Although Hartford, Connecticut is still the unofficial home city for general insurance in the United States, New York City is the undisputed home for the nation’s marine insurance industry. NYC is the home for major marine insurers, underwriting and claims operations, as well as for managers and correspondents for P&I Clubs, including the unique American P&I Club.
Most Americans have never heard of P&I insurance or of a P&I Club. Protection and Indemnity isn’t something that has a gecko to promote familiarity. But P&I insurance is an essential feature of international marine commerce.
Essentially, it is a form of “self-insurance”, and Ioannou remarked, “To put it simply, as a mutual, the insureds are also the insurers, since the insureds (called members) contribute premiums which are “pooled” to address the losses of all insureds.”
P&I Coverage
P&I Clubs also differ from other marine insurers in the types of coverage provided. Unlike traditional commercial marine insurers which cover vessel owners for damage or loss to the ship itself, P&I Clubs provide cover to shipowners, operators, and charterers for third-party liabilities encountered in the commercial operation of “entered” vessels. All the risks covered are expressly listed in the Rules which are incorporated into the policy with the main items being costs, expenses and losses in connection with legal liabilities to third parties for:
- Loss of life, injury and illness of crew, passengers and other persons
- Cargo loss, shortage or damage
- Collision
- Damage to docks, buoys and other fixed and floating objects
- Wreck removal
- Pollution
- Certain fines and penalties
- Mutiny and misconduct by crew
- Crew repatriation and substitution because of a casualty or illness/injury
- Quarantine
Vessel Diversion Expenses to Save Life at Sea
And as Ioannou points out, “in addition, perhaps one of the most important differences is the way that the service is provided. Unlike commercial insurers, P&I Clubs do not just reimburse when there is a claim. Clubs are vested and active partners of their members from day one. Clubs employ surveyors, lawyers, and experts in offices in most major shipping hubs, with regional know-how and experience. These professionals, in cooperation and consultation with the member, manage the incident and direct the actions throughout the life of the claim.”
American P&I: Clubs and Clubbing
The American P&I Club, as previously mentioned, is a member of the International Group of P&I Clubs (the Group), and remains to date, the only Club domiciled in the US. The Club was founded in 1917, as a solution to sanctions imposed in the UK which handicapped American carriers from insuring with the then existing UK based P&I Clubs. Even today the American P&I Club remains the only Club in the world subject to US sovereignty. And the Club is the only mutual P&I Club domiciled in the US and for that matter, in the entire Americas.
The day-to-day management of the American P&I Club is provided by Shipowners Claims Bureau, Inc. from headquarters in New York with representative offices in major shipping hubs of Houston, London, Piraeus, Hong Kong, Shanghai, as well as Limassol, Cyprus where the Club’s European subsidiary is located.
But the American P&I Club is only one of a number of P&I clubs located around the world. Not surprisingly the American P&I Club concentrated on domestic business. However, that changed on February 20th, 1998, when the American P&I became a signatory to the Pooling Agreement and a full member of the International Group of P&I Clubs, — more often simply called “the Group”.
The Group, composed of 12 international P&I Clubs, between them provide liability cover for approximately 90% of the world’s ocean-going tonnage. Like the American P&I Club, each Group club is an independent, not-for-profit mutual insurance association, providing cover for its shipowner and charterer members against third party liabilities relating to the use and operation of ships. As Ioannou explained the functional relationship between the Clubs: “The Group operates with a claims pooling and reinsurance structure which enables each club to provide cover with very high limits of liability at a competitive price.”
Incidents, Claims, and War Risks
When the AJOT asked, “in recent years, there have been some notable accidents, the latest being the MV Dali allision with the Francis Scott Key Bridge. How do these incidents impact P&I Clubs?” Ioannou outlined how an American P&I and indeed all the members of the Club would handle an incident. “The handling of - and participation in absorbing liabilities related to - major casualties are not new to the International Group of P&I Clubs (the Group). Each vessel that may be insured through the Group is entered on a primary level with one of the 12 Clubs. When an incident occurs, that Club manages the matter as it would any other claim irrespective of the exposure that may be involved. [if]… the claim exceeds or is likely to exceed the agreed retention level within the Pooling Agreement, which currently sits at $10 million, the Group is notified. There is a formula within the Pooling Agreement which dictates the contribution between the Clubs which each year is calculated based on tonnage, premium and loss record and each Club will contribute accordingly, as well as excess cover through a collective reinsurance treaty.”
Besides pure accidents, geo-political disruptions have also been a major factor in maritime incidents. When asked “How do P&I Clubs and specifically the American P&I Club handle these complex challenges?” Ioannou replied, “Indeed, recent years have been plagued by much disruption from a geo-political perspective. In terms of the Houthis’ attacks, claims that might arise from this type of risk would fall under a separate cover called WAR risks and are actually excluded from traditional P&I cover on a primary risk perspective. The P&I cover would come into play in terms of certain liabilities that may have resulted (such as loss of life or injury to crew) in the event the primary War risks cover was exhausted (exceeded the maximum value insured) such as when there is a total loss. In light of this, unlike Hull and War policies, there are no excluded areas under the P&I policy, subject of course to the regular negotiated and trade specific terms of a particular vessel.”
Another attribute of these uncertain times, sanctions are also a commonplace attribute of international commerce. This is particularly true in regard to Iran, Russia, North Korea and the widespread sanctions related to the Ukraine conflict. “In terms of sanctions, while these issues may have come to forefront in recent years for most global insurers, it is not new to the American P&I Club, both from an operational perspective as well as from a guidance to membership perspective. In terms of guidance, the Club has an expert compliance team which stays abreast of the applicable sanctions’ regimes … to properly advise the membership when changes or developments may affect the ability of the Club to cover certain types of trade. The Club also updates members on reporting requirements to enable members to comply,” Ioannou related. And as the insurance component understanding the insured is also paramount in the process. As Ioannou says of the process for accepting an operator, “Applicants for insurance are fully vetted at the outset using industry-standard databases, searches of sanctions lists produced by sanctions regulators, and investigating the ownership of entities and past activities of prospective covered vessels, among other safeguards. After rigorous initial pre-entry vetting, policies are for one-year periods, with world-wide sailing conditions, subject to absolute exclusions for sanctioned or illegal trade. During the period of entry, vessels are subject to warranties of legality as well as periodic monitoring, and notice requirements for potential sanctioned trade. If information is learned, or comes to light, of a vessel acting in a manner not consistent with the Club’s compliance program, an investigation procedure is followed which entails detailed research and communication between all parties involved. It is important to understand that no cover exists, in other words, coverage automatically ceases, when vessels are in violation of sanctions, including but not limited to carriage of Iranian and Russian origin oil and petroleum products (the latter, in violation of the price cap regime agreed to by the United States and its partners in support of Ukraine).” [Editor’s Italics}
The American P&I Club’s unique coverage provides the US with a seat at the table when it comes to global P&I coverage. A role critical to the nation’s marine commerce.
