General P&Icover

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Introductory guide to P&I cover

Shipowners insure against loss of or damage to their ships with hull underwriters.

Shipowners insure against loss of or damage to their


ships with hull underwriters. They look to their
P&I club for insurance in respect of third party
liabilities and expenses arising from owning ships • This guide should not be treated as
or operating ships as principals. in any way definitive of the terms of
cover provided. If you would like to
The term “P&I” stands for Protection and Indemnity. see the full text of the current Rules
It is not hull insurance, war risk insurance, loss of & Bye-Laws.
profit/freight insurance, detention insurance, strike These can be downloaded in pdf
insurance or uninsured legal expenses (Defence) format from the Club website
cover. (www.ukpandi.com) or obtained in
hard copy from your usual Club
The following risks typically covered by P&I Clubs contact (see back cover for contact
are briefly described in this 'layman's guide' to the details).
Rules of the Club

• Personal injury to or illness or loss of life of


crew members
• Personal injury to or loss of life of stevedores pursuing and defending claims related to entered
• Personal injury to or illness or loss of life of ships where the sum in dispute is not insured. A
passengers and others review of the UK Defence club cover can be
• Loss of personal effects found at the back of this brochure.

• Diversion expenses
• Life salvage 1. Personal injury to or illness or loss
• Collision Liabilities of life of crew members
• Loss or damage to property other than cargo
The shipowner may be exposed to such claims
• Pollution in tort or under statute law, although it is more
• Towage contract liabilities usual for the claims to be made under the crew
• Liabilities under contracts and indemnities member's collective agreement or particular
contract of employment. The cost of medical
• Wreck liabilities treatment and of repatriation is covered, as are
• Cargo liabilities the funeral expenses of dead seamen and also
• Cargo's proportion of general average or salvage the cost of sending abroad a substitute for a
seaman who is sick or injured or for a seaman
• Certain expenses of salvors who dies. Where there is a particular employment
• Fines contract and this provides for unusually generous
• "Omnibus" cover compensation in the event of death, injury or
illness, the shipowner will normally be expected
to have cleared it in advance with the managers
Freight, demurrage and defence risks can be insured of the Club so that his additional exposure under
with the UK Defence Club. The UK Defence club the contract can be taken into account in the
provide insurance for the legal and other costs of assessment of his premium.
2. Personal injury to or loss of life of Club. Several Clubs extend the cover given in
stevedores respect of stowaways to include the like expenses
in respect of refugees who have been picked up
This is a frequent source of heavy claims in tort by the ship.
or under statute law against shipowners and thus
by them against their Clubs. Claims have been
specially heavy in US ports, although the number 6. Life salvage
of these claims has been reduced somewhat since
A shipowner may become obliged to pay a life
the introduction of the 1972 Amendments to the
salvage award to a person who has saved or
Longshoremen's and Harbour Workers' Compen-
attempted to save the life of persons on board
sation Act which narrowed the circumstances in
the salvaged vessel. Where property has also been
which the shipowner, as opposed to the employer
saved, the usual practice is for the property
of the stevedores, is liable for stevedore deaths
salvage award to be "enhanced" by an unspecified
and injuries.
amount in recognition of the life salvage service.

