Ocean Marine Liability (Protection And Indemnity) Coverage

150.4-3

OCEAN MARINE LIABILITY (PROTECTION AND INDEMNITY) COVERAGE

(January 2023)

INTRODUCTION

Ocean marine liability coverage is traditionally referred to as Protection and Indemnity (P&I). It covers the insured's liability for injury to both the public and the crew in addition to its liability for damage to the cargo and other property. On land, this same coverage requires commercial general liability coverage for bodily injury and property damage, workers compensation coverage for the master and crew, and motor truck cargo carriers legal liability coverage for cargo.

This general coverage analysis is based on SP 23–Protection and Indemnity (P and I) Clauses 1956 revision of the American Institute of Marine Underwriters. While it is an old form, it is the standard that is referenced in many contracts.

This form is not subject to standard rule and rate filing required for most land-based coverages. As a result, altering and customizing it is part of the underwriting and pricing process. This analysis intends to provide a general understanding of the coverage.

Note: There are thirteen P&I Clubs worldwide that provide 90% of the coverage for ocean going vessels. There are also commercial insurance carriers providing similar coverage on other waterborne exposures.

Related Article: Protection and Indemnity (P&I) Clubs

SP-23–PROTECTION AND INDEMNITY (P AND I) CLAUSES ANALYSIS

COVERAGE

The insurance company agrees to pay for sums that the insured is liable to pay because of the following:

1. Loss of Life, Injury and Illness

Coverage applies to personal injury, loss of life, and illness to any person except employees covered under any type of compensation act. The following are not subject to the exception:

·         Seamen

·         Other employees if agreed upon by endorsement

If a person is killed, the coverage provided is for the benefit of that person’s beneficiaries or others.

It is important to define the time period during which coverage applies to the person handling cargo. The coverage begins when the insured receives the cargo on the dock, wharf or a craft beside the insured vessel and ends when the cargo is delivered to the dock, wharf or craft beside the insured vessel.

 

Example: Michael works at Mary’s Marina. He does odd jobs as needed by anyone using the marina. Percy is delivering a supply of medical equipment from the mainland and asks Michael to help.

Scenario 1: Percy unloads the equipment and places it on the dock. Michael picks it up and hurts his back. Michael’s injury is not covered because the item is on the dock when Michael picks it up.

Scenario 2: Percy hands the equipment from his boat to Michael who is standing on the dock. Michael hurts his back as he receives the equipment. This is covered because the equipment was being delivered and not yet on the dock when Michael was injured.

 

2. Hospital, Medical or Other Expenses

Hospital, medical and other expenses incurred as a result of the loss of life, bodily injury or illness of a member of the insured’s vessel crew or any other person are covered. Burial expense is provided for up to $200 per seaman.

Note: This is similar to workers compensation coverage but with important differences. Seamen’s injuries and illnesses are covered subject to exclusions in this policy.

Related Articles:

The Merchant Marine Act Of 1920 (The Jones Act)

The United States Longshore and Harbor Workers' Compensation Act (USL&HWCA)

3. Repatriation Expenses

This coverage applies to the expenses incurred to return a member of the crew to his or her country of origin. Coverage is limited to those expenses that are statutory obligations. Repatriation due to any of the following is not covered:

If the statutory obligations require that the wages of the crew continue when seamen are unemployed due to the wreck or loss of a vessel, those wages are also considered part of repatriation expenses.

Note: Repatriation occurs most frequently for medical reasons.

When the member of the crew can no longer perform his or he work due to any medical reason, the insurance company is required to repatriate the patient. The mode of travel in the repatriation could be by vessel, or by air ambulance or airlines in emergency or urgent cases. Medical repatriation is different than medical evacuation.

4. Damage to Other Vessels or Property Caused by Collision

When an insured vessel collides with another vessel, the hull policy responds to that loss.

Related Article: Ocean Marine Hull Coverage

If that hull policy listed in this item does not have sufficient limits to pay for the loss, this item pays the additional amount.

However, the insurance company is relieved of its obligations under this clause if the insured attempts to handle the claim by itself.

