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Insurance

P&I clubs and marine insurance

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If you ask whether a ship is insured, there are at least five answers. One policy insures the hull, and a completely different one covers liabilities to third parties. A third covers war risks, because the other two exclude war. The cargo is covered by a policy the shipowner is not part of at all, and a fourth covers the legal costs of arguing about any of it. The covers are written so they do not overlap, and the gaps between them are deliberate.

The layers

CoverBought byWhat it covers
Hull and machineryOwner Physical loss of the ship itself, or damage to it, and usually a share of collision liability. A commercial market cover, priced by underwriters (insurers)
Protection and indemnityOwner, or charterer under separate charterers' cover Liabilities to third parties: crew, passengers, cargo claims, pollution, wreck removal, damage to fixed and floating objects, the rest of collision liability, fines, stowaways
War risksOwner Written separately because hull and P&I both exclude war. Priced by area, and the price changes when the list of risky areas changes
CargoThe cargo owner The goods. This has nothing to do with the ship's insurers. It is why cargo claims come from the cargo insurers, who take over the cargo owner's rights after paying, rather than from the shippers
Loss of hireOwner Earnings lost while the ship is out of service after an insured accident. Optional, and often not bought
Freight, demurrage and defenceOwner or charterer Legal costs of bringing or defending business disputes, including demurrage claims. It pays for the lawyers, not for the liability

Look at the gaps between them. A charterer who has not bought charterers' liability cover has no cover. The owner's P&I covers the owner's liabilities. If a charterer is sued for an unsafe port or a cargo claim, the charterer has no insurance for it.

What makes a P&I club different

A P&I club is a mutual, which means it is owned by its members. Its members are shipowners, and together they are the insurer. There are no shareholders and no premium in the usual sense. Members pay calls. People outside the clubs often find calls unusual:

The club's Rules define the cover. There is no negotiated policy wording. The club’s board also has a freedom to decide that a commercial insurer does not have. That can help or hurt the member.

One feature of the structure surprises third parties. Most clubs have a pay to be paid rule. The member must pay the liability first, and then claim the money back from the club. Suppose a claimant wins a judgment against an owner who has gone bankrupt. The claimant cannot simply claim from the club instead, because the member never paid. Personal injury claims are often treated more generously, and some laws give a direct right to claim against the club. But the general rule is pay to be paid.

The International Group, the Pool and the tower

Twelve main clubs make up the International Group. Together they provide liability cover for about ninety per cent of the world's ocean-going tonnage. They compete for members but share their large claims through the Pooling Agreement, which is renewed every year. It sets out what may be shared, what is excluded, and how a shared loss is split.

For the 2026/27 policy year the structure works like this. Each club pays the first 10 million US dollars of a claim itself. Above that, the claim goes into the Pool, which has layers up to 100 million US dollars. Above 100 million, the Group's joint excess of loss reinsurance (insurance that insurers buy) contract applies, up to 2.35 billion US dollars. Above that sits a further 1 billion of joint overspill protection. The clubs also reinsure part of the Pool through their own company, instead of buying all of it in the market.

This structure of layers, called the tower, lets a mutual owned by shipowners pay for an accident far larger than any one club could carry. It is also why the Group can issue the financial security certificates that trade now depends on. These are blue cards that prove insurance under the liability conventions for oil and bunker (fuel) pollution, and under the wreck removal convention. A ship without them cannot trade to the states that require them. So club membership is a document needed for trading, as much as it is insurance.

Limitation of liability

Behind all of this is a right that businesses on land do not have. A shipowner may limit their liability for most maritime claims to an amount based on the ship's tonnage. The Convention on Limitation of Liability for Maritime Claims was adopted in 1976 and came into force in 1986. Its 1996 Protocol raised the amounts a great deal and came into force in 2004. Amendments that raised them again took effect in 2015. Separate scales, based on tonnage, apply to personal injury claims and to property claims.

The limit is hard to break. The owner loses it only if the loss came from the owner's own act or failure to act, done with intent to cause the loss, or done recklessly while knowing the loss would probably happen. Not every state has signed the same version. So the amount a claimant faces depends on where the owner asks for the limit. Oil pollution from tankers has its own separate liability and fund system.

The English law background, and what changed

The Marine Insurance Act 1906 wrote marine insurance law down in one statute. It is still the foundation. It still defines insurable interest, warranty and utmost good faith. The Insurance Act 2015 changed the rules that most often took cover away. The duty to disclose became a duty to present the risk fairly. Cancelling the whole contract stopped being the automatic remedy, and smaller, proportionate remedies took its place. And a breach of warranty no longer releases the insurer if the insured party can show the breach could not have increased the risk of the loss that actually happened. Older writing based on the 1906 rules on warranties describes a system that no longer applies.

For cargo, the standard wordings are the Institute Cargo Clauses (A), (B) and (C). They are published by the Lloyd's Market Association and the International Underwriting Association. The current editions took effect on 1 January 2009 and replaced the 1982 versions. Clause A covers all risks, except the listed exclusions. B and C cover only named perils (listed risks), and each covers less than the one before.

Three practical points for a chartering desk

References

General averageA loss caused on purpose to one party to save everyone is shared by all of them. That is why a cargo owner who did nothing wrong can receive a demand for money. Safe port and safe berthIs the safe port promise a guarantee, or only a duty to take care? One line in the charter, and two different answers depending on the law that applies. Hague-Visby, Hamburg and Rotterdam RulesOne set of rules covers most world trade, one is in force only in minor trading nations, one is not in force at all, and the oldest is still law in the United States. War risk areasAn insurers’ list of sea areas, not a report of last week’s attacks. What being inside one does to the premium, the crew, the route and the rate. Port state control and detentionsA detained ship cannot do its job. What an inspection records, and how to read a ship's record without judging it on a single inspection.

Neptune Atlas

Neptune Atlas carries the register side of this: flag, class, year built, particulars and the port state control inspection and detention history that an underwriter and a charterer both read before committing. It is not an insurance system. It holds no policies, no certificates of entry and no club correspondence. Every paid plan starts with 7 free days. A card is needed to start them, and cancelling before they end costs nothing.

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