3. Personal injury to or illness or loss The whole award is then payable by the property
of life of passengers and others underwriters. But should the owner have to
meet a claim for life salvage alone, this will be
The shipowner may be exposed to claims in recovered from his Club.
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
7. Collision Liabilities shipowner may in such circumstances recover
his payment from his Club (although in the
i. One-fourth collision liability case of towage other than ordinary harbour
The English form of hull policy requires the towage, by special arrangement only).
ship's hull underwriter to pay three-fourths only
of the liability of the insured ship in respect of It may be asked why the Club cover should
loss or damage to another ship or her cargo as include the insured shipowner's liability to cargo
a result of the collision (subject always to the carried in his own ship, in view of the fact that
maximum mentioned under (iii) below). The the Club's cargo cover is conditional upon the
remaining one-fourth of such liability is insured application of the Hague or Hague-Visby Rules
by the shipowners Club. This one-fourth usually and these Rules exclude claims by cargo in
makes the Club the largest single insurance respect of the negligent navigation of the carrying
interest, and in practice the managers of the Club ship. In most jurisdictions it is indeed most
will usually be asked by the hull underwriters to unlikely that the owner of cargo in the insured
handle the issue of collision liability with the vessel could succeed in a claim against the owner
other ship and her cargo on behalf of all the of that ship in a collision situation. The cargo
underwriting interests. It is also usual for the owner may make a claim against the non-
Club concerned to give, on behalf of the insured carrying vessel in accordance with her degree
shipowner, any necessary guarantees to the other of blame, if any, but cannot recover either from
ship and her cargo, the Club taking appropriate the carrying ship or from the non-carrying ship
counter-security from the insured shipowner in respect of that part of the blame attributable
and also from the hull underwriters (or brokers) to the carrying ship. However in the US there is
to the extent of their respective interests. a well established principle, the "innocent cargo
rule" to the effect that cargo may recover from
the non-carrying ship the whole of its loss,
ii. Other risks excluded from the Running
provided only that there is some degree of blame,
Down Clause
however slight, upon the non-carrying ship.
There are a number of important exclusions
from the liability of the hull underwriters in The non-carrying ship is then entitled to recover
the Running Down Clause. For instance, wreck over against the carrying ship in respect of the
removal liabilities are excluded, as is consequent carrying ship's degree of blame for the collision.
damage to shore side structures or to the cargo In this indirect manner the owner of the carrying
in the insured ship herself, and pollution from ship may become obliged to pay part of the claim
and loss of life or personal injury on board any of the cargo carried on board his own ship. As
ship is involved. All those liabilities are insured the shipowner would be unable, because of the
by the shipowner's Club. terms of the last sentence of the Running Down
Clause, to recover in respect of this payment
The Club cover includes, and the hull underwriter's from his hull underwriters, the Club cover is
cover excludes, not only the wreck removal of extended to fill that gap.
the insured ship herself, but also the removal of
the wreck of any other ship involved. The same
is true of liabilities incurred by the shipowner 8. Loss or damage to property other
not in tort but because of the existence of a than cargo
contractual obligation, as the words in the
Running Down Clause "pay by way of damages" The Clubs provide cover for damage caused by
have been interpreted as being restricted to contact between the entered ship and property
payments in respect of tortious liability. Thus in belonging to other persons, including docks,
Furness Withy v. Duder payments made by a wharves, locks and so on. The shipowner will
shipowner for collision damage to a tug were not need to insure with his Club for this risk
held to be unrecoverable from hull underwriters where his hull policy accepts it, as is the case,
where the collision was caused solely by the for example, with the German and Scandinavian
negligence of the tug and liability arose under types of hull policy, although he may still wish
the special terms of the towage contract; the to have Club cover for the excess above any
limit imposed by the hull policy. The Club cover 10. Towage contract liabilities
also extends to damage caused by the entered
ship to other ships and their cargoes without Clubs provide cover in respect of liabilities which
any actual contact, as, for example, by causing may be incurred during ordinary harbour towage
damage to a moored vessel by passing her closely and may by special arrangement offer cover on
at excessive speed. appropriate terms for situations beyond harbour
towage. They also give cover for liabilities under
the terms of the usual contracts for towage by
9. Pollution the entered ship or another ship or object.
It is well known that there has in recent years
been a huge increase in the exposure of ship- 11. Liabilities under contracts and
owners to liability claims in respect of pollution
indemnities
caused by cargoes from their vessels, in particular
cargoes of oil. Most such liabilities are imposed Shipowners are often required to give contractual
by international convention such as CLC, domestic indemnities in order to secure services required
statute such as OPA 90 or common law, but some by their ship, for example in order to obtain the
