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WHAT IS P&I INSURANCE?

P&I:HISTORY

• History of P&I Clubs?

− Shipping could not function without insurance

− The first statute dealing with the insurance of ships was recorded in Barcelona in 1434.

− The first marine insurers were established in Italy in the seventeenth century.

− The whole principle of Mutual Clubs is, if there is a loss all owners contribute, and if there is a gain all owners get the return‟. It drew on the tradition of mutual assistance at sea when seafarers in distress relied on help from passing ships, even if owned by competitors. One rule common to almost all mutual marine insurance clubs, most of which were originally hull insurance clubs, was that Members should come to the aid of ships in distress belonging to fellow Members.

− New laws and regulations governing the carriage of goods and people at sea made many owners realise that they needed protecting against a wider range of risks. For instance, the standard hull and machinery insurance of the time only covered collision liabilities on the payment of an additional premium. The owner‟s abortive argument was that collision liability came within the insured risk of „perils of the sea‟. As a result of this decision, policy terms were extended to cover a shipowner‟s liability but limited cover to 75 per cent in the case of collision. Shipowners turned to mutual clubs to insure the remaining 25 per cent.

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P&I: THE BASICS

• What is P&I Insurance?

− „Protection & Indemnity‟

− Third Party Liability Insurance

− Non-profit „mutual‟ insurance for Ship Owners, Charterers & Vessel Operators

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JLT SPECIALTY LIMITED 4

Mutual insurance is different from commercial insurance

• It is essentially co-operative self-insurance (a “Club”)

• The insured are also the insurers

• The insured own the insurance fund

• The aim of a mutual is to cover losses, not make a profit

PROVIDED ON A MUTUAL BASIS


• Club is owned by Members

• Members elect Board of Directors to run Club

• Day to day management delegated to Club Managers

• Members insure third party liability risks with Club in exchange for premiums (calls)

RELATIONSHIP BETWEEN MEMBERS AND CLUB


THE BOARD OF DIRECTORS

Ultimate control over the Club‟s affairs rests with the Board of Directors.


• UK

• Britannia

• Gard

• Japan

• London

• North of England

• Skuld

THE INTERNATIONAL GROUP OF P&I CLUBS

• Shipowners

• Standard

• Steamship Mutual

• Swedish

• American

• West of England

The Pooling Agreement:

• The biggest Marine Reinsurance contract in the world.

• Pooling of risk for the benefit of the Group and its Members.


• P&I Insurance is:

− insurance in respect of third party liabilities

• P&I Insurance is NOT:

− hull and machinery insurance,

− war risk insurance,

− freight demurrage and defence insurance.

MARINE INSURANCE


• An owner is only insured against loss, damage, liability or expenses incurred by him, which arises:

− Out of events occurring during the period of entry of a ship (20 Feb to 20 Feb)

− In respect of the owners‟ interest in the entered ship, and

− In connection with the operation of the ship by or on behalf of the owner.

− Payment first by the Owner – the “pay to be paid” rule

BASIC CONDITIONS OF STANDARD COVER


STANDARD COVER UNDER P&I CLUB RULES

Liability to pay damages or compensation for injury,

illness or death of any seaman



Liability to pay damages or compensation for injury, illness or death of persons other than seamen – e.g. passengers or stevedores



Liability in respect of expenses incurred by the Owner in discharging his obligations

towards stowaways or refugees.


One fourth or such other proportion as may have been agreed in writing of the Owner‟s liabilities arising out of collisions.




Liability to pay damages or compensation for any loss of or damage to any property whether on land or water and whether fixed or moveable.


Including infringement of rights



The liabilities, losses, damages, costs and expenses caused by or incurred in consequence of the discharge or escape from an entered ship of oil or any other substance.



Costs or expenses relating to the raising, removal, destruction, lighting or marking of the wreck of an entered ship



Cargo liabilities



The proportion of general average, special charges or salvage which an Owner may be entitled to claim from cargo.




Fines



Liabilities, costs and expenses incidental to the business of owning, operating or managing ships which in the opinion of the Directors fall within the scope of the Association – the “Omnibus Rule”


COVER LIMITS


COMMERCIAL P&I MARKET

• The non-IG commercial market totals around US$ 350 million in 2016. This accounts for

approximately 11% if the combined International Group (IG) and non-IG market place.

• Major Commercial P&I Insurers who also are well known in our part of the world are British

Marine Mutual, MS Amlin (previously called Raets Marine), Navigators (part of Thomas

Miller Specialty Limited) and Lodestar. Other fixed P&I Insures who operate worldwide are

Carina (managed by Tindall Riley), Korean P&I, Hanseatic, Hydor (Brit Insurance facility).

