Introductory guide to P&I coverShipowners insure against loss of or damage to their ships with hull underwriters.

Shipowners insure against loss of or damage to theirships with hull underwriters. They look to theirP&I club for insurance in respect of third partyliabilities and expenses arising from owning shipsor operating ships as principals.

The term “P&I” stands for Protection and Indemnity.It is not hull insurance, war risk insurance, loss ofprofit/freight insurance, detention insurance, strikeinsurance or uninsured legal expenses (Defence)cover.

The following risks typically covered by P&I Clubsare briefly described in this 'layman's guide' to theRules of the Club

• Personal injury to or illness or loss of life ofcrew members

• Personal injury to or loss of life of stevedores

• Personal injury to or illness or loss of life ofpassengers and others

• Loss of personal effects

• Diversion expenses

• Life salvage

• Collision Liabilities

• Loss or damage to property other than cargo

• Pollution

• Towage contract liabilities

• Liabilities under contracts and indemnities

• Wreck liabilities

• Cargo liabilities

• Cargo's proportion of general average or salvage

• Certain expenses of salvors

• Fines

• "Omnibus" cover

Freight, demurrage and defence risks can be insuredwith the UK Defence Club. The UK Defence clubprovide insurance for the legal and other costs of

pursuing and defending claims related to entered ships where the sum in dispute is not insured. Areview of the UK Defence club cover can befound at the back of this brochure.

1. Personal injury to or illness or loss of life of crew members

The shipowner may be exposed to such claimsin tort or under statute law, although it is moreusual for the claims to be made under the crewmember's collective agreement or particularcontract of employment. The cost of medicaltreatment and of repatriation is covered, as arethe funeral expenses of dead seamen and alsothe cost of sending abroad a substitute for aseaman who is sick or injured or for a seamanwho dies. Where there is a particular employmentcontract and this provides for unusually generouscompensation in the event of death, injury orillness, the shipowner will normally be expectedto have cleared it in advance with the managersof the Club so that his additional exposure underthe contract can be taken into account in theassessment of his premium.

• This guide should not be treated asin any way definitive of the terms ofcover provided. If you would like tosee the full text of the current Rules& Bye-Laws.

These can be downloaded in pdfformat from the Club website(www.ukpandi.com) or obtained inhard copy from your usual Clubcontact (see back cover for contactdetails).

2. Personal injury to or loss of life of stevedores

This is a frequent source of heavy claims in tortor under statute law against shipowners and thusby them against their Clubs. Claims have beenspecially heavy in US ports, although the numberof these claims has been reduced somewhat sincethe introduction of the 1972 Amendments to theLongshoremen's and Harbour Workers' Compen-sation Act which narrowed the circumstances inwhich the shipowner, as opposed to the employerof the stevedores, is liable for stevedore deathsand injuries.

3. Personal injury to or illness or loss of life of passengers and others

The shipowner may be exposed to claims inrespect of passengers carried on board his shipin respect of injury, illness or death. These claimsmay in certain jurisdictions be defeated or limitedin amount by the terms of the passenger ticketbut, whether this is so or not in the particularcase, the shipowner is covered for this risk. Hemay also be liable in tort to persons other thancrew, stevedores and passengers who come onboard his ship for one purpose or another,including surveyors, Customs officials, pilots andso on. Cover in respect of liability to thesepersons is also included.

4. Loss of personal effects

Liability of the shipowner to crew, passengersand others in respect of loss of or damage to thepersonal effects of these persons is also covered.

5. Diversion expenses

The shipowner may suffer losses through havingto divert his ship in order to obtain treatmentfor an injured or sick person on board or forthe purpose of landing stowaways. Althoughthere is no liability here in the usual sense, theClubs give cover to the shipowner in respect ofthe basic running expenses of his ship duringthe diversion, including port charges incurredsolely for this purpose. Similarly, the cost ofproviding food and other necessities for stowawaysmay be reimbursed to the shipowner by his

Club. Several Clubs extend the cover given inrespect of stowaways to include the like expensesin respect of refugees who have been picked upby the ship.

6. Life salvage

A shipowner may become obliged to pay a lifesalvage award to a person who has saved orattempted to save the life of persons on boardthe salvaged vessel. Where property has also beensaved, the usual practice is for the propertysalvage award to be "enhanced" by an unspecifiedamount in recognition of the life salvage service.

The whole award is then payable by the propertyunderwriters. But should the owner have tomeet a claim for life salvage alone, this will berecovered from his Club.

