Ecuador: Liability Cover In Marine Insurance: P&I Perspective

Last Updated: 15 September 2016
Article by Leonidas Villagran

Protection and Indemnity Associations also known as P&I Clubs are the result
of long time development from Mutual Hull insurers in England.
One of the principles of these Clubs is to insure liabilities
not covered by the Hull & Machinery policy

Cover for liabilities not covered by hull and machinery policies in marine insurance is generally provided on a non-profit basis by Protection and Indemnity Associations also known as P&I Clubs which are based on mutuality.

The story behind these Clubs comes from the 18th century in England, with The Bubble Act of 1720 which prevented corporations to engage in the marine insurance business unless duly authorized by Act of the Parliament or Royal Charter thus creating a monopoly for two companies. The Bubble Act allowed individuals to insure marine risks. This facilitated the formation of the Lloyd's insurance market but also individual shipowners organized and established mutual clubs or associations to insure themselves. Members in a club had the dual function of insurer and insured. The main characteristic with the mutual system is that every member contributes for the losses of the other members (Gurses, 2015, p. 3)

It is also found that the protection associations had their origin on the mutual hull clubs organised in other ports than London as an alternative to the market at Lloyd's. The concept of these clubs evolved from hull protection to liability protection due to market changes and the decision in De Vaux v Salvador [1836] 4Ad&E 420 that upon the denial of the existence of cover on liabilities generated by a collision created the need of full cover against. The marine insurance hull market adopted the three fourths cover limited to the value of the ship known as the runaway clause. The remaining cover was facilitated by Protection Clubs. New Legislation passed in England in regard to the rights of recovery of surviving relatives of victims of a casualty in fatal accidents (Fatal Accidents Act, 1846), damages from vessels to port facilities (Harbour, Docks and Piers clauses Act, 1847), and injury claims by workers (Employers' Liability Act, 1830) begun to be considered in the "Protection" cover.

The "Indemnity" role was established as a need for cover in regard to liabilities to cargo interest due to case law which restricted exclusion clauses in contracts of carriage.(Anderson & de la Rue, 2011, p. 1261) Before that the carriage of goods depended fully on the terms of the contract and shipowners used to include provisions which almost denied any responsibility on the cargo.

Nowadays, the liability P&I cover for approximately 90% of the world's ocean-going tonnage comes from a number of thirteen Associations members of the International Group of Protection and Indemnity Clubs.1(IGP&I, 2016)

Members of the International Group are The Swedish Club, UK P&I Club, Skuld, Britannia, Steamship Mutual, Gard, The London P&I Club, West of England, NORTH, Shipowners, The American Club, The Standard and Japan P&I Club.

The Britannia Steam Ship Insurance Association (The Britannia Club) features as "the oldest P&I in the market", "in business since 1855"2.

P&I Clubs are also found in other parts of the world, as The Korea Shipowners' Mutual Protection & Indemnity Association (Korea P&I)3, the Noord Nederlandsche P&I Club4 (Nederlands), China Shipowners Mutual assurance association (China P&I)5, The Turkey P&I6

The mutual concept is still found in Hull cover being the example the Norwegian Hull Club7, as well for other specialized cover as the TT Club8 oriented to logistics and containers9, and the German Shipowners Defense Association10 (German FD&D Club).

Insurance companies provide P&I cover as Raetsmarine11 and other large insurers as AIG have included in their portfolio the cover of marine liability insurance12 to catch some part of the market, and an example of a P&I Club demutualization into an insurance company is British Marine13, occurred in 2000.(British Marine, 2016). Recently, a potential merger is being discussed between The Britannia and NORTH (Britannia, 2016).

The incident: A Collision

As an example, Vessel "A" while approaching the port collides to the tanker vessel "B" while she was discharging her cargo of sulfuric acid. This collision generates the sinking of the tanker vessel, the leak of some of her toxic cargo into the harbour waters and damages to the quay and the cargo pipelines on the quay. Vessel "A" also report damages to her hull and spill of some bunkers.

It is also known that after the incident the vessel "A" was inspected and detained citing unseaworthiness as the cause. The insurers will need to verify with details the facts behind such decision.

If the vessel "A" is insured under a London market time policy and the unseaworthiness took place before the vessel begun the trip and this was with the privity of the assured then insurers may be able to deny liabilities if the loss is connected to such unseaworthiness state. This will also happen if in a case of a voyage policy the vessel begun her trip in an unseaworthy condition taking in consideration the common law principle of implied warranty of seaworthiness of the ship at the commencement of the voyage ratified in the English Marine Insurance Act, 1906.

