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An evolving essay on P&I coverage

P&I Club coverage is generally as broad as the liabilities faced by a shipowner qua shipowner. Those liabilities include, but are not necessarily limited to:

  • Death, injury, or illness to seamen, passengers, and others;
  • Repatriation of seamen;
  • Collision liabilities not covered by hull insurance;
  • Loss of or damage to cargo;
  • Damage to fixed and floating objects;
  • Damage caused otherwise than by collision;
  • Fines and penalties;
  • Quarantine expenses;
  • Wreck removal;
  • Defending unfounded claims by seamen;
  • Expenses incurred in deviating to land an ill or injured seaman;
  • Uncollectible contributions in general average;
  • Pollution of the environment caused by the escape of fuel or cargo from an insured vessel;
  • Expenses incurred in connection with any of the above insured liabilities.
The following are the exceptions to this rule; some of them seem like quaint notions today.
Other insurance

Traditionally, one of the main reasons a claim was not covered by P&I insurance was that the managers of the Club thought it should be covered by other insurance that the shipowner should have taken out. That usually meant hull insurance, which paid collision liabilities and, in some cases, liabilities for damage to fixed and floating objects ("FFO"), or war risks insurance.


Another reason a claim might not be covered, or at least not covered in full, is that the shipowner had not taken certain steps to limit his liability in order to protect the Club. The principal steps expected of shipowners in the last two centuries were making sure that the appropriate exculpatory language was inserted in bills of lading and passenger tickets. Today the legal requirements with which shipowners are expected to comply include all the requirements of the flag state concerning marine safety and environmental protection. Another illustration of this principle is the rule that contractual liabilities (those assumed by the shipowner as a matter of contract) are not generally covered.

Moral hazard

P&I Clubs have always taken pains to point out to members that liabilities arising out of the fraudulent misdelivery of cargo, especially delivery of cargo without demanding the production of an original bill of lading, were not covered by P&I insurance. Club managers evidently thought that commerce would grind to a halt if there was a risk that shipowners would conspire with shippers to defraud receivers and their banks, so they refused to indemnify shipowners under these circumstances. This view was shared by the English courts. Sze Hai Tong Bank v. Rambler Cycle Co. [1959] A.C. 576; [1959] 2 Lloyd's Rep. 114 (P.C.) Whether this rule should be applied today in the context of through transport operations involving the delivery of thousands of boxes to hundreds of customers is a good question. When negligent, or even fraudulent, misdelivery can occur without the participation of management, including the master and chief mate, it becomes hard to deny coverage because of a supposed moral hazard.

Wilful misconduct

Losses intended by the insured, or to which it "turned a blind eye" knowing they were likely to happen.

Public policy

There was a time when underwriters could tell an insured that criminal liabilities were not covered as a matter of course. To say otherwise might even make the underwriter liable for facilitating the crime. It was understood that criminal liability was imposed only for intentional misconduct, and the requirement of fortuity generally foreclosed any question of coverage for criminal liabilities.

Today, the situation is vastly more difficult for underwriters. So-called "criminal" statutes impose liability for negligent conduct, under circumstances which do not even rise to the level of "wilful misconduct" under the law of marine insurance. Shipowners justifiably expect their Clubs to pay the fines and penalties thus incurred.

As a matter of public policy, underwriters should not be put in this position. Insurance is about spreading risk; the criminal law is about individual responsibility; the two are fundamentally inconsistent. One of the functions of a legislature is to define what is "criminal", i.e., to identify conduct deserving of punishment which sets the offender apart from society. Yet the U.S Congress wants to have it both ways. It wants to use the rhetoric of the criminal law to condemn in the strongest terms companies and individuals responsible for spilling oil, but it also wants their insurers to pay for the clean-up. So Club managers and Club boards have to sit in judgment of their members who run afoul of the Department of Justice, because the criminal laws are no longer the "bright line" they should be for insurers.