What Is P&I Insurance?
P&I (Protection & Indemnity) insures the liabilities of a shipowner, operator or charterer to third parties arising from the operation of a vessel, together with certain related costs. In Turkish-language literature it is also known as "club insurance".
Globally, this cover is largely provided by the P&I clubs of the International Group, which are not-for-profit mutual associations established by their members. Fixed premium and commercial insurer solutions also exist. P&I does not insure the vessel itself or the cargo itself.
Who Is It For?
- Shipowners and operators (Owners' P&I)
- Charterers (Charterers' P&I): a charterer's insurance need is in many cases separate from the owner's cover; see Charterers' Liability Insurance
- Where appropriate, bareboat charterers and other vessel-operating entities
- The needs of yacht and small commercial craft operators are assessed separately
Scope and Conditions of Cover
The headings below are common in P&I products. None should be assumed to apply with the same scope in every product; the scope, limit, deductible and exclusions of each head are determined by the applicable Club Rules, Certificate of Entry and policy terms.
| Head | Typical scope | What determines it |
|---|---|---|
| Crew | Illness, injury, death and related costs | Rules and entry terms; extensions may be separate |
| Passengers and other persons | Bodily injury | Rules and policy terms |
| Collision | The portion not covered by the hull policy | Hull clause read together with the P&I rule and entry terms (see P&I and H&M) |
| Fixed/floating objects and other property damage | The part not covered by the hull policy | Hull form, P&I rule and policy |
| Pollution | Liability | Rules, sub-limits and certificates based on international conventions |
| Wreck removal | Liability | Rules and conditions |
| Cargo | Legal liability as carrier in respect of cargo | Rules; often tied to the contract of carriage and the applicable regime (see P&I and Cargo) |
| Salvage, general average | Certain aspects | Rules |
| Legal costs | See P&I legal costs and FD&D | Rules and the club's/insurer's approval |
| Contractual liability | Often subject to approval or standard forms | Rules and policy terms |
Cover generally depends on an event arising during the period of insurance/cover, connected with the operation of the vessel and the assured's interest. Some heads carry sub-limits; extensions such as towage or additional cargo types may require a separate agreement.
P&I Legal Costs and the Difference from FD&D
Legal costs under P&I
Costs connected with a liability that P&I covers (for example lawyers, experts and defence costs). Under club rules they typically depend on the club's approval and direction.
FD&D (Freight, Demurrage & Defence)
A separate cover; see FD&D Insurance for details. It addresses legal costs of establishing or defending claims under contracts of carriage, bills of lading, charterparties and similar matters, where the club's interest does not rest on a liability covered under P&I.
- FD&D does not pay the principal sum in dispute (for example unpaid hire).
- Scope, deductibles and sub-limits vary by club or insurer; cover is often discretionary.
- If a liability is not covered under P&I, the legal costs may be considered separately under FD&D, where the ship is also entered for FD&D and subject to its rules.
P&I and H&M: Collision Liability
| H&M | P&I | |
|---|---|---|
| Insured interest | The vessel itself (hull, machinery, equipment) | Liabilities arising from the operation of the vessel |
| Collision liability | Determined by the clause used in the hull policy | The portion not covered by hull, under club rules and entry terms |
| Typical loss | Physical damage, total loss | Death, injury, pollution, cargo, wreck and other third-party loss |
How collision liability is divided between hull and P&I is not a universal ratio:
- Under some English-style hull forms, the Running Down Clause covers only part of collision liability (often 3/4); the remainder may fall to P&I.
- Under some hull forms, 4/4 collision cover is optional or standard; a separate 1/4 P&I cover may then be unnecessary.
- Hull cover is limited to the insured value; "excess" collision liability above it can be a P&I matter.
- P&I may not respond to losses that the hull policy covers or would cover on standard terms.
- For wreck removal and other heads, the boundary between hull and P&I varies with the clause.
The hull clause, the P&I rule and the entry terms must be read together. For the hull side, see Marine Hull & Machinery Insurance.
P&I and Cargo Insurance: The Cargo Distinction
| Cargo insurance | P&I (cargo liability) | |
|---|---|---|
| Subject | The insurable interest in the goods | The carrier's legal liability in respect of cargo |
| Insured | Generally the cargo owner or a party with an interest in the goods | Shipowner, operator or charterer (in the capacity of carrier) |
| Basis | Cargo policy and clause terms | Policy/club terms, the contract of carriage and the applicable regime |
Key Exclusions and Restrictions
The following are examples; the list is not exhaustive. Exclusions vary by club, insurer and policy year; the rule of one particular club should not be read as applying to the whole market.
- War and terrorism risks: generally excluded under standard P&I rules; separate war risks cover may be available and may be subject to regional restrictions or cancellation notices.
- Sanctions: cover or payments that would expose the club or insurer to sanctions or other adverse action may be excluded, even where the underlying activity is lawful.
- Trading and voyage areas: the policy or entry terms may restrict cover in certain areas or impose additional conditions.
- Unlawful, unsafe or unduly hazardous trade or voyage: situations such as carrying contraband or running a blockade may be excluded under the rules.
- Cargo liability: a carrier's cargo liability is often tied to the applicable contract of carriage and regime; deviation, or contract terms that remove the carrier's defences or limitation rights, may affect cover.
- Contractual liability: liabilities that would not arise without the contract may be excluded unless approved or based on standard industry forms.
- Other insurance matters: physical loss of or damage to the hull and machinery (H&M) and loss of the cargo itself (Cargo) are not P&I matters.
- Deductibles and sub-limits: product- and policy-specific deductibles, sub-limits and exclusions are set out in the policy and rules.
Mutual P&I, Fixed Premium and Commercial Insurer Options
The three options differ in structure; the features of one should not be assumed for the others.
Mutual P&I (International Group clubs)
Member-established, not-for-profit associations. Large claims are shared through a pooling structure; the pooling and reinsurance programme is run by the clubs and the International Group. Premium, additional calls (supplementary calls) and limits are determined by the club's rules.
Fixed premium
The premium is set in advance; providers typically state that no additional calls apply. However, limits and scope vary by provider; one provider may state lower limits while another states higher ones. Features of the mutual structure (for example possible premium returns) may not be available.
Commercial insurer solutions
Scope, limit, acceptance and sanctions terms depend entirely on the insurer's policy terms. Whether certificates or blue cards are issued, and whether they are accepted, varies by insurer and by the relevant authority.
The choice is influenced by vessel type and size, trading area, contractual requirements (for example a contract that requires a specific type of security) and acceptance by insurers.
Information Needed for a Quotation
- Vessel name and IMO number; vessel and hull type; gross tonnage; year built
- Flag and port of registry; classification society
- Trading and voyage areas; cargo types carried
- Crew numbers and nationalities; ISM operating company and certificates
- Owner, operator, manager and any co-assureds
- Recent claims record
- Requested class of cover (for example P&I, FD&D), limits and deductibles
Acceptance, additional information requests and terms rest with the relevant club or insurer.
Frequently Asked Questions
Is P&I the same as H&M?
Does P&I always cover the remaining 1/4 of collision liability?
Does P&I replace Cargo insurance?
Do P&I legal costs include FD&D?
Do mutual, fixed premium and commercial options provide the same cover?
Does P&I cover war risks?
Is P&I compulsory?
Neolife's Role
Neolife Group provides brokerage services to shipowners, operators and charterers in analysing their P&I insurance needs, coordinating cover with H&M and other marine policies, and researching suitable solutions in national and international insurance markets. Quotations, scope of cover, limits and acceptance terms are subject to the assessment of the relevant insurer or P&I organisation.