While in the common law world this is an implied warranty, the approach appears different in civil law jurisdictions where non-compliance is considered as exclusion in the case of losses due to unseaworthiness. The Nordic Plan approach is towards negligent "breach of safety regulations" by the assured connected with the casualty as stated in Clauses 3-22 and 3-25.(Pavliha & Padovan, 2016)

In relation to English P&I cover "the provisions regarding seaworthiness have a role to play". Membership in a P&I Club is considered as a time policy therefore common law principles on warranties and self P&I Club rules may apply (Soyer, 2006). The updated rules for the eight P&I Clubs based in English jurisdiction, members of the International Group incorporate in said Rules all provisions of the Marine Insurance Act, 1906 and the new Insurance Act 2015 upon entry into force on 12 August 2016, but all of them exclude Sections 10 and 11 of the Insurance Act 2015. This means that a breach of a warranty discharges liability on the relevant Association from the day of the breach regardless of any remedy, and regardless if the breach is not material to the loss.

Relevant provisions are found in The UK P&I, Rule 5L, NORTH Rule 6(1),(2) (b),(c), West of England Rule 21(1)(b) (c), Britannia Class 3 Rule 3 3(5), Steamship Class 1 Rule 7 IV, London Class 5 Rule 43 43.1.1, Shipowners Rule 1, II A, B, and Standard Section A 1.5.1. and 1.5.2

The approach of Nordic P&I Associations is in relation to the conduct of the owners. Gard excludes cover when the loss is a consequence of "willful misconduct on the part of the Member, such misconduct being an act intentionally done, or deliberate omission by the Member with knowledge that the performance or omission will probably result in injury...14" The Swedish Club excludes cover caused by "intentional or grossly negligent acts or omissions of the Member nor for such acts or omissions which the Member knew or ought to have known would cause liabilities..." 15

Potential Liabilities of the respective shipowners

A collision is able to create a domino effect in regard to liabilities and marine insurance claims as in the case in question and an assessment of losses and liabilities is needed as well immediate actions to avert or minimize such losses or liabilities upon the obligation of sue and labour clause.

Liability on Collisions

It is to consider that a collision per se does not produce a liability. Liabilities for collisions as well for allisions depend on "the finding of fault that caused or contributed to the damage incurred"(Schoenbaum, 2004, p. 757). The case in question shows that the tanker vessel "B" was on berth on process of unloading cargo at the moment when the vessel "A" stroke her.

The owners of the vessel "A" may argue that the collision was not a result of fault but "inevitable accident" which may be connected with latent machinery failure. But, If the cause of the collision is not determined then the plea of inevitable accident will not be accepted as in The Merchant Prince [1892] P.179 in which it was alleged that the collision was a result of the latent defect in her steering gear and consequent jamming of the wheel but the cause of the incident was finally not established. The Court of Appeals denied the inevitable accident defense taking in consideration that the cause of the accident was unknown.(McKoy, 1999)

The vessel "A" has a potential liability on the loss and damages sustained to the tanker vessel "B", her cargo, and also in respect to loss and damages to the quay as a result of the collision. The owners of the collided tanker vessel "B" while recovering her purportedly total loss from the Hull Insurer seem to be able to argue and prove inevitable accident to avoid liabilities in relation to the damages to the quay and the cargo pipelines on the quay.

In view of the vessel "A" potential liabilities in the collision with the tanker vessel those liabilities are covered by the London market Hull policies under the "running down clause" (RDC). Legal costs in "contesting liability or taking proceedings to limit liability" are also covered under said clause. The extent of the cover depends on the clause applied. This is the same for liabilities arising from contact with fixed and floating objects.

Cover for Liability on collisions or contact with fixed and floating objects ("FFOs") always depends on the H&M policy. It is to remember that P&I Clubs provide cover for liabilities not covered by the Hull Policy. Therefore if the Standard English cover for liabilities in a collision under the Hull policy is applied, it means that the Hull Insurer will pay three-fourths of said liabilities provided that the limit is 75% of the value of the insured vessel. The P&I club cover on liabilities will be the remaining portion non covered by the Hull policy. In relation to FFOs the standard London market Hull clauses provide no cover, then in this case the P&I Club will provide the cover.

