Nomenclature
The world of P&I has its own unique terminology. Risks are not underwritten but ‘covered’. There is not an insurer but a ‘Club’. There are not clients or assured, but ‘Members’. Vessels are not insured by the Club but ‘entered’ with it. There is not an insurance policy, but a ‘certificate’. There is not a policy excess but a ‘deductible’. There are not premiums but ‘Calls’.
General Facts
Usually P&I cover pays the full third party liability claim less the deductible. However, in respect of collision claims the Club only typically pays 1/4 of the claim, providing an extra deterrent for the Member to avoid collisions. Although today many Clubs will cover full liability (known as ‘four fourths’) for an extra fee.
As P&I Clubs are only generally concerned with third party liabilities they are not concerned with covering damage to the Member’s own vessel. This damage will be covered under a separate ‘Hull’ or ‘Hull & Machinery’ policy.
The ‘Pay to be Paid’ Rule
As the Clubs are indemnity organisations, they generally compensate the Member for claims they have had to pay to third parties for liabilities incurred in the operations of the vessel. For that reason the Member will usually have to pay a claim and then ask the Club to compensate them for the amount of that payment; they cannot just ask the Club to pay the claim directly. One exception is in personal injury claims where the Club will often agree to pay the claim without the Member having first paid it.
FD&D Cover
Many of the Clubs now provide FD&D Cover as an optional extra. This stands for Freight, Demurrage & Defence. Essentially it means the Club will represent the Member in respect of extra elements of legal claims not typically covered by general P&I insurance.
The International Group
There is an International Group of P&I Clubs who have agreed to pool their very high value losses (in excess of USD 8 Million) to provide yet further security to their Members. They also work together for the benefit of their Members as a whole. There are currently 13 Clubs who are members of the group; with The Shipowners’ Club being the largest in terms of number of vessels entered and GARD being the largest in terms of Gross Tonnage of vessels entered.
Further Details
Each Club has its own set of Club Rules, which act like a copy of the insurance policy would if the risk were underwritten by a commercial insurer. Typically the certificate will merely state that the Member is entered with the Club subject to the Club Rules and confirm any variances, exclusions or additions, i.e. rather than recite those rules in full.
There are also standard wordings for these additional risks:
1) War Clauses
Incoterms (International Commercial Terms)
All three of these terms refer to the person in ultimate charge of a vessel. Every person in overall command of a vessel is the Captain of that vessel; although on some, usually large, commercial, sea-going vessels they will be referred to as the Master. They will typically be a licensed Master Mariner.
A Master Mariner (MM) is someone who has an unrestricted Captain’s or Master’s license, usually from the flag state in which the vessel is registered; meaning they are allowed to be in overall charge of almost any size or power of vessel, anywhere in the world.
Vessel is a catch-all term, like ‘watercraft’, which describes any floating object used for the carriage of people or goods. Generally smaller and less complex vessels are ‘boats’, whilst larger and more complex vessels are ‘ships’. As a general rule, you can put a boat on a ship, but you can’t put a ship on a boat.
Specifically, boats are small to medium-sized vessels with hulls,* powered by sails, engines, or human force. Some types of vessel are always categorised as boats, regardless of their size or complexity.** Their ‘boat’ status was designated when these types of vessel were small and has stuck despite their future growth.
A ship is a larger vessel, built to transport either passengers or cargo. These types of vessel started off large and accordingly we talk of a cruiseships, containerships and a battleships.
* a raft, for instance, has no hull; it would therefore be incorrect to call it a boat – hence ‘life raft’.
** submarines, fishing boats, tugs and barges for example.
(Image Credit: John Keogh)
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