Understanding Protection and Indemnity Insurance Coverage

Protection and indemnity insurance is a type of insurance that protects ship owners and operators from financial losses due to third-party liabilities, such as damage to cargo or other vessels. This insurance also covers costs associated with defending against claims.

Protection and indemnity insurance can be tailored to meet the specific needs of ship owners and operators, including coverage for liability for damage to the environment. This is particularly important for vessels that operate in sensitive ecosystems.

The insurance typically covers a wide range of risks, including damage to cargo, vessels, and property, as well as personal injury and death. In some cases, protection and indemnity insurance may also cover costs associated with complying with maritime regulations.

Protection and indemnity insurance is often purchased in conjunction with hull insurance, which covers damage to the vessel itself.

Protection and indemnity insurance is provided by non-governmental, nonprofit mutual or cooperative associations called P&I clubs. These clubs have their roots in 19th century England, where shipowners formed their own mutual P&I clubs due to reluctance from insurance underwriters to take on third-party cargo liability risks.

P&I clubs originated in London but have since spread to other major shipping hubs around the world, including China, Japan, Norway, Singapore, Sweden, the United Arab Emirates, the U.S., and South Korea.

Today, 13 P&I clubs have joined together as the International Group of P&I Clubs, providing insurance coverage for 90 percent of the world's ocean-going tonnage. Club members contribute to a risk pool that pays out funds when a member's ship faces losses.

The individual clubs in the International Group of P&I Clubs have a $10 million limit on claims, while more costly claims up to $100 million will be shared among the 13 clubs.

Mutual P&I Cover provides a Member with insurance against the liabilities, costs, and expenses set out in the Club's Class 1 Rules, which include:

Protection and indemnity insurance covers a wide range of risks that can impact vessel owners and operators. Damage to port facilities, including piers, shores, and fenders, is a key risk covered by this type of insurance.

Damage to port facilities can be caused by a vessel touching the shore or pier, and can result in significant losses for the vessel owner. Loss of or damage to fishery facilities or fishing nets is also covered, as well as damage to buoys and other floating objects.

Here are some of the key risks covered by protection and indemnity insurance:

These risks can have a significant impact on vessel owners and operators, and protection and indemnity insurance can provide valuable protection against these risks.

Damage to Cargo is a significant risk that can occur during the transportation of goods by sea. This type of damage can be caused by various factors, such as accidents, natural disasters, or even human error.

The cost of repairing or replacing damaged cargo can be substantial, and it's essential to have the right insurance coverage in place to mitigate these losses.

According to Example 7, "Damage to Cargo" coverage applies to cargo owners and passenger baggage. This means that if a cruise ship is loading passengers for its maiden voyage and a porter loses control of a luggage cart off the pier, the cruise line may be liable for the damaged luggage.

Here are some examples of damage to cargo:

In each of these scenarios, the cargo owner may be entitled to compensation for the damage or loss of their cargo. Having the right insurance coverage in place can help to minimize the financial impact of such losses.

Repatriation is a crucial aspect of crew safety, covering the cost of returning crew members to their home countries in the event of an emergency.

This can include medical evacuations, as seen in the example of a cruise ship outbreak where crew members fell ill with Norovirus.

P&I Clubs are non-governmental, nonprofit mutual or cooperative associations that provide insurance coverage for shipowners, operators, charters, and seafarers. They originated in 19th century England as a response to insurance underwriters' reluctance to take on third-party cargo liability risks.

P&I clubs are comprised of shipowners, operators, charters, and seafarers, and they have a long history dating back to 19th century England. Today, 13 P&I clubs have joined together as the International Group of P&I Clubs, an association that provides insurance coverage for 90 percent of the world’s ocean-going tonnage.

The International Group of P&I Clubs is based in London and comprises 12 clubs that provide P&I liability cover for approximately 90% of the world's ocean-going tonnage. This pool of clubs is a crucial part of the shipping industry.

Here is a list of one of the P&I clubs mentioned in the article:

P&I clubs offer very high insurance limits that protect against devastating losses on the sea, with individual clubs having a $10 million limit on claims. More costly claims up to $100 million will be shared among the 13 clubs.

P&I insurance coverage is a comprehensive protection for shipowners and operators against a wide range of third-party liabilities.

The International Group of P&I Clubs, comprising 13 clubs, provides insurance coverage for approximately 90% of the world's ocean-going tonnage.

