P&I stands for Protection and Indemnity. P&I is
insurance in respect of third party liabilities and expenses arising from
owning ships or operating ships as principals. The risks typically covered by
P&I Clubs are described in more detail under Insurance Cover below.
It is not hull insurance, war risk insurance, loss of profit/freight insurance,
detention insurance, strike insurance or uninsured legal expenses (Defence) cover.
6. Life salvage
9. Pollution
16. Fines
17. Legal costs
18. "Omnibus" cover
1. Personal injury to or illness or loss of life of crew members
The shipowner may be exposed to such claims in tort or under
statute law, although it is more usual for the claims to be made under the crew
member's collective agreement or particular contract of employment. The cost of
medical treatment and of repatriation is covered, as are the funeral expenses
of dead seamen and also the cost of sending abroad a substitute for a seaman
who is sick or injured or for a seaman who dies. Where there is a particular
employment contract and this provides for unusually generous compensation in
the event of death, injury or illness, the shipowner will normally be expected
to have cleared it in advance with the managers of the Club so that his
additional exposure under the contract can be taken into account in the
assessment of his premium.
2. Personal injury to or
loss of life of stevedores
This is a frequent source of heavy claims in tort or under
statute law against shipowners and thus by them against their Clubs. Claims
have been specially heavy in US ports, although the number of these claims has
been reduced somewhat since the introduction of the 1972 Amendments to the
Longshoremen's and Harbour Workers' Compensation Act which narrowed the
circumstances in which the shipowner, as opposed to the employer of the
stevedores, is liable for stevedore deaths and injuries.
3. Personal injury to or
illness or loss of life of passengers and others
The shipowner may be exposed to claims in respect of passengers
carried on board his ship in respect of injury, illness or death. These claims
may in certain jurisdictions be defeated or limited in amount by the terms of
the passenger ticket but, whether this is so or not in the particular case, the
shipowner is covered for this risk. He may also be liable in tort to persons
other than crew, stevedores and passengers who come on board his ship for one purpose
or another, including surveyors, Customs officials, pilots and so on. Cover in
respect of liability to these persons is also included.
4. Loss of personal effects
Liability of the shipowner to crew, passengers and others in
respect of loss of or damage to the personal effects of these persons is also
covered.
5. Diversion expenses
The shipowner may suffer losses through having to divert his
ship in order to obtain treatment for an injured or sick person on board or for
the purpose of landing stowaways. Although there is no liability here in the
usual sense, the Clubs give cover to the shipowner in respect of the basic
running expenses of his ship during the diversion, including port charges
incurred solely for this purpose. Similarly, the cost of providing food and
other necessities for stowaways may be reimbursed to the shipowner by his Club.
Several Clubs extend the cover given in respect of stowaways to include the
like expenses in respect of refugees who have been picked up by the ship.
6. Life salvage
A shipowner may become obliged to pay a life salvage award to a
person who has saved or attempted to save the life of persons on board the
salvaged vessel. Where property has also been saved, the usual practice is for
the property salvage award to be "enhanced" by an unspecified amount
in recognition of the life salvage service. The whole award is then payable by
the property underwriters. But should the owner have to meet a claim for life
salvage alone, this will be recovered from his Club.
8. Loss or damage to
property other than cargo
The Clubs provide cover for damage caused by contact between the
entered ship and property belonging to other persons, including docks, wharves,
locks and so on. The shipowner will not need to insure with his Club for this
risk where his hull policy accepts it, as is the case, for example, with the
German and Scandinavian types of hull policy, although he may still wish to
have Club cover for the excess above any limit imposed by the hull policy. The
Club cover also extends to damage caused by the entered ship to other ships and
their cargoes without any actual contact, as, for example, by causing damage to
a moored vessel by passing her closely at excessive speed.
9. Pollution
It is well known that there has in recent years been a huge
increase in the exposure of shipowners to liability claims in respect of
pollution caused by cargoes from their vessels, in particular cargoes of oil.
