatch between contracts can leave a material exposure uninsured. H&M and P&I should therefore be designed as a programme rather than isolated purchases.

10. Information for an H&M quotation or renewal

A well-structured technical submission usually includes:

• registration, flag, class and trading limits;

• vessel type, year, construction, tonnage and activity;

• proposed value and its supporting rationale;

• engines, machinery and specialist equipment;

• loss and repair history;

• condition reports, surveys and recent dry dockings;

• maintenance programme and technical management;

• routes, ports, towage, lay-up periods and special operations;

• P&I, Loss of Hire and related insurance structure;

• required deductibles and limits.

Hull and machinery insurance FAQs

Does H&M cover every engine failure?

No. The cause and wording must be established. Wear or inadequate maintenance is treated differently from an insured sudden casualty or specified consequential damage.

Must the insured value equal market value?

It should be established on a defensible basis under the policy. Market, condition, investment and repair cost are relevant, and Spanish law includes a specific rule on agreed value in ship insurance.

Is lost income during repairs included?

Not necessarily. It is usually considered under separate Loss of Hire insurance.

Does H&M include collision liability?

It may include all or part of it, but scope varies by clauses. The H&M and P&I placements should identify insured fractions, heads of damage and excesses.

When should the policy be reviewed?

Before renewal and whenever value, activity, ownership, flag, class, trading area, machinery or technical management changes.

A coordinated review prevents coverage gaps

The quality of an H&M programme is not measured by a generic list of perils, but by how it responds to the operation’s real casualties. Nautilux Marine Insurance can review valuation, machinery clauses, deductibles and coordination with P&I. Request a hull and machinery exposure review before placement or renewal.

This article is for information only. It is not legal advice or a guarantee of cover. A claim outcome depends on the facts, applicable law and the specific policy terms.