A Study On P&I Insurance Contract

Protection and Indemnity (P&I) insurance is a kind of insurance that shipowners pay calls to P&I Club and the club provides protection and indemnity to the shipowners for their loss arising from liability incurred by their vessels (or vessels under their charter or management) and costs or expenses paid during the operation of the vessels. P&I insurance is a kind of marine insurance, but it has some specialities. With the developments of legal system on marine liability, P&I insurance plays a more important role than ever. However, it receives relatively little coverage or treatment in the legal and academic literature, which is detrimental to the further development of P&I insurance. In light of the widely coverage of P&I insurance, this paper focuses on the basic and key issue-- P&I insurance contract, with the double aim of deepening the research in marine insrance law and making our national legislations more perfect. The research will be conducted through the study of legislations and practice, especially of United Kingdom and United States, together with basic theory of marine insurance law.There are five chapters in this dissertation. Chapter I begins with the nature and history of P&I insurance. P&I insurance can be traced back to 19th century when there was a great increase in the potential liabilities of shipowners. P&I insurance distinguishes itself from commercial insurance, as it is a kind of mutual insurance. P&I Club is the organization which provides P&I insurance for shipowners. As a union by shipowners and for shipowners, it is regarded as a great innovation in shipping and marine insurance. It is a kind of mutual association and it has exerted an enormous impact on the development of law on carriage of goods by sea, oil pollution from ships and marine salvage. P&I insurance contract is a contract concluecd between shipowners and the P&I Club with the aim of gaining P&I insurance. It is not a single text but a combination of certificate of entry, memorandum and articles of association, regulations and bye-laws, and club rules. The certificate of entry, as evidence of P&I insurance contract, can be treated as policy that the club issues to the shipowners, while the club rules constitutes the key terms of the contract made between the club and their member.Chapter II deals with the legal character of P&I insurance contract and the applicability of marine insurance laws. The character of P&I insurance contract is thebasis of applicable law. It has not always been entirely certain whether or not the arrangements between the member and the P&I Club amount to an agreement which can be fairly be regarded as a contract of marine insurance. General speaking, such arrangements is a contract of marine insurance, and so it should be subject to marine insurance laws. Firstly, P&I insurance contract is subject to the general principles of marine insurance law. But the mutuality of P&I insurance makes the general principles apply to the contract in a different way. In more details, the applicant should disclose more detailed circumstances and the persons who can become members are limited, and the principle of indemnity is applied to in a more strict way. Secondly, the contract is bound by the provisions on warranty in marine insurance law. As the club rules are often worded in different way, it is hard to define which terms amout to warranty. So, the warranties in P&I insurance contract should be identified separately in terms of its words. Finally, P&I insurance contract should be interpreted according to the general priciples. In view of the fact that members are now presented with printed club rules in the nature of a standard form contract, the doctrine of contra proferentem in case of ambiguity should be applied to balance the interests of the parties. But the doctrine should be used in a more careful way in light of the mutuality of P&I insurance.Chapter III expounds the insurance cover provided by P&I Club. General speaking, P&I Club provides protection and indemnity for shipowners against liability arsing from the ownership or exployment of the vessel. In addition, a head of cover unique to P&I Clubs is the discretionary cover that is contained in what is generally termed the "omnibus rule". Such a rule makes the club cover more flexible and dynamic. Collision liability is a kind of traditional risk taken by P&I Club. P&I club indemnifies a member in respect of the payment of damages as a consequence of a collision between the entered vessel and another vessel only if and to the extent that such liabilities are not recoverable under the Collision Liability Clause contained in the hull policy. In detail, the cover includes one-fourth of collision liability, collision liability under contractual agreement, non-contact damages, collision liability which exceeds the sum recoverable under the hull policy. Cargo liability is a kind of risk incurred frequently during the carriage of goods by sea. The club provides the insurance on the basis of Hague or Hague-Visby Rules and so liabilities, costs or expenses arising from carriage on terms less favorable than those of Hague or Hague-Visby Rules will not be covered. Liability for oil pollution from ships is acomparably new risk covered by clubs. The club cover extends to pollution damages under the corresponding legislations and expenses paid to salvors under LOF (Lloyd's Open Form) SCOPIC (Special Compensation Protection and Indemnity Clause). In addition, clubs also provide protection for shipowners against terrorism under Special P&I War Risks Cover. This cover is a supplement to P&I War Risks and it indemnifies the damages which exceeds the maket value of the entered ship or the payment which cannot be recovered under the war risk clauses.Chapter IV analyses the obligations of members under P&I insurance contract. Firstly, a member must pay the calls at a prescribed rate and on prescribed dates. The calls are price that the member pays for his insurance with the club. A member's failing in his duty to pay calls punctually may lead to forfeiture of cover. Under such a circustmance, it should be noted that a member's cover will not only be forfeited for the future but will also be cancelled retrospectively. Secondly, a member must have been found liable and discharged that liability before he seeks compensations from the club. This obligation is a gurantee that P&I Club is smoothly run and it is resulted from the nature of indemnity insurance. It should not be made void with the legislations of liability insurance, which tend to provide more protection for the third party, but the member can be immuned from this duty under the legislations or discretion of the club. In addition, a member must fulfills many other duties, which include duty of sue and labor, duty as to the notification of claims and other matters and duty to act as a prudent uninsured shipowner. The duty to act as a prudent uninsured shipowner is commonly found in P&I insurance contract. It is not a specified duty, but a duty having same requirements with many other duties such as duty to sue and labor.Chapter V is about direct action against P&I Club. The claim of third party against P&I Club is the basis of direct action. There exist divergences both in theory and practice on the origin of such claim. In United Kingdom, there is now no doubt on the applicability of the Third Parties (Rights against Insurers) Act 1930 to P&I insurance contract. In another words, the third party has a right to bring an action against P&I Club in the event of the assured's insolvency or bankruptcy. However, the club is protected by any defences in the P&I insurance contract including "pay first" rule and arbitration clause. In United States, the direct action is sebject to state legislation. Since state legislations are different from each other, it is not agreed whether state direct action statutes should apply to P&I insurance contract.Consuquencly, the legal effect of "pay first" rule is uncertain. In China, the provisions about direct action to marine insurers can be only found in Maritime Procedure Law of China. However, such protection under the matitime procedure law is only provided to the claimants who suffer loss in oil pollution accident incurred by ships. Moreover, the law is a procedure law in nature, so it cannot be considered as legal authority to vest third party with substantial right. Additionally, the third party can seek to bring a direct action to P&I Club on the basis of subrogation in Contract Law or the judicial interpretation of the Supreme Court. But the above provisions can only be used in a very limited way by the third party, as the conditions they set are hard to meet. Consequently, the paper suggests that more clear provisions should be added into Chinese Maritime Code and Insurance Law.