But, if the contract of marine insurance follows the International Hull Clauses with the amendments to provide liability cover to four-fourths, and any liability arising from contact with FFOs then the P&I will not provide this cover. The total cover for liabilities on a collision and contact with FFOs is a specific characteristic of the Nordic Plan clauses.

The collision generates the sinking of the tanker vessel but also the loss of her cargo. The Hull clauses do not provide cover for cargo in the insured vessel. P&I Clubs provide such cover. To avoid liability on the cargo shipowners of the tanker vessel may invoke immunity based on the Hague Visby Rules, Art. IV r2 (c) ("perils, dangers and accidents of the sea or other navigable waters"). Finally liability may be imposed on the owners of the vessel "A" if the fault in the collision is finally declared upon this vessel.

The incident may involve the loss of lives of seamen or personal injury, loss of their personal property or also the loss of wages or the surviving crew for both vessels who need to return to their home countries. Further, authorities may impose the wreck removal and immediate actions to mitigate the contamination. All of this is dully covered by the P&I Clubs.


In a report sponsored by the United States Coast Guard in July 1980 it was stated that the mixing of water with sulfuric acid causes a large amount of heat which vaporizes and forms "an acid mist in the atmosphere" which "would pose an immediate danger to anyone directly involved in the accident and, under adverse meteorological conditions, even threaten the safety of the nearby public as well". The leakage would also harm the marine life.(Tang, Wong, Munkelwitz, & Flessner, 1980)

The leak is an imminent danger to the people nearby the incident. But a potential additional pollution incident may happen if the winds send the acid mist through the city which can turn more complex if the remaining sulfuric acid in the sunken vessel tanks encounters water which can generate an explosion hazard. Potential health effects of the acid mist are irritation or chemical burns to all types of body tissues (Teck Cominco American Inc, 2003). The inhalation can produce death or long-term damage due to pulmonary edema and has been associated with cancer of the larynx or lung cancer in encounter with strong mists.(CCOHS, 2016)

Depending on the place of the incident, pollution of toxic substances as sulfutic acid may fall within the doctrine of strict liability and the "polluter pays principle". This will apply if the incident occurs in a country member of the EU according to the Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004. In this case there is no need to prove fault in order to generate a liability(European Commission, 2016). The concept of strict liability also known as no-fault liability consist that "the shipowner is liable simply because of the fact that his ship caused pollution damage"(Zhu & Zhang, 2015, p. 376)

Pollution brings immediate media attention and public concern. Authorities may be bound to initiate administrative and criminal investigations. It is to expect claims by third parties for loss or damages caused by pollution. In regard to the leak of bunker according to the Bunkers Convention16, strict liability applies and there is direct action against the insurer.

P&I Clubs provide cover for liabilities arising from collisions with other vessels17 and damages to property or FFOs18, cover for liabilities regarding wreck removal19, towage20, salvage21, cargo in the entered ship22,loss or damage to property23, any real or personal property in the entered ship, personal injury or illness, repatriation and compensation of the crew, wages24 and pollution25. The Clubs provide cover as well for expenses in relation to sue and labour, legal costs26 and fines27.

As mentioned a collision generates multiple potential losses, damages and liabilities. Criminal charges are likely to appear when pollution incidents take place. Immediate actions to avert or minimize the losses and liabilities are required. Maritime casualties may occur in different parts of the world with different jurisdictions and law systems. The advantage of the P&I Clubs in a casualty is the development of Correspondents to assist shipowners and masters in the same place of the incident.


Anderson, C. B., & de la Rue, C. (2011). The Role of the P&I Clubs in Marine Pollution Incidents. Tulane Law Review .

Anderson, P., & Donner, P. (2016). P&I Clubs and Mutual Insurance. World Maritime University, Lloyd's Maritime Academy.

Britannia. (2016). Britannia Steam Ship Insurance Association Ltd. Retrieved 3 14, 2016, from

Britannia. (2016). Brittania P&I Rules Class 3. London.

British Marine. (2016). British Marine. Retrieved 3 12, 2016, from Terms and Conditions 2016/2017:

CCOHS. (2016). Canada Center of Occupational Health and Safety. Retrieved 3 16, 2016, from Sulfuric acid:

European Commission. (2016). European Commission. Retrieved 3 14, 2016, from Environment:

Force, R. (2013). Admiralty and Maritime Law. Washington DC: Federal Judicial Center .

