“AN INTRODUCTION TO P&I CLUBS”14 OCTOBER 2008

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P&I ClubsP&I Clubs

The Role of Protection and Indemnity (P&I) Clubs

• History. During the mid nineteenth century shipowners found themselves with liabilities

which their traditional hull underwriters (Lloyds) were unable or unwilling to

cover. In order to solve the problem groups of shipowners formed themselves

into mutual associations and agreed to share each other’s claims. These early

organisations have now developed into thirteen Mutual Insurance Associations

or so-called P&I Clubs, which between them insure the liabilities of some 95% of

the world’s ocean going.

• Mutual. • The P&I Clubs all operate on a mutual or non-profit basis aiming to call up only

sufficient money in each year to meet costs, expenses and claims for that year.

• There are no shareholders and the shipowner members of the Association insure each other. Board of Directors.

• Reserves/Supplementary/Release Calls

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The International GroupThe International Group

• International Group of P&I. What is it?• There thirteen P&I Clubs: UK, GARD, Britannia, London, Skuld, Standard, SOP etc.

• They co-operate in two important areas.

• First the Clubs themselves share claims with each other and buy high levels of reinsurance on a collective basis. This enables each Club to provide much higher levels of cover than are normally available in the commercial market.

• The second area of co-operation is in matters of common interest, such as new legislation or discussions at the International Maritime Organization (IMO) or standard shipping contracts and

clauses.• Clubs cover a wide range of liabilities including personal injury to crew 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.

• The Clubs are unique organisations in that they provide not only insurance cover, but also claims handling (legal) advice and a casualty response service. In managing a shipowner’s liabilities a Club may have to deal with the loss of two bags of rice or the total loss of a fully loaded VLCC. The Club’s reaction therefore needs to be highly flexible and geared to the particular incident.

• A shipowner can expect to be told whether or not he is liable for the claim, how much it may cost, whether he is entitled to limit his liability and whether he may expect to recover all or part of his loss from some other party who may also be to blame.

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P&I CLUBS Cont./P&I CLUBS Cont./

• The Service. Operates as a mixture of insurance company, law firm and

claims adjuster

• Employs lawyers, technical and shipping experts

• Support of a network of claims correspondents world-wide

• Cover Structure: Three tiers:First Club will pay claims up to US$ 6 million.

Secondly, the Pool of all Clubs will pay the next US$ 25 million.

Thirdly, claims excess of US$ 31 million (25 plus 6) are reinsured as one collective

contract – biggest liability reinsurance contract in the word (US$ 240 million at last

renewal). Pollution cover up to US$ 500,000,000.

• Clubs Letter of Indemnity as security to avoid arrest.

• Provide Blue Cards. CLC and Bunker Convention

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The CoverThe Cover

• The P&I Clubs provide cover for a shipowner’s liabilities, not the fabric of the ship itself.

• Liabilities Covered: (Certificate of Entry)Death and personal injury of seamen, passengers and third parties.

Liabilities in respect of stowaways or persons saved at sea.

Liabilities arising from collisions (RDC clause).

Liabilities arising from groundings (for a Charterer).

Liabilities arising from damage to fixed and floating objects (FFO).

Liabilities for pollution (from cargo and bunkers).

Liabilities arising from wreck removal.

Liabilities arising from towage operations.

Liability to (third party) Cargo.

Legal and other costs associated with dealing with these claims.

FD&D (defence) cover (separate cover).

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Independent ClubsIndependent Clubs

• The Charterers Club – exclusively for charterers since 1986

• Outside the IG – completely different exposure

• Created in response to a need by Charterers to have their own Club with its cover and service tailored to meet their demands

• 100% Lloyds security

• Similar cover to IG Group Clubs

• P&I: damage to hull, cargo and miscellaneous risks

• Network of correspondents and highly skilled claims team