5. Damage to Other Vessel Not Caused by Collision

Loss or damage to other vessels or property on them that is not caused by a collision is covered but only if the liability is not due solely to a contractual obligation.

An unusual feature of this item is that the damaged property might belong to the insured. If so, the insurance company will pay for that loss or damage but for only amounts that exceed any other insurance that is available to pay for that property.

6. Damage to Any Fixed or Movable Object or Property

The liability for damage to any fixed or movable object or property is covered. The only exceptions are damage to another vessel or its property that is caused by the insured's vessel.

If the damaged property is owned by the insured, coverage applies but only as excess over other coverage that applies.

Note: Docks, piers, harbors, bridges, jetties, buoys, lighthouses, breakwaters, beacons, and cables are specifically listed but only as examples.

 

Example: A wake from a passing oil tanker strikes the Stable Influence broadside just as she approaches her berth, forcing her away from her approach and causing her to strike the pier nearly head-on. The force of the collision causes significant damage to the pier but the Stable is virtually undamaged. The damage to the pier is covered.

 

7. Removal or Disposal of Obstructions or Wrecks

The removal of and disposal of obstructions, wrecks and cargo are an important part of any loss at sea. If the objects are not removed, they create hazards or can pollute or destroy coastline areas. The cost of this process is covered but the value of any salvage obtained must be deducted from the expense. There is a limitation for war related activities and also for coverage that is available under the listed hull insurance policy.

8. Cargo

Liability related to damaged cargo and related expense is covered. The term cargo is extended to baggage that belongs to passengers that has been carried on board by the passenger or has been brought on board through other methods. Cargo does not include mail or parcel post. Not all cargo-related losses are covered.

The following describe what is not covered and any exceptions.

a. Valuable property, such as furs, silks, bank notes, bonds, precious stones or metals and bullion is excluded unless the insured made special arrangements with the insurance company in advance.

b. Loss or damage to any refrigerated cargo is excluded unless a classification surveyor approves the refrigeration equipment before each voyage or the insured makes special arrangements with the insurance company in advance.

c. Passenger baggage and personal effects are covered but only if the insurance company approved the ticket issued to the passenger. This is because the ticket itself explains baggage and personal effects loss handling terms and conditions.

d. Damage to cargo because it was not stowed correctly is excluded. The only exception is if the insured can prove that it took steps to prevent improper stowage. Incorrect stowage includes stowage above deck or using spaces below deck that are not designed for stowage.

e. Damage that occurs during unauthorized travel deviations is excluded if the insured knew about the deviation and had sufficient time to notify the insurance company but didn’t do so. This means that an emergency deviation would be covered.

f. There is no coverage for freight charges on cargo that was not delivered according to shipping terms.

g. Coverage does not apply to loss or expense due to improperly issued Bills of Lading if the insured knew of the error.

 

Example: Ken’s Machinery completed a bill of lading and set a value on the property. The shipping clerk noticed an error on the bill but was in such a hurry that he didn't have time to correct it. A loss involving the insured property occurred. The error complicated the settlement and added significantly to the expense. The insured was responsible for all expenses due to the error.

 

h. Loss or expense resulting from cargo delivered without the required bill of lading is excluded.

 

Example: Paul’s Furniture shipped items regularly to Juan’s Warehouse in Puerto Rico. The bill of lading was considered a formality. Sometimes it was surrendered and sometimes not. One time it was not surrendered and Juan’s called up to find out where it was. Paul was told it was delivered but the bill of lading could not be produced. Paul shipped again but this time the expense and cost of the goods was borne by the shipper since they had not obtained a bill of lading. When they came to the insurance carrier, the loss was denied because of their error.

 

Even when covered, there continue to be limitations to payment:

aa. Liability will not exceed the liability imposed by law. This applies even if a contract with a higher liability is in force.

bb. This limitation applies to the Bill of Lading, Contract of Affreightment, or Charter Party. These documents explain what the insurance company is responsible for and how it responds. The wording is based on the Jason Clause which is also referred to as the New Jason Clause. Because the insurance company does not issue them, regardless of their content, the most the insurance carrier does is:

·         Contribute to the General Average when applicable

·         Honor the Carriage of Goods by Sea Act (COGSA), April 16, 1936, where required. If the insured agrees to limits higher than the Act imposes, the insurance company pays no more than the act's requirements. The insured is responsible for the rest.