7. Collision Liabilities

i. One-fourth collision liability

The English form of hull policy requires theship's hull underwriter to pay three-fourths onlyof the liability of the insured ship in respect ofloss or damage to another ship or her cargo asa result of the collision (subject always to themaximum mentioned under (iii) below). Theremaining one-fourth of such liability is insuredby the shipowners Club. This one-fourth usuallymakes the Club the largest single insuranceinterest, and in practice the managers of the Clubwill usually be asked by the hull underwriters tohandle the issue of collision liability with theother ship and her cargo on behalf of all theunderwriting interests. It is also usual for theClub concerned to give, on behalf of the insuredshipowner, any necessary guarantees to the othership and her cargo, the Club taking appropriatecounter-security from the insured shipownerand also from the hull underwriters (or brokers)to the extent of their respective interests.

ii. Other risks excluded from the RunningDown Clause

There are a number of important exclusionsfrom the liability of the hull underwriters inthe Running Down Clause. For instance, wreckremoval liabilities are excluded, as is consequentdamage to shore side structures or to the cargoin the insured ship herself, and pollution fromand loss of life or personal injury on board anyship is involved. All those liabilities are insuredby the shipowner's Club.

The Club cover includes, and the hull underwriter'scover excludes, not only the wreck removal ofthe insured ship herself, but also the removal ofthe wreck of any other ship involved. The sameis true of liabilities incurred by the shipownernot in tort but because of the existence of acontractual obligation, as the words in theRunning Down Clause "pay by way of damages"have been interpreted as being restricted topayments in respect of tortious liability. Thus inFurness Withy v. Duder payments made by ashipowner for collision damage to a tug wereheld to be unrecoverable from hull underwriterswhere the collision was caused solely by thenegligence of the tug and liability arose underthe special terms of the towage contract; the

shipowner may in such circumstances recoverhis payment from his Club (although in thecase of towage other than ordinary harbourtowage, by special arrangement only).

It may be asked why the Club cover shouldinclude the insured shipowner's liability to cargocarried in his own ship, in view of the fact thatthe Club's cargo cover is conditional upon theapplication of the Hague or Hague-Visby Rulesand these Rules exclude claims by cargo inrespect of the negligent navigation of the carryingship. In most jurisdictions it is indeed mostunlikely that the owner of cargo in the insuredvessel could succeed in a claim against the ownerof that ship in a collision situation. The cargoowner may make a claim against the non-carrying vessel in accordance with her degreeof blame, if any, but cannot recover either fromthe carrying ship or from the non-carrying shipin respect of that part of the blame attributableto the carrying ship. However in the US there isa well established principle, the "innocent cargorule" to the effect that cargo may recover fromthe non-carrying ship the whole of its loss,provided only that there is some degree of blame,however slight, upon the non-carrying ship.

The non-carrying ship is then entitled to recoverover against the carrying ship in respect of thecarrying ship's degree of blame for the collision.In this indirect manner the owner of the carryingship may become obliged to pay part of the claimof the cargo carried on board his own ship. Asthe shipowner would be unable, because of theterms of the last sentence of the Running DownClause, to recover in respect of this paymentfrom his hull underwriters, the Club cover isextended to fill that gap.

8. Loss or damage to property other than cargo

The Clubs provide cover for damage caused bycontact between the entered ship and propertybelonging to other persons, including docks,wharves, locks and so on. The shipowner willnot need to insure with his Club for this riskwhere his hull policy accepts it, as is the case,for example, with the German and Scandinaviantypes of hull policy, although he may still wishto have Club cover for the excess above any

limit imposed by the hull policy. The Club coveralso extends to damage caused by the enteredship to other ships and their cargoes withoutany actual contact, as, for example, by causingdamage to a moored vessel by passing her closelyat excessive speed.

9. Pollution

It is well known that there has in recent yearsbeen a huge increase in the exposure of ship-owners to liability claims in respect of pollutioncaused by cargoes from their vessels, in particularcargoes of oil. Most such liabilities are imposedby international convention such as CLC, domesticstatute such as OPA 90 or common law, but somehave been voluntarily assumed by shipownersin accordance with schemes such as STOPIA.

All these liabilities are insured by the Clubs,although with a limit in respect of oil pollutionclaims which presently stand at US$1bn eachentered ship each accident or occurrence. Thisoil pollution limit does not apply only to claimsthat are made directly against the entered shipby those who suffer the oil pollution, but alsoembraces those which come indirectly, as, forexample, those which form part of the collisionclaim of another vessel.

