The Role of Protection and Indemnity (P&I) ClubsbyRobert C SewardDeputy ChairmanTindall Riley (Britannia) LtdDuring the mid nineteenth century shipowners found themselves with liabilitieswhichtheirtraditionalhullunderwriters(Lloyds)wereunableorunwillingtocover. Inordertosolvetheproblemgroupsofshipownersformedthemselvesintomutualassociationsandagreedtoshareeachothersclaims.TheseearlyorganisationshavenowdevelopedintothirteenMutualInsuranceAssociationsor so-called P&I Clubs, which between them insure the liabilities of some 95% ofthe worlds ocean going tonnage.MutualThe P&I Clubs all operate on a mutual or non-profit basis aiming to call up onlysufficient money in each year to meet costs, expenses and claims for that year.There are no shareholders and the shipowner members of the Association insureeach other.The International Group of P&I ClubsThethirteenP&IClubsco-operateintwoimportantareas.FirsttheClubsthemselves share claims with each other and buy high levels of reinsurance on acollective basis.This enables each Club to provide much higher levels of coverthanarenormallyavailableinthecommercialmarket.Theinsurancethusoperates in three tiers, firstly the Club will pay claims of up to USD5m, secondlythe Pool of all Clubs will pay the next USD25m and thirdly the claims excess ofUSD30m (5 + 25) are reinsured as one collective contract which is said to be thebiggest liability reinsurance contract in the world.The second area of co-operation is in matters of common interest, such as newlegislationordiscussionsattheInternationalMaritimeOrganization(IMO)orstandard shipping contracts.j:\ian\seminar\hong kong\protectionindemnity hk 2002.doc2The CoverTheP&IClubsprovidecoverforashipownersliabilities,notthefabricoftheship itself.The risks covered will usually include:-1. Death and personal injury of - Seamen- Passengers- Third parties2. Liabilities in respect of stowaways or persons saved at sea.3. Liabilities arising from collisions.4. Liabilities arising from groundings.5. Liabilities arising from damage to fixed and floating objects.6. Liabilities arising from pollution.7. Liabilities arising from wreck removal.8. Liabilities arising from towage operations.9. Liability to cargo.togetherwithotherlegalandothercostsassociatedwithdealingwiththeseclaims.The ServiceA P&I Club operates as a mixture of an insurance company, a law firm and a lossadjuster.This means that a Club should be able to assist a shipowner in dealingwith every aspect of a casualty from finding experts and contractors to deal withthe immediate casualty through to legal advice and paying claims.TheP&IClubexistsinordertohelptheshipownerandpayhisliabilityclaims.AlmostalwaystheshipownerandhisClubwillworktogetherinordertosolvethe problems and it is very rare that a Club will be in dispute with a shipownerover cover.j:\ian\seminar\hong kong\protectionindemnity hk 2002.doc3TheClubsareuniqueorganisationsinthattheyprovidenotonlyinsurancecover, but also claims handling (legal) advice and a casualty response service.Inmanaging a shipowners liabilities a Club may have to deal with the loss of twobagsofriceorthetotallossofafullyloadedVLCC.TheClubsreactiontherefore needs to be highly flexible and geared to the particular incident.The Clubs have access to a high quality network of specialist technical advisers,maritimelawyersandlocalcommercialcorrespondents.Correctlyused,thatnetwork should ensure that the shipowner and his Club will be properly advisedontheessentialelementsoftheclaimswhichariseoutofacasualty.Theshipownercanexpecttobetoldwhetherornotheisliablefortheclaim,howmuch it may cost, whether he is entitled to limit his liability and whether he mayexpect to recover all or part of his loss from some other party who may also beto blame.The Role of the P&I Clubs in Oil SpillsTheInternationalGroupofP&IClubswillbetweentheminsurealmostallinternationallytradingtankers.TheClubswillthereforehavearoletoplayinnearly every oil spill of any consequence.Although in Civil Liability Convention(CLC)countriestheclean-upoperationwillbeconductedbygovernmentagencies and in the USA by the shipowner, the Club will almost always be closelyinvolved, even if only to approve expenditure.Insurance GuarantorInthecontextofanoilpollutionincidenttheClubwillalmostalwayshaveprovidedtheinsuranceguarantee,theCivilLiabilityConventionCertificate.IntheUSA,whichhasitsownOilPollutionAct(OPA90),thereareseparateguarantors, but they rely on