The risks covered under P&I insurance include damage to port facilities, loss of or damage to fishery facilities, oil pollution, collision with other vessels, and wreck removal.

Here are some of the specific risks covered under P&I insurance:

P&I clubs offer very high insurance limits, with the individual clubs in the International Group of P&I Clubs having a $10 million limit on claims, while more costly claims up to $100 million will be shared among the 13 clubs.

The maximum amount payable for a claim involving an entered ship for the 2024 policy year is the "overspill limit" of about USD8.8 billion.

Exceptions are a crucial part of understanding Protection and Indemnity (P&I) insurance. P&I insurance claims may be rejected if club managers think the risk should have been covered by other types of insurance, such as war risks insurance or hull insurance.

There are several exceptions to P&I coverage, including moral hazard, which means liabilities due to the fraudulent non-delivery of cargo are usually not covered. This is reflected in the decision of the English courts in Sze Hai Tong Bank v. Rambler Cycle Co.

Willful misconduct is also an exception, which includes losses intended by the insured or to which it "turned a blind eye" knowing they were likely to happen. This means that if you intentionally cause damage or harm, you won't be covered by P&I insurance.

Public policy is another exception, which can include criminal liabilities for negligent conduct that damages the environment. Today, many countries have laws that impose criminal liability for such actions, which were not previously covered by P&I insurance.

Here are some specific exceptions to P&I coverage:

The European Union has implemented strict regulations for protection and indemnity insurance. The European Union Directive 2009/20/EC requires compulsory P&I to cover for EU and foreign ships in EU waters and ports.

Foreign vessels that don't comply with the directive may face expulsion or refusal of entry into any EU port, although they may be given time to comply. This directive took effect in all 27 member states by January 1, 2012.

Member states are responsible for setting penalties for any breach of the directive, as the EU's competence does not extend to penology.

The Netherlands has a rich history of maritime regulations, with the Noord Nederlandsche P&I Club (NNPC) founded as early as 1937.

The NNPC is a testament to the country's long-standing commitment to protecting the rights and interests of shipowners and operators.

This commitment is evident in the NNPC's founding, which marked a significant milestone in the development of maritime regulations in the Netherlands.

The NNPC has been providing specialized insurance and other services to the shipping industry for over 80 years.

Here's a brief overview of the NNPC's founding:

The European Union Directive 2009/20/EC was implemented in all 27 member states by January 1, 2012.

This directive requires compulsory P&I to cover for EU and foreign ships in EU waters and ports.

Foreign vessels that do not comply with the directive may be expelled or refused entry into any EU port.

Ships may be allowed time to comply before expulsion, but the exact timeframe is not specified in the directive.

The directive requires member states to set penalties for any breach, as EU competence does not generally extend to penology.

The Rotterdam Rules are a set of rules designed to replace the Hamburg Rules and the outdated Hague–Visby Rules.

These rules would cover not merely the sea voyage, but all parts of any contract of multimodal carriage with a sea leg.

Should the Rotterdam Rules come into effect, land carriers, warehouses, and freight forwarders would also need P&I cover.

This would inevitably lead to an increase in the scope and importance of P&I cover.

The Rotterdam Rules would diminish the prevalence of standard cargo insurance.

Marine insurers typically charge customers a premium to fully cover ships and cargo in a specific time period. This is how they make a profit.

Marine insurers usually don't cover broader, indeterminate risks that P&I clubs provide insurance for, such as third-party risks. These risks include a carrier's liability to a cargo-owner for damage to cargo, a shipowner's liability after a collision, environmental pollution, and P&I war risk insurance.

P&I clubs, on the other hand, are run as non-profit co-operatives and are financed by "calls" from their members. Club members contribute to the club's common risk pool according to the Pooling Agreement's rules.

If the risk pool can't cover current claims, the club members will be asked to pay a further call. If the pool has a surplus, the club will ask for a lower call the following year or make a refund to members.

Shipowners with acceptable reputations are allowed to join a P&I club. Any P&I club member who incurs reckless or avoidable losses to the club may be asked to leave.

Marine cargo is generally covered twice by insurance standards. The shipper or cargo-owner is covered by a marine insurer likely with 'all risks' cover, while the carrier or shipowner is covered by the P&I club.

The carrier or shipowner typically limits their liability to goods owners to a small fraction of the retail value of goods. If the cargo is lost or damaged, the cargo-owner needs to first make a claim against the shipowner.

Here is an example of a P&I club: Standard Steamship Owners Protection & Indemnity Association (Asia)