Ship Owners and Operators

Most protection and indemnity (P&I) claims are covered by International Group (IG) clubs ‘as of right.’ A risk is set out in the club’s rules and, providing the member has appropriate coverage, they are able to recover the cost of their liability from the club — subject to the terms of entry and applicable limits. However, some liabilities are not covered as of right, and are only recoverable at the discretion of the club’s board.

For example, a ship owner may have coverage for liabilities arising out of collision with another ship. But if it appears to the managers that the owner’s ship was not insured for a ‘proper’ value — it was potentially undervalued — the extent of any recovery for excess collision liabilities will be solely at the board’s discretion.

Where a ship owner experiences a loss that appears to be covered under the rules, they may still find the claim on the club deemed discretionary due to the possible breach of another rule. For example, where an owner faces a cargo claim, but the ship is alleged to have been engaged in ‘imprudent trading’, the question of whether that was the case (and whether the claim was therefore payable) would be subject to the board’s discretion.

Finally, certain types of fines or any claim where coverage is sought by the member under the ‘omnibus’ rule, may only be covered on a discretionary basis. The omnibus rule (also referred to as ‘risks incidental to ship owning’) is often highlighted by clubs as a benefit of the mutual system, giving a ship owner hope of coverage for a risk that is not explicitly covered under the club’s rules.

Hull and machinery insurance offers coverage to ship owners (and possibly other co-assureds) against a range of physical loss or damage losses that the insured vessel might suffer. One additional coverage often provided is for some degree of collision liability to the owners of other vessels involved in a collision. The extent of collision liability coverage offered may vary.

Under some market conditions (such as those of the US, UK, and Singapore), coverage is limited to specified (or “named”) perils, but under some market conditions (such as the Nordic Plan in Scandinavia), coverage is provided on an “all risks unless excluded” basis.

Among the exclusions for both “named perils” and “all risks unless excluded” types of coverage, there are usually paramount exclusions for losses caused by war (that extends to civil war and belligerent acts by another nation), strikes, riots, terrorism, malicious cyberattacks, and COVID-19 related losses. There are additional policies that can be purchased to cover some of the perils excluded under a normal marine hull policy, but some are extremely difficult to find coverage for (such as COVID-19 related losses).

Anyone involved in the maritime shipping industry, who has a legal or contractual duty of care or responsibility, could incur a marine liability if due to their fault or negligence another party is injured or suffers loss for which it needs to be compensated. Marine charterers, stevedores, shipbuilders, ship repairers, ports, terminals, and marina operators, cargo owners, freight forwarders, and vessel operators are among those who may be exposed to such liabilities.

By law, if a specified event occurs (such as oil pollution from a vessel), designated responsible parties will be deemed liable for losses incurred by others and will be responsible for any clean-up operations required after the event. Such legally imposed liabilities are termed “strict” liabilities. The only reason why the responsible party may avoid liability will be if the event occurred due to one of a number of legally stated defenses that the responsible party can prove was the reason.

Among the common, legally enforced “strict” liabilities around the world on vessel operators are pollution liability (both crude and fuel oil) and a range of other pollutants, such as garbage and air pollution emanating from the vessel, liability to passengers, and removal of wreck liabilities.