10. Towage contract liabilities

Clubs provide cover in respect of liabilities whichmay be incurred during ordinary harbour towageand may by special arrangement offer cover onappropriate terms for situations beyond harbourtowage. They also give cover for liabilities underthe terms of the usual contracts for towage bythe entered ship or another ship or object.

11. Liabilities under contracts and indemnities

Shipowners are often required to give contractualindemnities in order to secure services requiredby their ship, for example in order to obtain theservices of a floating crane. Cover in respect ofany resulting liability can be obtained from theClubs in most such situations.

12. Wreck liabilities

The Clubs give cover for the liability which ashipowner may incur in respect of the raising,removal, destruction, lighting or marking of thewreck of his ship. From the cost of the operationwill be deducted the value of the wreck or anypart thereof that is recovered as a result of theremoval operation.

13. Cargo liabilities

A very important part of the cover provided bythe Club is that which relates to the liability ofthe shipowner under his contract of carriage topay for any loss of or damage to cargo. Unlessprior arrangements are made with the Clubmanagers, this cover will be given on the basisthat the shipowner's contract with the ownerof the cargo is on terms at least as favourable tothe shipowner as the provisions of the Hague orHague-Visby Rules, that is to say the BrusselsConvention of 1924 and its Protocol of 1968and the Hamburg Rules of 1978.

The cover extends beyond the sea leg of thecarriage and thus will protect the shipownerthroughout a combined transport contract froman inland point to another inland point, providedonly that the sea leg is performed by an enteredship. This part of the cover is extended beyondliabilities as such, in that the shipowner may recoverfrom his Club any additional cost incurred by himin discharging or disposing of damaged cargo. Clubs' Rules impose restrictions on the coverin respect of deviation from the contract voyage(for example an unreasonable departure fromthe agreed itinerary or the shipment on deckof cargo with underdeck bills) and in respect ofother departures from the proper carryingpractice, such as the delivery of cargo withoutproduction to the master of the relevant bills oflading, or the issue of a "clean" bill of ladingfor cargo which is patently damaged.

14. Cargo's proportion of general average or salvage

As an extension of their cover for loss of ordamage to cargo, the Clubs again go beyondthe insurance of liabilities as such by agreeingto pay to the shipowner any contributions togeneral average, special charges or salvage whichthe shipowner would have been able to recoverfrom cargo interests had he not disentitled himselffrom so recovering by committing some breachof his contract of carriage.

15. Certain expenses of salvors

The Lloyd's Standard Form of Salvage Agreementprovides that in certain circumstances the owner

of an oil tanker may be required to reimburse acontractor who attempts to salve that tanker forhis "reasonably incurred expenses". These expenses,in contrast with ordinary salvage awards madeunder the Lloyd's Form or under general maritimelaw, are not recoverable under hull insurancepolicies, and the Clubs have agreed to insureshipowners for them in an agreement known asSCOPIC, having in mind the interests of theClubs in the avoidance of oil pollution incidents.

16. Fines

A variety of fines may have to be paid by a ship-owner, either directly or because of an obligationto reimburse his seagoing employees in respect offines levied on them. Most of these come withinthe cover of the Clubs.

17. Legal costs

The Clubs also pay for legal costs and similarexpenses which a shipowner may incur in dealingwith a liability insured by his Club. In practice,the defence to the claim against the shipowneris usually conducted by his Club's managers orcorrespondents, who engage any lawyers, surveyorsand other experts who may be required and havethem paid directly by the Club.

18. "Omnibus" cover

In recognition of the fact that the list of liabilitiesto which shipowners are subject is constantlyincreasing in unforeseen ways, the Rules of theClubs give their Directors discretion to pass forpayment certain claims that are not expresslycovered by any of the heads of cover set out intheir Rules, provided only that they are withinthe general scope of the Club cover and are notexpressly excluded elsewhere within the Rules.This is a most unusual provision and is a reminderthat the Clubs exist, not as profit making insurancecompanies, but as organisations for the benefitof the shipowners who are their Members. TheOmnibus Rule gives the opportunity to theDirectors to move rapidly in response to theneeds of the Members, particularly where a newrisk suddenly arises or when an exceptionalcase appears to fall outside the express provisionsof the Rules.

Overall conditions of cover

The risks described above are insured under theClubs' Rules only where the relevant liability arisesout of the Member's interest in a ship entered byhim in the Club and when it arises in connectionwith the operation of that ship by or on behalf ofthe Member.