the Clubs to provide the actual cover and service.Liaison with International Oil Pollution Compensation Fund (IOPCF)In larger oil spills where the IOPCF may be involved the P&I Club will liaise withthe IOPCF, both so as to keep them informed and so as to ensure that there is asmooth flow of funding without different views being taken on the recoverabilityof expenditure at different levels.In practice the clean-up costs (which come atj:\ian\seminar\hong kong\protectionindemnity hk 2002.doc4thebeginning)areusuallytheconcernoftheClubandtheIOPCFwillonlybecome involved in payments at higher levels for third party claims.Source of FundsVeryfewshipownerscanaffordthecashflowneededtofightamajoroilpollution incident and even the oil companies do not like to be out of pocket fortoolong.TheClubwillthereforeexpecttoactasbankerfortheclean-upoperationandthirdpartycompensationpayments.Thismeansthatitisimportanttoagreeexpenditureinprincipleinadvanceofincurringitsothatdisputes can be avoided.Legal AdviceThisfallsintotwoparts,theoverallissuesofliabilityanddetailsofparticularclaims.InbothareastheClub(usingoutsidelegaladvicewhereappropriate)would expect to assist the shipowner.Casualty ResponseThe Club will not itself conduct a clean-up or salvage operation but it will be in apositiontofindappropriateadvisers,surveyorsandthroughthemcontractorscapable of doing the work.Tanker CasualtiesSome aspects of a casualty are reasonably predictable.For example, a sizeableoil spill is likely to involve a large clean-up operation.There will probably alsobe third party claims from fishermen, boat owners and the owners of shore-sideproperty.There may be thousands of individual claimants.Each claim must besifted and assessed.Inothertypesofcasualtydifferentconsiderationswillapply.Acollisioncouldinvolve death and injury claims, and probably salvage issues.Casualtyresponseisessentiallyaboutpracticalities.Itisbaseduponsystemswhich can be adapted for use in any type of casualty in any location.j:\ian\seminar\hong kong\protectionindemnity hk 2002.doc5Where does the Club fit in?The Club needs to be adaptable to deal with a casualty on any scale involving ashipofanytypeinanyplace.Toachievethistheapproachneedstobebothflexible and simple.For example, an oil company owner will have a highly developed response planwhichisdrivenandmannedbytheoilcompanyoftenoperatingfromitsownbuilding with its own staff.In such a case, the Club will usually interact with theoilcompany,providingadviceandcomment.OnlyrarelywilltheClubbeexpected to take the lead.At the other end of the scale is a shipowner who owns a few ships operated fromaremotecorneroftheworldandwhosimplydoesnothavethemanpowerorresources to deal with a major casualty.In that case, the Club will be expectedto play a prominent role in organising the response on behalf of the shipownerandmaybecalledupontoprovidearesponsecentreandstaff.Manyshipowners have trained their own personnel to handle media enquiries but, forthose owners who have not, the Club will be able to assist.International Tanker Owners Pollution Federation (ITOPF) and the ClubsTheClubsrelyheavilyonITOPFinmanyoftheseareas.ITOPFstechnicalexpertiseandbreadthofexperienceisunrivalledandITOPFwillnormallybeasked to assist in any oil spill of significance, be it from a tanker or non-tanker,wherever it may occur.TheFederationspracticalexperienceofoilspillclean-upmethods,environmentaldamageassessmentandrestorationtechniquesisinvaluableindeliveringcommonsenseadvicebaseduponsoundscientificprinciples-principleswhich,alltoooften,arenotuppermostinthemindsofgovernmentauthorities.ITOPFsabilitytodeliverobjectiveandpracticaladviceonpollutionissuesisinvaluableintwoways.Firstly,inhelpingthoseresponsibleforclean-upanddamageassessmenttorespondmoreeffectivelyandonarealisticscale.Secondly,havingestablisheditscredibilityasanobjectivetechnicaladviser,byprovidinggovernmentagenciesandprivatecontractorswithhelpinspillresponseplanning.Onceworkingrelationshipsofthissorthavebeenj:\ian\seminar\hong kong\protectionindemnity hk 2002.doc6established,therewillusuallybeamarkedimprovementinthetechnicalefficiencyofsubsequentresponseactivitiesaswellasinthelevelofpracticalco-operation.ConclusionIn every oil spill of any consequence there is likely to be a P&I Club involved atleast in the critical area of approving and funding expenditure and most often ina wide ranging advisory and organisational role.R C SewardNovember 2002