Please refer to the FTA list of approved insurers who are allowed to insure vessels that

carry a navigational licence from UAE FTA. https://fta.gov.ae/en/about-fta/rules-and-

regulations.aspx.

• The main differences between IG and Non-IG are as under:

− IG works on a „No Profit or no Loss basis‟ i.e. Mutual, whereas Fixed Insurers work

for a profit.

− IG Clubs reinsurance facility entititles to offer an „Unlimited‟ liability whereas the

maximum a fixed Insurer can offer is USD 1 Billion.

− The Omnibus Rule which entititles members to take a non-payable to the board and

get in paid is not available with the fixed P&I Insurers.

https://fta.gov.ae/en/about-fta/rules-and-regulations.aspx

















MLC AND UAE

• Although the UAE has not ratified the Maritime Labour Convention 2006 (“MLC”), a

circular from the Federal Transport Authority (“FTA”) issued on 20th February 2018

requires all ships over 200 GT flying the UAE flag and trading internationally or any

non-UAE flagged ship over 200 GT anchoring in UAE waters or calling at UAE ports

to carry proof of insurance or evidence of other financial security to meet the

shipowner‟s obligations regarding:

− Repatriation, the provision of essential supplies to the ship and payment of up

to four months‟ outstanding wages where crew members are deemed to have

been abandoned in accordance with the provisions of MLC Regulation 2.5,

Standard A2.5.2 and guidelines B2.5.

− Entitlement to contractual payments for death or long-term disability in

accordance with MLC Regulation 4.2, Standard A4.2 and guidelines B4.


MARITIME LABOUR CONVENTION, 2006

• Compensation in case of loss or foundering

− The shipowner is liable to pay compensation regarding the loss (of

possessions) and injury (Standard A2.6.2) is provided for in the legislation. The

maximum amount the shipowner will pay as compensation for loss in such

circumstances must be specified in the Seafarer‟s Employment Agreement.

• Financial Security

− The shipowner must provide financial security, a contract of insurance or other

security adequate to ensure that the shipowner will meet any liabilities under

UK law or under Seafarer Employment Agreements (SEA), to provide

compensation in the event of death or long term disability to seafarers arising

from occupational injury, illness or hazard.

• Wages

− The shipowner must pay basic wages to incapacitated seafarers whilst

onboard or put ashore up to the time they recover, or if/when repatriated, 16

weeks have elapsed since the date of the injury or commencement of

sickness. After repatriation, the shipowner‟s liability is only to meet the

difference between state benefits paid and the level of basic wages.



• Burial and Cremation

− The shipowner must meet any expenses reasonably incurred in the cost of

burial or cremation of a deceased seafarer, wherever this takes place, except:

1. if the seafarer dies ashore in their country of residence; or

2. to the extent the expenses are met by a public authority.

• Medical Care

− The shipowner must ensure that the seafarer is provided with medical care

onboard, so far as is practicable, and meet the cost of surgical, medical, dental

and optical treatment, while the seafarer is employed or onboard, board and

lodging away from home when not onboard the ship, up to the time the

seafarer has recovered, been repatriated or the incapacity has been declared

of a permanent nature. Shipowners should note that if, following the incapacity

being declared of a permanent nature by an Approved Doctor, the seafarer

lodges a successful appeal against this decision, the shipowner‟s obligation

towards the seafarer will be re-instated as if it had continued without

interruption. This obligation is limited to 16 weeks from the date of sickness

injury occurring, and does not apply when those expenses are met by a public

authority.



• Expiry of SEA prior to the end of the usual liability period

− If a seafarer‟s Seafarer Employment Agreement (SEA) expires during the

period in which above liabilities are payable, the liabilities continue to be

payable as if the SEA continued to be in force during this period.

Exceptions

The shipowner obligations in wages, burial and medical care do not apply

if:

the seafarer is injured when not at work;

if sickness or injury was due to the seafarer‟s willful misconduct; or

the seafarer concealed an existing sickness or incapacity from the

shipowner when they entered into the SEA.


MLC AND CLUB COVER

• Compensation for death or long-term disability in accordance with Regulation 4.2.,

Standard A4.2. and Guideline B4.2. – would be covered by standard P&I cover,

− the liabilities for outstanding wages and repatriation of seafarers together with

incidental costs and expenses in accordance with MLC Regulation 2.5,

Standard A2.5.2 and Guideline B2.5 would fall outside of cover.

• A4.2 - shipowners shall be liable to bear the costs for seafarers working on their

ships in respect of sickness and injury of the seafarers occurring between the date

of commencing duty and the date upon which they are deemed duly repatriated, or

arising from their employment between those dates;

• B4.2 - shipowners shall provide financial security to assure compensation in the

event of the death or long-term disability of seafarers due to an occupational injury,

illness or hazard, as set out in national law, the seafarers‟ employment agreement or

collective agreement;


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