Note: COGSA was updated by the UK in 1971 but has not been similarly updated in the United States.

·         If the cargo is not subject to the Act, the insurance company:

o    Limits payment to $250 per package

o    Limits the customary per freight unit

o    Pays pro rata for partial losses or damage

o    Does not pay for loss due to seaworthiness if the insured did not exercise due diligence to make the vessel seaworthy

o    Requires that claims be presented according to times indicated in the bill of lading

o    Brings suit within the time period indicated in the bill of lading

o    Acts according to other clauses customary to the particular trade that are not contrary to law

Note: The insurance company may waive or alter this limitation.

cc. Cargo the insured owns is subject to the same terms as cargo carried for others.

dd. Cargo consisting of cotton is subject to the Liverpool Bill of Lading Conference Committee and is subject to an additional premium charge. However, the charge is waived if bales are re-marked at the port of shipment.

ee. There is no coverage for loss or damage to cargo transported over land or on another vessel.

There is also no coverage for cargo before it is loaded on or after it has been unloaded from the vessel if the damage is caused by flood, tide, windstorm, earthquake, fire, explosion heat, cold, and deterioration, collapse of wharf, leaky shed, theft, or pilferage. The only exception is when any of the above is caused by the vessel, the master, crew or her officers.

9. Customs, Immigration or Other Fines or Penalties

Fines and penalties due to violating state, federal or foreign laws are covered. Expenses the insured incurs to avoid or mitigate them are also covered. However, the insurance company does not indemnify the insured for fines and penalties that are the direct or indirect result of the insured, its managing officers, or managing agents' failure, neglect, or default to diligently attempt in every way possible to keep from violating such laws.

Note: The insurance company should not be expected to pay for sloppy paperwork on the part of the insured.

10. Mutiny or Other Misconduct

Expenses to defend the insured against unfounded claims by the master or crew are covered. In addition, the insurance company will pay for the expenses incurred to prosecute the master or crew for mutiny or misconduct.

11. Extraordinary Expenses in Case of Quarantine

Contagious disease on a vessel can cause extraordinary expenses. These expenses are covered. However, if the insured was aware that the disease existed at a port but ordered the vessel to proceed, there is no coverage.

Note: This coverage applies only to extraordinary charges. The insured is still responsible for wages, loading and unloading charges.

Example: The first passenger became ill within 48 hours after the Stable Influence sailed. The illness spread rapidly and at least a quarter of the passengers and crew were affected. The cruise was shortened by one day and the entire ship had to be disinfected. The cost of the emergency disinfection and other related extraordinary costs were covered.

 

12. Deviation for The Purpose of Landing Injured

Any loss that occurs because a course deviation is made in order to take a sick or injured seaman to shore is covered.

13. Cargo’s Proportion of General Average

Coverage applies to the cargo’s proportion of the general average that cannot be recovered from any other source, subject to the Carriage of Goods by Sea Act and other limitations stated in 8. Cargo above.

14. Costs and Charges

Any expense the insured incurs either with the insurance company's permission or for the purpose of defending a claim.

 

Example: The refrigeration equipment failed during the voyage. The insured had a generator delivered to the vessel to keep the refrigerated cargo from spoiling. Because the insured discussed the expense with the insurance company and it agreed, the expense of the generator was covered because it prevented damage to the cargo.

GENERAL CONDITIONS AND/OR LIMITATIONS

Prompt Notice of Claim

The insured must give the insurance company prompt notice of any event that could result in a covered loss. The insured must forward all paperwork related to a loss quickly to the insurance company.

Note: This is a warranty. Lack of timely notice could void coverage.