Gard AS. (2016). Rules 2016. Norway.

Gurses, O. (2015). Marine Insurance Law. London: Routledge.

Hakkinen, J., & Posti, A. I. (2014). Transnav The International Journal on Marine Investigation and Safety on Sea Transportatino. Retrieved 3 12, 2016, from Review of Maritime Accidents Involving Chemical – Special Focus on the Baltic Sea: %20%E2%80%93%20Special%20Focus%20on%20the%20Baltic%20Sea,510.pdf

Hanninen, S., & Rytkonen, J. (2006). Retrieved 3 12, 2016, from Transportation of liquid bulk chemicals by tankers in the Baltic Sea:

IGP&I. (2016). International Group of Protection and Indemnity Clubs. Retrieved 3 14, 2016, from

McKoy, K.-A. (1999). Collisions, a legal analysis (Paper 187 ed.). Malmo: World Maritime University Disertations.

North of England P&I. (2016). 2016-17 P&I Rules. London.

Pavliha, M., & Padovan, A. V. (2016). The Law of Marine Insurance. In The IMLI Manual of International Maritime Law Volume II: Shipping Law (pp. 620-622). London: Oxford University Press.

Rose, F. (2012). Marine Insurance, Law and Practice, 2nd edition. London: Informa.

Schoenbaum, T. J. (2004). Admiralty and Maritime Law. Washington DC: Thomson West.

Shipowners. (2016). Shipowners P&I Rules Section A. London.

Soyer, B. (2006). Warranties in Marine Insurance. London: Cavendish Publishing.

Steamship Mutual. (2016). Steamship Mutual P&I Rules.

Tang, I. N., Wong, W. T., Munkelwitz, H. R., & Flessner, M. F. (1980). Sulfuric Acid Spills in Marine Accidents. New York.

Teck Cominco American Inc. (2003). Imperial College London. Retrieved 3 16, 2016, from SULFURIC ACID MATERIAL SAFETY DATA SHEET:

The London P&I Club. (2016). London P&I Rules Class 5. London.

The Standard. (2016). The Standard P&I and Defence Rules. London.

The Swedish Club. (2016). Rules for P&I Insurance. Gothemburg.

The UK P&I Club. (2016). The United Kingdom Mutual Steam Ship Assurance Asociation (Bermuda) Ltd. Rules 2016 . London.

West of England. (2016). 2016 Rules of Classes 1&2. London.

Williams, R. (2013). Gard. Retrieved 3 12, 2016, from Gard Guidance on Maritime Claims and Insurance:

Zhu, L. (2009). Can the Bunkers Convention Ensure Adequate Compensations for Pollution Victims?

Zhu, L., & Zhang, M. Z. (2015). Insuring Against Marine Pollution Liability: An International Perspective. Journal of Maritime Law & Commerce .















[14] Gard Rule 72

[15] The Swedish Club Rule 11, Section 1

[16] International Convention on Liability for Bunker Oil Pollution Damage

[17] North Rule 19 (10), Gard Rule 36, West of EnglandRules of Class 1 section 9, The UK Club Rule 2 section 10

[18] North Rule 19 (12), Gard Rule37, West of England Rules of Class 1 section 10, The UK Club Rule2 section 11

[19] Gard Rule 40, The UK Club Rule 2 section 15, North Rule 19(14)

[20] Gard Rule 43, North Rule 19 (15), West of England Rules of Class 1 section 12, The UK Club Rule 2 section 13

[21] Gard Rule 42, West of England Rules of Class 1 section 20, North Rule 19 (23), The UK Club Rule 2 section 21

[22] Gard Rule 34, North Rule 19 (17), The Swedish Club Rule 4 section 1

[23] Gard Rule 39, The Swedish Club Rule 7, section 1

[24] Gard Rule 27, The UK Club Rule 2 sections 1, 2,3,4,5,6,10, North Rule 19(1),(10)

[25] North Rule 19 (13), Gard Rule 38, West of England Rules of Class 1 section 11, The UK Club rule 2 section 12

[26] The UK P&I Rule 2 section 25, North Rule 19(20), Gard Rule 46 & 44, West of England Rules of Class 1 section 24

[27] The UK P&I Rule 2 section 22, North Rule 19(19), Gard Rule 47, West of England Rules of Class 1 section 21

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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