It is also provided by Club Rules that it is a conditionof the cover that the Member must have paid theliability claim against him before he can recoverfrom the Club. However, the failure of a bankruptMember to pay the third party claimant may notprovide a good defence to his Club when the Clubis sued directly by the third party under the ThirdParty (Rights Against Insurers) Act 1930.

Exclusion of war risks

The Clubs' cover does not include liabilities arisingfrom the war risks listed in the Lloyd's Free ofCapture and Seizure Clause. Consequently it isusual for shipowners to attach to their war riskshull insurance policies a special clause giving coverfor P&I risks to the extent that these may arisefrom such a risk and thus be excluded from theClub insurance.

Selection by shipowners of particularheads of cover and of deductibles

It should be particularly noted that a Member of aClub is not obliged to enter for all the risks set outabove but may choose to take cover from his Clubin respect only of certain risks which he perceivesas most pressing from his point of view. Similarly,although some Clubs put in their Rules standarddeductibles for the various risks, it is always open toa Member to negotiate specially large deductiblesagainst a corresponding reduction in premium.

Cover for charterers

Although the above description of the Club coverspeaks solely of shipowners, the cover is availablealso to charterers of ships, to the extent that theymay incur any of the liabilities listed. Cover forcharterers is usually subject to a provision that thecharterer is deemed by the Club to have beenentitled, as against the third party claimant, to anylimitation rights that would have been available toa shipowner. Details can be found in Charterers'Liability Cover.

Additional Covers

The UK Club provides or arranges a number ofadditional covers for Members requiring specificadditional insurance. Details can be found inExtended Cargo Cover.

What is available?

How do I claim?

It’s not just about legal fees!

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.

Examples of disputes covered

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

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

representation at official investigations.

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

ManagersThomas Miller (Bermuda) Ltd1st Floor, Chevron House11 Church StreetHamilton HM11BermudaTel: +1 441 292 4724Fax: +1 441 292 3694

Managers’ AgentsThomas Miller P&I Ltd90 Fenchurch StreetLondon EC3M 4STUnited KingdomTel: +44 20 7283 4646Fax: +44 20 7549 4243

Thomas Miller (Isle of Man) Ltd16-17 Mount HavelockDouglasIsle of ManIM1 2QGUnited KingdomTel: +44 1624 645200Fax: +44 1624 645201

Thomas Miller (Hellas) LimitedPO Box 800715th Floor, 93 Akti MiaouliPiraeus 185 38GreeceTel: +30 210 429 1200Fax: +30 210 429 1207/8

The United Kingdom Mutual Steam Ship AssuranceAssociation (Bermuda) Limited

Thomas Miller AmericasThomas Miller (Americas) IncHarborside Financial CenterPlaza Five, Suite 2710Jersey City, N.J. 07311USATel: +1 201 557 7300Fax: +1 201 946 0167

Thomas Miller Insurance Services44 Montgomery StreetSuite 1480San Francisco, California 94104USATel: +1 415 956 6537Fax: +1 415 956 0685

UK P&I Club Japan BranchUK P&I Club Japan Branch8th Floor, Suzuyo-Hamamatsucho Bldg.2-1-16 KaiganMinato-KuTokyo 105-0022JapanTel: +81 3 5442 6110Fax: +81 3 5442 6111

ManagersThomas Miller P&I (Europe) Ltd90 Fenchurch StreetLondon EC3M 4STUnited KingdomTel: +44 20 7283 4646Fax: +44 20 7549 4243

Thomas Miller Asia PacificThomas Miller (Hong Kong) LtdRoom 1201-1204, 12/F Sino Plaza255-257 Gloucester RoadCauseway BayHong KongTel: +852 2832 9301Fax: +852 2574 9954

Thomas Miller & Co LtdBeijing representative officeA908, 9/F New Poly PlazaNo.1 Chaoyangmen Beidajie,Dongcheng District, Beijing 100010People’s Republic of ChinaTel: +86 10 6310 1147Fax: +86 10 6310 1146

Thomas Miller & Co LtdShanghai representative officeSuite 310 Shanghai Bund No.1212 Zhong Shan Dong Yi RoadHuangpu DistrictShanghai 200002People’s Republic of ChinaTel: +86 21 6321 7001Fax: +86 21 6321 0206

Thomas Miller (South East Asia) Pte Ltd61 Robinson Road12-02 Robinson CentreSingapore 068893Tel: +65 6323 6577Fax: +65 6323 6277

The United Kingdom Mutual Steam Ship AssuranceAssociation (Europe) Limited