Settlement of Claim

The insured cannot accept blame or guilt or interfere with the insurance company's handling of a claim. It must assist the company in settling the claim and take the necessary steps to protect the company's interest as if there was no insurance coverage. If the insured interferes and causes a problem, the insurance company is permitted to pay only the amount that it would have been required to pay except for the interference of the insured.

Insured to Assist with Evidence in Defense

The insured must assist the insurance company to gather witnesses and information with respect to an occurrence.

The insurance company must request the insured's assistance. The insured must not act if the insurance company does not ask for its assistance.

Law Costs

The insurance company pays costs to defend and investigate but only after the deductible is satisfied. It pays only expenditures it approves or authorizes. However, the insurance company will pay reasonable costs that would have been approved but that had to be paid prior to approval because of a time delay.

The insured and the insurance company share subrogation costs proportionally because they will benefit from the subrogation gains proportionally.

Subrogation

The insured must give its rights of subrogation to the insurance company to the extent of payments it made and assist by executing all necessary documents.

Coverage Elsewhere

This insurance does not contribute if there is other insurance.

Assignments

This policy cannot be assigned without the insurance company's written consent. In addition, loss payments cannot be assigned without the insurance company’s consent except for those to the legally appointed receiver of the insured's goods.

Actions Against Assurers

The insured must bring suit against the insurance company within one year of the final judgment or payment.

Time Limitation

The insured must present proofs of loss to the insurance company within six months of any payment it made for which it seeks reimbursement.

Lay-Up Returns

If the insured vessel is laid up in a safe port for more than 30 consecutive days, the insurance company must return premium to the insured for each 30 consecutive day lay-up period during the policy term. The insured must disclose the lay-up period dates to the company as soon as practicable. The premium is returned after the policy expires.

 

Example: The Stable Influence needed repairs after a serious collision. She was placed in a safe harbor on March 1, extensive repairs were made, and she was ready to operate on August 1. The insurance company returned five months of premium for the lay-up period after the expiration date.

 

Cancellation

The insurance company is not obliged to pay loss:

1. If the hull coverage form covered or should have covered the loss and its limit of insurance was adequate.

2. If the loss was due to:

3. That is due to a breach of contract. Additionally, no coverage applies if the loss was the result of the vessel being a part of illegal trade or taking part in illegal activity. This item applies only if the insured is aware of the breach of the illegal actions.

 

Example: The master of the Stable Influence agrees to smuggle heroin in one of the vessel’s containers. The Coast Guard received information regarding the activity. The master panicked when approached and attempted to delay discovery by abruptly changing course. The sharp course change dislodged several containers and also injured several seamen. The Coast Guard boarded the Stable Influence, discovered the heroin and arrested the master. An investigation proved that the insured had no knowledge of the master’s illegal activity so all losses caused by his changing course were covered.

 

4. If the loss was due to towage unless it resulted from an emergency situation. Coverage does not apply to any of the crew or passengers on the towed vessel.

 

Example: The Stable Influence noticed a vessel in distress, stopped to help, and agreed to tow the vessel to the nearest port. Two of the crewmembers of the other vessel helped secure the tow but they were thrown forward and sustained fractures when the Stable suddenly lurched forward. There was no coverage for the injured members of the crew because of this clause.

 

5. For any claim that is due to a contract of indemnity between the insured and a sub-contractor.

6. If the policy owner is not the vessel's owner, this coverage responds but not to a greater extent than if the policy owner had all rights of limitation that the vessel owner had.

Final Statements

The liability imposed on the insured cannot exceed the liability imposed by the law unless endorsed to the contrary.

The amount paid in an accident or occurrence is the amount stated in the policy.

Note: This means that the limit of liability on the declarations includes everything covered in the policy. Defense and other supplementary coverages and expenses are part of that limit, not in addition to it.

VARIATIONS

It is very important to note that clubs use their own forms and that all forms have many endorsements or clauses that may be attached. Pollution, oils spills and other environmental issues are subject to many different clauses. Liability forms must change with the times and they do. However, the basic clauses and intents remain through years of precedent. The underwriters know their exposures and match exposures to clauses and then price accordingly.