Most such liabilities are imposed by international convention such as CLC,
domestic statute such as OPA 90 or common law, but some have been voluntarily
assumed by shipowners in accordance with schemes such as STOPIA. All these
liabilities are insured by the Clubs, although with a limit in respect of oil
pollution claims which presently stand at US$1bn each entered ship each
accident or occurrence. This oil pollution limit does not apply only to claims
that are made directly against the entered ship by those who suffer the oil
pollution, but also embraces those which come indirectly, as, for example,
those which form part of the collision claim of another vessel.
10. Towage contract
liabilities
Clubs provide cover in respect of liabilities which may be
incurred during ordinary harbour towage and may by special arrangement offer
cover on appropriate terms for situations beyond harbour towage. They also give
cover for liabilities under the terms of the usual contracts for towage by the
entered ship or another ship or object.
11. Liabilities under
contracts and indemnities
Shipowners are often required to give contractual indemnities in
order to secure services required by their ship, for example in order to obtain
the services of a floating crane. Cover in respect of any resulting liability
can be obtained from the Clubs in most such situations.
12. Wreck liabilities
The Clubs give cover for the liability which a shipowner may
incur in respect of the raising, removal, destruction, lighting or marking of
the wreck of his ship. From the cost of the operation will be deducted the
value of the wreck or any part thereof that is recovered as a result of the
removal operation.
13. Cargo liabilities
A very important part of the cover provided by the Club is that
which relates to the liability of the shipowner under his contract of carriage
to pay for any loss of or damage to cargo. Unless prior arrangements are made
with the Club managers, this cover will be given on the basis that the shipowner's
contract with the owner of the cargo is on terms at least as favourable to the
shipowner as the provisions of the Hague or Hague-Visby Rules, that is to say
the Brussels Convention of 1924 and its Protocol of 1968 and the Hamburg Rules
of 1978.
The cover extends beyond the sea leg of the carriage and thus
will protect the shipowner throughout a combined transport contract from an
inland point to another inland point, provided only that the sea leg is
performed by an entered ship. This part of the cover is extended beyond
liabilities as such, in that the shipowner may recover from his Club any
additional cost incurred by him in discharging or disposing of damaged cargo.
Clubs' Rules impose restrictions on the cover in respect of
deviation from the contract voyage (for example an unreasonable departure from
the agreed itinerary or the shipment on deck of cargo with underdeck bills) and
in respect of other departures from the proper carrying practice, such as the
delivery of cargo without production to the master of the relevant bills of
lading, or the issue of a "clean" bill of lading for cargo which is
patently damaged.
14. Cargo's proportion of
general average or salvage
As an extension of their cover for loss of or damage to cargo,
the Clubs again go beyond the insurance of liabilities as such by agreeing to
pay to the shipowner any contributions to general average, special charges or
salvage which the shipowner would have been able to recover from cargo
interests had he not disentitled himself from so recovering by committing some
breach of his contract of carriage.
15. Certain expenses of
salvors
The Lloyd's Standard Form of Salvage Agreement provides that in
certain circumstances the owner of an oil tanker may be required to reimburse a
contractor who attempts to salve that tanker for his "reasonably incurred
expenses". These expenses, in contrast with ordinary salvage awards made
under the Lloyd's Form or under general maritime law, are not recoverable under
hull insurance policies, and the Clubs have agreed to insure shipowners for
them in an agreement known as SCOPIC, having in mind the interests of the Clubs
in the avoidance of oil pollution incidents.
16. Fines
16. Fines
A variety of fines may have to be paid by a shipowner, either
directly or because of an obligation to reimburse his seagoing employees in
respect of fines levied on them. Most of these come within the cover of the
Clubs.
17. Legal costs
The Clubs also pay for legal costs and similar expenses which a
shipowner may incur in dealing with a liability insured by his Club. In
practice, the defence to the claim against the shipowner is usually conducted
by his Club's managers or correspondents, who engage any lawyers, surveyors and
other experts who may be required and have them paid directly by the Club.
