Did you know that more than 90%
of Commercial Vessels insure their liabilities with
Indeed, the vast majority of Commercial vessel operators
insure their liabilities by becoming a member of
a Protection and Indemnity Club 'P&I Club' which
cover them specifically for liabilities arising
out of the management or navigation of their commercial
Indeed, commercial marine is vastly different to
pleasure boating where standard third party public
liability cover is available from most general insurance
companies with limits from $1million to $20million
- whereas, Protection & Indemnity cover starts
at $100,000,000 [USD] and is primarily issued by
London based P&I Clubs.
P&I Clubs are the successors of similar named
associations founded in the United Kingdom and the
United States of America during the 19th and early
20th centuries with the primary intent to standardise
marine liability cover for ocean crossing vessels
including their cargo and crew.
Why Do I Need So Much
Cover - I'm Just a Charter Boat Operator?
For one thing most ordinary marine
liability insurance just doesn't offer the range
and level of cover really necessary to ensure a
commercial vessel operator is completely covered.
While most pleasurecraft insurances are sold by
local insurance companies and governed by local
insurance laws [the laws which apply in the country
where the vessel is flagged, operated and/or the
management is located] commercial marine insurance
can be purchased from and provided by non-local
insurers, commonly referred to as International
In many instances, liabilities that can and do arise
from the operation of a commercial vessel are excluded
under standard marine/pleasurecraft type insurance
polices- large pollution losses for instance, let
me give you an example:-
|A potential client approached
United Marine Insurance with the opportunity
to arrange a quote both Hull and Liability insurance
for their 'tourist vessel' which operated daily
scenic tours in one of New Zealand's pristine
The operators were already insured, but like
any business person they check the available
alternatives at every renewal.
Firstly, we examined their current liability
cover - the limit was AUD$10million - which
on the face of it seems a lot but, hang on for
one moment, the vessel carries a maximum 115
passengers averaging two trips daily of between
50 and 60 passengers - that equates to a very
low, AUD$150,000 to $200,000 per passenger.
Next, we have the problem with pollution, can
you imagine if this vessel sank - it was built
around 1910 and has almost 100 years of oil
and god only knows what soaked timbers that
if under water would leak and seep pollutants
into the waters for years and years, thus, the
vessel (every bit of it) would have to be salvaged
if it sank - then there are the clean up and
What about the fines - anyone living in environmental
sensitive countries such as New Zealand, Australia,
the UK, USA or Singapore for instance, could
expect massive fines for the resultant pollution.
To add one more problem, their existing insurance
cover had only AUD$10,000 pollution cover.
This vessel caters to many international tourists,
imagine if a few US and/or UK tourists were
injured and had to be repatriated to their home
countries, that would be a very expensive exercise,
but even worse - any compensation claims they
make against the operator would be in UK Pound
Sterling and/or USD$ - that further reduces
the available level of protection because their
liability cover was in New Zealander dollars.
Hello, bankruptcy - the client had no idea of
the hazards of not having P&I cover - it
turned out to be only AUD$3,400.00 more than
there current but, inadequate cover.
Even in countries like New Zealand where they have
government funded liability contingency type insurance
covers for personal injuries - the fact is, the
standard covers just don't go far enough, especially
if the vessel operates on the high seas.
Are P&I Clubs a Safe Option?
Yes, is the simple answer but, while P&I Clubs
are recognized around the world, it is always best
to have your insurance arranged by a professional
service provider such as United marine Insurance.
United Marine Insurance only deals with member organisations
of the International Group of P&I Clubs, based
in London, UK'.
There are thirteen principal underwriting member
P&I clubs of the International Group of P&I
Clubs which between them provide liability cover
(protection and indemnity) for approximately 90%
of the world's ocean-going tonnage.
Each Group club is an independent, non-profit making
mutual insurance association, providing cover for
its Ship-Owner and Charter members against third
party liabilities relating to the use and operation
of ships. Each club is controlled by its members
through a board of directors or committee elected
from the membership.
Clubs cover a wide range of liabilities including
personal injury to crew, passengers and others on
board, cargo loss and damage, oil pollution, wreck
removal and dock damage. Clubs also provide a wide
range of services to their members on claims, legal
issues and loss prevention, and often play a leading
role in the management of casualties.
So, What Else Does 'P&I'
P&I Club coverage is generally as broad as the
liabilities faced by a Commercial Vessel Operator/Owner,
Ship-Owner and Charterer.
The scope of cover available from P&I Clubs
are detailed in their individual rulebooks, but
generally, this comprises:
- Injury, illness and death of crew, passengers
- Repatriation of crew and substitute expenses.
- Diversion and other expenses incurred in
landing refugees, sick persons and stowaways.
- Collision liability.
- Excess collision liability.
- Pollution by oil or other substances.
- Property damage.
- Towage contract liabilities, and liability
under other contracts and indemnities.
- a Cargo loss, shortage and damage.
- Unrecoverable general average contributions.
- Salvor's expenses under the 1980 Lloyd's
Standard Form of Salvage Agreement.
- Fines, certain legal and other costs.
- Wreck removal.
- Excess War Risks liability.
Please Tell Me More about P&I Clubs
In nearly all circumstances, an owner will be offered
cover on a mutual basis, the concept of mutuality
being fundamental to the operation of P&I Clubs.
In broad terms, this means that in any one year the
premium collected from the members should be identical
to total expenses and claims arising out of incidents
during the same period. In this way, the Club makes
neither a profit nor loss.
To achieve this result it is possible that members
may be required to pay a supplementary premium during
the course of a policy year in the event that claims
exceed the premium initially collected.
By tradition, the major proportion of all Club member
entries are renewable at the same time each year -
Noon, on 20th February, and any new entry attaching
mid-year has an initial period of insurance up to
the next 20th February, thence 12 months although
this mainly applies to Ships and large vessels of
Whereas, for smaller commercial vessels (e.g. fishing
boats, passenger charter vessels etc'), P&I Clubs
are now becoming more flexible and allowing application/joining
dates to mirror those of the hull insurance.
In Club jargon, premium is termed "Calls",
thus at commencement of the policy year the Club
will make an 'Advance Call' on its members. Often,
the advance call is only an installment premium,
and at the same time the Club publishes its estimate
of the additional call which they anticipate will
be necessary to balance the accounts for that year
with the actual amount being determined some six
months after the end of the policy year.
Clubs are normally able to maintain supplementary
in line with estimated because of their reinsurance
arrangements, the structure of which allows them a
degree of flexibility in assessing calls.
How Technical Does it Get?
Quite technical when you get down into the nitty
gritty of it all however, for most operators of
commercial vessels the application process is simplistic
- we do most of it for you.
There are a couple of things, for Cargo and Work Boat
Towage matters, such as the following clauses, but,
we'll make sure your vessel and operations are covered
in the easiest, simplest and cost effective way possible.
To ensure equal treatment of all members and maintain
equitable premium levels, the cover granted by Clubs
is restricted to those liabilities that are common
to all the Members. Hence cover for cargo claims is
on the basis that the carriage of such cargo was on
conditions that gave the carrier the benefits and
exemptions available under Hague or Hague Visby Rules.
Similarly, the liabilities under towage contract are
restricted to customary towage (e.g. compulsory towage
whilst entering/leaving port) and liabilities under
indemnity contracts would be limited to Port Authority
Standard Indemnities or similar agreements. Should
a Member require wider cover than this then the P
and I Club are normally able to accommodate the request
for a suitable additional premium.