Protection & Indemnity: Protecting Against Third-Party Marine Liability

by | Feb 17, 2023 | Business Risk, Commercial Insurance, Insurance Coverage, Marine Liability

Shipping, Where Insurance Got Its Start

Shipping insurance is one of the oldest types of insurance. It was born out of a need for merchants to protect their livelihoods in the event of extreme losses during a time when shipping goods across the sea was incredibly dangerous and safe passage was far from guaranteed.  

Nowadays, over 90% of the world’s goods are transported by sea with confident regularity. Cars, food, clothes – you name it. However, owning a commercial shipping vessel still comes with a substantial amount of liability. While hull insurance protects the vessel itself, protection and indemnity insurance provides shipowners coverage against damages their vessel’s operation may inflict on others, whether they’re shipping spices or Teslas.  

Here’s a quick “20,000 leagues” view of the third-party liabilities shipowners are subject to, that protection and indemnity insurance was designed to shield against. Vessel owners are protected from claims against them specifically, or the ship, for action or non-action with this coverage type. 

P&I offers coverage for liability brought on by the following:

  • Injury, illness, or loss of life: This includes all employees not covered under any type of injury compensation act, any passengers or stowaways, and those working near the ship—such as longshore or harbor workers—who may be injured or killed as a direct result of ship operations.
  • Medical expenses: Any hospital, medical, or other expenses triggered by injury, illness, or loss of life.
  • Damage to other vessels or property caused by collision: Any damage not covered by hull insurance that is caused by collision with another vessel or collision with property such as piers, docks, or harbor equipment.
  • Damage to other vessels or property not caused by collision: This applies to situations where the vessel’s operation causes damage to property or another vessel that is not the result of a collision.
  • Wreck removal: This covers the removal and clean-up of a wreck and its cargo.
  • Damage to cargo: This covers damages to cargo and passenger baggage.
  • Expenses resulting from quarantine: This covers any loss that results from a contagious disease outbreak aboard a vessel that causes the vessel and its cargo to be quarantined.

All commercial vessel owners that transport goods for others need this coverage, but having the coverage does not necessarily mean they are fully protected. There is no standard underwriting form when it comes to protection and indemnity liability insurance. Rather, underwriters will tailor protection and indemnity liability coverage for each insured, based on the nature and character of the risk, and the amount of insurance desired.   

As a broker, the response we often hear is: “yes we have that; we are protected.” But when was the last time your limit of insurance was checked? When was your last coverage audit was completed to determine the level of coverage that is needed in the event of a claim? A good broker is not a broker looking to sell you a policy, a good broker is looking to work with you on a regular basis to ensure you have the coverage and answers you need.  

Being underinsured can mean most of these situations have the potential to be very costly. As a vessel owner, make sure you have the right coverage so you aren’t stuck paying claims out-of-pocket. If you are interested in reviewing your coverage talk to Justin Gordon today!

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