P&I CLUBS

 Shipowners insure against loss of or damage to their ships with hull underwriters. They look to the P&I Clubs for insurance against their liabilities to others. P&I stand for Protection and Indemnity. Shipowners take P&I insurance cover in respect of third party liabilities and expenses arising from owning ships or operating ships as principals. An insurance mutual, a Club, provides collective self-insurance to its members. The membership is comprised of a common interest group who wish to pool their risks together in order to obtain “at cost” insurance cover.

The beginning of the P&I Clubs
The present P&I Clubs are the remote descendants of the many small hull insurance Clubs that were formed by British shipowners in the 18^th century. These were set up by groups of shipowners, drawn in each case from a small geographical area, who were dissatisfied with the scope and cost of the hull insurance then provided by the two companies who had been granted in 1720 a statutory monopoly which excluded other companies from such business, namely the Royal Exchange Assurance and the London Assurance, and by individuals operating in London from, for example, Lloyd’s Coffee House. These hull Clubs were essentially unincorporated associations or co-operatives of shipowners who came together to share with each other their hull risks on a mutual basis, each being at the same time an insured and an insurer of others - still the basic concept of the present P&I Clubs, despite the fact that they are now incorporated so that in law it is the Club and not the individual Members who provide the insurance.
Temporary decline of the P&I Clubs
After the removal in 1824 of the company monopoly in favor of the Royal Exchange and the London Assurance, greater competition had a salutary effect on the rates, terms of cover and service offered by the commercial market and by Lloyd’s underwriters. The hull Clubs became less necessary and went into decline. A few exist today, but their share of the total market is not very significant.
Rebirth due to Growth of Third Party Liabilities
But as the hull Clubs declined, shipowners found the need to create similar associations for a different purpose. The need sprang partly from the steady increase from the middle of the 19^th century onwards in the burden upon British shipowners of liabilities to third parties. It became more usual for injured crewmembers to seek compensation from their employers, and claims by dependants of crewmembers who were killed were facilitated by Lord Campbell’s Act of 1846. The possibility of claims by passengers was greatly increased by the same Act and by the vast numbers of passengers who constituted the flood of emigrants to North America and Australia in the second half of the century. Shipowners needed cover against these risks. They were also becoming increasingly aware of the inadequacy of the insurance cover that they did have in respect of damage caused by their ships in collisions with other ships. The usual cover for claims by other ships and their cargo for damage caused in collision excluded altogether one fourth of such damage and, more seriously, was limited in amount (apparently the maximum recovery under the policy, including both damage to the insured ship and liability for the damage it had caused, was the insured value of the ship).
Eventually, in 1855, the first protection association was formed. This was the Shipowners’ Mutual Protection Society, the predecessor of the Britannia P&I Club. It was intended to operate like a mutual hull club, but to cover liabilities for loss of life and personal injury and also the collision risks excluded from the current marine policies, particularly the excess above the limits in those policies. Other similar associations were formed.
In 1874 the risk of liability for loss of or damage to cargo carried on board the insured ship was first added to the cover provided by a protection Club. The values of cargoes had risen and cargo underwriters had become keener on recovering their losses from shipowners, in which they were encouraged by a somewhat more sympathetic approach by the courts. After 1874 many Clubs added an indemnity class to provide the necessary cover. Subsequently, most of these separate classes have been amalgamated with the class reserved for the original protection risks, and today the distinction between the two classes has virtually disappeared within the P&I Clubs.

While all the original P&I Clubs were based on various towns and cities within the United Kingdom, Clubs were subsequently established and today flourish in Scandinavia, in the United States and in Japan. Most of the major Clubs now belong to the International Group for reinsurance and other purposes. Moreover, many Clubs originally based in the UK have comparatively recently been re-formed in such places as Bermuda and Luxembourg in order to secure, in respect of Clubs’ funds representing calls or premiums paid by their Members but not yet used for the payment of claims, freedom from exchange controls. Such freedom is demanded by the shipowners from all parts of the developed and developing world who now make up the truly international membership of the larger Clubs. The popularity of the Club system of insuring liability risks can be judged from the fact that approximately nine out of ten ocean-going ships are currently entered in a P&I Club'Indemnity' refers to clubs indemnity' or compensation for liability to cargo under the contract of carriage.