have been voluntarily assumed by shipowners services of a floating crane. Cover in respect of
in accordance with schemes such as STOPIA. any resulting liability can be obtained from the
Clubs in most such situations.
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 12. Wreck liabilities
entered ship each accident or occurrence. This
The Clubs give cover for the liability which a
oil pollution limit does not apply only to claims
shipowner may incur in respect of the raising,
that are made directly against the entered ship
removal, destruction, lighting or marking of the
by those who suffer the oil pollution, but also
wreck of his ship. From the cost of the operation
embraces those which come indirectly, as, for
will be deducted the value of the wreck or any
example, those which form part of the collision
part thereof that is recovered as a result of the
claim of another vessel.
removal operation.
13. Cargo liabilities of an oil tanker may be required to reimburse a
contractor who attempts to salve that tanker for
A very important part of the cover provided by his "reasonably incurred expenses".These expenses,
the Club is that which relates to the liability of in contrast with ordinary salvage awards made
the shipowner under his contract of carriage to under the Lloyd's Form or under general maritime
pay for any loss of or damage to cargo. Unless law, are not recoverable under hull insurance
prior arrangements are made with the Club policies, and the Clubs have agreed to insure
managers, this cover will be given on the basis shipowners for them in an agreement known as
that the shipowner's contract with the owner SCOPIC, having in mind the interests of the
of the cargo is on terms at least as favourable to Clubs in the avoidance of oil pollution incidents.
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 16. Fines
and the Hamburg Rules of 1978.
A variety of fines may have to be paid by a ship-
owner, either directly or because of an obligation
The cover extends beyond the sea leg of the to reimburse his seagoing employees in respect of
carriage and thus will protect the shipowner fines levied on them. Most of these come within
throughout a combined transport contract from the cover of the Clubs.
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 17. Legal costs
liabilities as such, in that the shipowner may recover
from his Club any additional cost incurred by him The Clubs also pay for legal costs and similar
in discharging or disposing of damaged cargo. expenses which a shipowner may incur in dealing
Clubs' Rules impose restrictions on the cover with a liability insured by his Club. In practice,
in respect of deviation from the contract voyage the defence to the claim against the shipowner
(for example an unreasonable departure from is usually conducted by his Club's managers or
the agreed itinerary or the shipment on deck correspondents, who engage any lawyers, surveyors
of cargo with underdeck bills) and in respect of and other experts who may be required and have
other departures from the proper carrying them paid directly by the Club.
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 18. "Omnibus" cover
for cargo which is patently damaged.
In recognition of the fact that the list of liabilities
to which shipowners are subject is constantly
14. Cargo's proportion of general increasing in unforeseen ways, the Rules of the
Clubs give their Directors discretion to pass for
average or salvage payment certain claims that are not expressly
As an extension of their cover for loss of or covered by any of the heads of cover set out in
damage to cargo, the Clubs again go beyond their Rules, provided only that they are within
the insurance of liabilities as such by agreeing the general scope of the Club cover and are not
to pay to the shipowner any contributions to expressly excluded elsewhere within the Rules.
general average, special charges or salvage which This is a most unusual provision and is a reminder
the shipowner would have been able to recover that the Clubs exist, not as profit making insurance
from cargo interests had he not disentitled himself companies, but as organisations for the benefit
from so recovering by committing some breach of the shipowners who are their Members. The
of his contract of carriage. Omnibus Rule gives the opportunity to the
Directors to move rapidly in response to the
needs of the Members, particularly where a new
15. Certain expenses of salvors risk suddenly arises or when an exceptional
case appears to fall outside the express provisions
The Lloyd's Standard Form of Salvage Agreement of the Rules.
provides that in certain circumstances the owner
Overall conditions of cover Cover for charterers
The risks described above are insured under the Although the above description of the Club cover
Clubs' Rules only where the relevant liability arises speaks solely of shipowners, the cover is available
out of the Member's interest in a ship entered by also to charterers of ships, to the extent that they
him in the Club and when it arises in connection may incur any of the liabilities listed. Cover for
with the operation of that ship by or on behalf of charterers is usually subject to a provision that the
the Member. charterer is deemed by the Club to have been
entitled, as against the third party claimant, to any
It is also provided by Club Rules that it is a condition limitation rights that would have been available to
of the cover that the Member must have paid the a shipowner. Details can be found in Charterers'
liability claim against him before he can recover Liability Cover.
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 Additional Covers
Party (Rights Against Insurers) Act 1930.
The UK Club provides or arranges a number of
additional covers for Members requiring specific
additional insurance. Details can be found in
Exclusion of war risks Extended Cargo Cover.