18. "Omnibus" cover
In recognition of the fact that the list of liabilities to which
shipowners are subject is constantly increasing in unforeseen ways, the Rules
of the Clubs give their Directors discretion to pass for payment certain claims
that are not expressly covered by any of the heads of cover set out in their
Rules, provided only that they are within the general scope of the Club cover
and are not expressly excluded elsewhere within the Rules. This is a most
unusual provision and is a reminder that the Clubs exist, not as profit making
insurance companies, but as organisations for the benefit of the shipowners who
are their Members. The Omnibus Rule gives the opportunity to the Directors to
move rapidly in response to the needs of the Members, particularly where a new
risk suddenly arises or when an exceptional case appears to fall outside the
express provisions of the Rules.
Overall conditions of cover
The risks described above are insured under the Clubs' Rules
only where the relevant liability arises out of the Member's interest in a ship
entered by him in the Club and when it arises in connection with the operation
of that ship by or on behalf of the Member.
It is also provided by Club Rules that it is a condition of the
cover that the Member must have paid the liability claim against him before he
can recover from the Club. However, the failure of a bankrupt Member to pay the
third party claimant may not provide a good defence to his Club when the Club
is sued directly by the third party under the Third Party (Rights Against
Insurers) Act 1930.
Exclusion of war risks
The Clubs' cover does not include liabilities arising from the
war risks listed in the Lloyd's Free of Capture and Seizure Clause.
Consequently it is usual for shipowners to attach to their war risks hull
insurance policies a special clause giving cover for P&I risks to the
extent that these may arise from such a risk and thus be excluded from the Club
insurance.
Selection by shipowners of particular heads of cover and of
deductibles
It should be particularly noted that a Member of a Club is not
obliged to enter for all the risks set out above but may choose to take cover
from his Club in respect only of certain risks which he perceives as most
pressing from his point of view. Similarly, although some Clubs put in their
Rules standard deductibles for the various risks, it is always open to a Member
to negotiate specially large deductibles against a corresponding reduction in
premium.
Cover for charterers
Although the above description of the Club cover speaks solely
of shipowners, the cover is available also to charterers of ships, to the
extent that they may incur any of the liabilities listed. Cover for charterers
is usually subject to a provision that the charterer is deemed by the Club to
have been entitled, as against the third party claimant, to any limitation
rights that would have been available to a shipowner.
Additional Covers
The UK Club provides or arranges a number of additional covers for Members requiring specific additional insurance. Details can be found in Extended Cargo Cover.
Additional Covers
The UK Club provides or arranges a number of additional covers for Members requiring specific additional insurance. Details can be found in Extended Cargo Cover.
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 Advantages of Mutuals over Fixed Premium Insurers
|
Not for profit
|
·
The P&I Clubs
provide at cost insurance without profit.
Fixed premium insurers aim to make a profit for their shareholders. |
|
Control
|
·
Ultimate control of
P&I Clubs is in the hands of the shipowner assureds, through elected
shipowner boards/committees which decide policies on eg., scope of cover,
claims payments, premium calling etc.
Ultimate control of a commercial insurer is in the hands of the insurance company, and not the shipowners. |
|
"Dividends"
|
·
P&I Clubs regularly
pass back to the shipowner the benefit of a good underwriting year through
reduced or returned premiums.
Fixed premium insurers are most unlikely to do so. |
|
Commitment
|
·
P&I Clubs have
existed continuously for more than 140 years.
Fixed premium insurers have no convincing track record of commitment to P&I insurance. |
|
Scope of Cover
|
·
P&I Clubs provide
the most comprehensive cover available including the right of the board to
cover "omnibus" claims.
Fixed premium insurers provide less cover than P&I Clubs. |
|
Letters of Undertaking
|
·
P&I Clubs'
cost-free letters of undertaking are generally accepted worldwide and can be
provided without delay.
Fixed premium insurers usually require bank guarantees to free ships from arrest, with resulting costs and delays. |
|
Service Philosophy
|
·
In a P&I Club, the
managers are the servants of the Club, dedicated to the provision and
development of the service the Club's shipowner members require.
Fixed premium insurers are insurance suppliers to shipowner customers. |
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