This article was last updated by the author in October 2016.
A brief introduction to marine liability insurance.
Shipowners, cargo owners and others working within the shipping
industry are all exposed to a number of different liabilities or
responsibilities whether imposed by law, or voluntarily assumed
under the terms of a contract. Those liabilities, particularly
those imposed by law can vary depending in which country and under
which laws the liability is being measured and hence the insurance
to cover such liabilities has to be able to respond accordingly (or
at least exclude those items that the insurer does not want to
Many of the liabilities faced within the shipping business are
broadly the same as those faced by non marine businesses such as
injuries to employees or visitors, faulty products, or faulty work
or advice given by a professional.
In this review, the main focus will be on those liabilities that
can be faced by a shipowner.
The typical liability insurance coverage
purchased by a shipowner is based on the operation of a vessel and
falls into the following categories:
- Personal injuries. The ship's crew are the main potential
source of injury, but injury claims can be received from many other
types of person such as dock workers injured when loading or
unloading cargo, visitors to the ship such as the port agent or the
local chaplain, and passengers on cruise ships who contract food
poisoning or other unpleasant diseases whilst on
- Collision with another vessel - whilst the main liability
to other vessels arising out of a collision is usually covered
under the hull and machinery (physical damage) policy, that
insurance will often limit the cover to 75% of the assessed damages
payable to the other vessel. The marine liability insurers will
usually cover the other 25%.
Whatever proportion of the collision
liability is being covered by the physical damage insurers however,
there are some things that they exclude absolutely which
- Loss of life or personal injury
- Wreck removal
These are covered by the marine liability
- Collision with something other than another vessel - this would
include collisions with port property for example or navigation
buoys. The hull insurers often exclude this type of collision and
will only respond if the collision is with another ship. This non
vessel collision risk is therefore covered by the Marine liability
insurers, and is generally known as fixed and floating objects
cover. It is possible to find this cover within a hull (physical
damage) policy and some markets provide it as standard cover
- Damage to cargo - if someone ships goods and they arrive at
destination damaged then a claim is likely to be presented to the
carrier for damages. The marine liability insurers cover this risk,
but will link their coverage back to international law which sets
out the extent of the carrier's liability. If a shipowner, for
example, has accepted a wider responsibility in a contract than the
law imposes on him, his insurers will not necessarily cover that
wider exposure if they have not been consulted first so they can
consider the risk in more detail.
- Pollution - ships carry various unpleasant types of cargo and
are often powered by oil based fuel. International law places a
large burden on a shipowner to pay for the cleanup of pollution
caused by their ship (or from cargo being carried on their ship).
The concept of pollution not only extends to unpleasant liquid type
pollutants but also to rubbish thrown off ships and the exhaust
gases from a ships engine exceeding accepted standards.
- Removal of wreck - after a marine casualty it is possible that
a damaged ship may be lying on the seabed in an area which is
unhelpful - for example blocking the entrance to a port. The
authorities may legally require the owner to remove the wreck which
is an expensive exercise.
- Fines - not criminal fines but fines that might be imposed on a
shipowner by the customs or immigration authorities.
General average and salvage - Particular
to maritime law, and by reference therefore marine insurance, are
the concepts of salvage and general average. Salvage is the concept
of someone voluntarily rescuing you who then earns a reward.
General Average is the concept of all parties (for example ship and
cargo) contributing to the costs or expenses one of them makes in
order to save everyone. Normally the contributions that ship and
cargo have to make in both salvage and GA are covered by the hull
or cargo physical damage policies, but the insurers may not cover
the amounts in full if there is underinsurance. The Marine
liability insurers provide an element of top up insurance in this
There are extensions for charterers (those who hire vessels
rather than own them), and for certain types of risk which are too
specialist to form part of the general insurance, such as fire
The typical exclusions in a shipowner's liability policy would
- Anything covered under the vessel's physical damage
- War risks
- Nuclear risks
- Loss of hire
The insurers will look at the ship, what she is used for, where
she operates and details of the owners, managers or operators. In
common with hull insurers they will be very interested under which
regulatory regime (Flag) the ship operates. The quality of the
inspections that regime will impose ensures that the ship is being
operated in accordance with international maritime legal
The main providers of this type of insurance are mutuals. The
concept of a mutual is a non profit making group, gathering
together to pool their risks. The shipowners form Clubs (known as
Protection and Indemnity or P & I Clubs) which are run by
professional managers. The largest 13 of these clubs are also part
of a group called the International Group, which allows them
amongst other benefits to share common reinsurance for certain
types of risks and claims.
This type of insurance can also be provided by other non-mutual
insurers around the world.
Although the risks they cover are worldwide in nature,
over 62% of the premium or calls paid by members of the
International Group clubs are recorded as having been made to clubs
operating out of the UK with another 30% paid to the clubs based in
the Nordic countries.