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.
Defence cover is insurance for the legal and other costs of pursuing and
defending claims related to entered ships where the sum in dispute is not insured.
It is however more than just insurance. The Club’s legally qualified staff are also
available to assist and advise on claims without the need to instruct lawyers and
to be used as a sounding board before particular steps are taken, as well
as to advise on particular contracts or clauses.

Consider – if your usual insurers say it’s not covered, is it covered under defence?

Examples of disputes covered What is available?

concerning for example payment of hire or freight, payment of


demurrage (including container demurrage), exercising liens
over cargo, sailing orders, safety of ports, ship’s performance
and characteristics

How do I claim?
owners and charterers

and machinery deductible) and loss of use between owners


and charterers, shippers / cargo owners, terminal operators,
third parties

terminals or others supplying services to ships It’s not just about legal fees!

representation at official investigations.


The United Kingdom
Mutual Steam Ship Assurance
Association (Bermuda) Limited

Managers Thomas Miller Americas Thomas Miller Asia Pacific


Thomas Miller (Bermuda) Ltd Thomas Miller (Americas) Inc Thomas Miller (Hong Kong) Ltd
1st Floor, Chevron House Harborside Financial Center Room 1201-1204, 12/F Sino Plaza
11 Church Street Plaza Five, Suite 2710 255-257 Gloucester Road
Hamilton HM11 Jersey City, N.J. 07311 Causeway Bay
Bermuda USA Hong Kong
Tel: +1 441 292 4724 Tel: +1 201 557 7300 Tel: +852 2832 9301
Fax: +1 441 292 3694 Fax: +1 201 946 0167 Fax: +852 2574 9954

Managers’ Agents Thomas Miller Insurance Services Thomas Miller & Co Ltd
Thomas Miller P&I Ltd 44 Montgomery Street Beijing representative office
90 Fenchurch Street Suite 1480 A908, 9/F New Poly Plaza
London EC3M 4ST San Francisco, No.1 Chaoyangmen Beidajie,
United Kingdom California 94104 Dongcheng District, Beijing 100010
Tel: +44 20 7283 4646 USA People’s Republic of China
Fax: +44 20 7549 4243 Tel: +1 415 956 6537 Tel: +86 10 6310 1147
Fax: +1 415 956 0685 Fax: +86 10 6310 1146
Thomas Miller (Isle of Man) Ltd
16-17 Mount Havelock Thomas Miller & Co Ltd
Douglas UK P&I Club Japan Branch Shanghai representative office
Isle of Man UK P&I Club Japan Branch Suite 310 Shanghai Bund No.12
IM1 2QG 8th Floor, 12 Zhong Shan Dong Yi Road
United Kingdom Suzuyo-Hamamatsucho Bldg. Huangpu District
Tel: +44 1624 645200 2-1-16 Kaigan Shanghai 200002
Fax: +44 1624 645201 Minato-Ku People’s Republic of China
Tokyo 105-0022 Tel: +86 21 6321 7001
Thomas Miller (Hellas) Limited Japan Fax: +86 21 6321 0206
PO Box 80071 Tel: +81 3 5442 6110
5th Floor, 93 Akti Miaouli Fax: +81 3 5442 6111 Thomas Miller (South East Asia) Pte Ltd
Piraeus 185 38 61 Robinson Road
Greece 12-02 Robinson Centre
Tel: +30 210 429 1200 Singapore 068893
Fax: +30 210 429 1207/8 Tel: +65 6323 6577
Fax: +65 6323 6277

The United Kingdom Managers


Mutual Steam Ship Assurance Thomas Miller P&I (Europe) Ltd
Association (Europe) Limited 90 Fenchurch Street
London EC3M 4ST
United Kingdom
Tel: +44 20 7283 4646
Fax: +44 20 7549 4243

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