            So ship owners take P & I insurance cover in respect of third party liabilities and expenses arising from occurring ships as principals. An insurance mutual, a club provides collective self insurance to its members. The membership is comprised of a common interact groups who wish to pool their risks together in order to obtain "at cost" insurance over.

            How these clubs operate world wide ?

            P& I  club are associations of member ship owners and charters; which are owned and controlled by the insured ship owners or charters members for the purpose, precisely of mutual insurance against third party liabilities which arise in connection with the operation of ships.

            P & I clubs operate on non-profit making basis.

            For their management, these clubs do hire an organization or agency which can be an insurance company or a Law firm for their day to day management. For this the manager or management agency charges the managing fees from the club :

            For their operation P & I clubs retain correspondents at numerous ports world wide. In some countries the correspondent may be a firm of insurance specialist acting for more than one club or alternatively a ship broking or insurance company or law firm with maritime law practitioners. P & I clubs issues handbooks containing club rules and list of correspondents which care very useful to a master seeking advice and assistance when in any kind of trouble.

            There are 13 P & I clubs belonging to the International group clubs. Together these clubs insure over 90% of the worlds blue water tonnage.

Connected with P & I clubs Explain :

CONTROL : Ship owners who are the members of the P & I club are required to maintain their ships as per clubs rules.

            Club may subject a ship of member for random inspection. If on the basis of random inspection there are reasons to believe that vessel is not being of random inspection there are reason to believe that vessel is not being operated as per clubs rule. Then ship will be subjected to more intense condition survey by independent surveyors called by the club manager.

            An owner who fails to keep his vessel in the continuous required by the clubs rule may be expelled from the club.

DIVIDENDS : As the P & I clubs do operate on non-profil making basis, there is no policy of giving dividends to club members or manager of the club.

SCOPE OF COVER :

            P & I clubs may cover their members exposure to claims for damage of compensation of the following :

• Crew : The members liability for injury, illness or death and medical expenses arising from injury, illness or death, costs of repatriation and maintenance ashore resulting from injury illness or death, costs of repatriation  and maintenance ashore resulting from injury illness or death.
• Personnel Injury to or loss of life of stevdores.
• Personnel injury to or illness or loss of life of passengers and others.
• Loss of personnel effects
• Ships Diversion expenses including running expenses and port charges incurred solely for this purpose.
• Life salvage : award to a person who has saved or attempted to save the life of person onboard the salvaged vessel.
• One fourth collision liability
• Oil pollution

o   Standard oil pollution cover

o   Oil pollution cover for USA

• Liabilities under contracts and indemnities
• Wreaks liabilities
• Cargo liabilities

                  The members liability for cargo loss, shortage, damage or delay occurring in relation to the carriage of cargo on the entered vessel.

• Cargos proportion of general average or salvages.
• Certain expenses of salvers
• Fines
• Legal Cost

      Omnibus Cover : In recognition of the fact that the list of liabilities to which ship owners are subjected is constantly increasing in unforeseen ways, the valves of the clubs give their directions discretion to pass for payment certain claim that are not expressly covered by any of the heads of cover set out in their rules provided that they are within the general scope of the club cover and are not expressly excluded elsewhere within the rules.

Letter of Undertaking :

      When there is an incident of pollution following a bunkering accident or jelly damage to jelly caused by the ship then club may be required to post the bond to avoid the arrest of the ship which can lead to delay of ship schedule.

      To avoid this the correspondent of the club can offer a letter of undertaking on the instruction of club; to pay for the possible liabilities of the ship arising from the accident or damage.