Marine liability insurance
20 December 2016
13 October 2018
This article was last updated by the author in October 2016.
A brief introduction to marine liability insurance.
- Overview »
- Typical cover provided »
- Optional extensions »
- Key exclusions »
- Ratings factors »
- Product providers »
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 cover!).
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 holiday.
- 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 are:
- Loss of life or personal injury
- Wreck removal
These are covered by the marine liability insurers:
- 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 case.
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 fighting vessels.
The typical exclusions in a shipowner's liability policy would be:
- Anything covered under the vessel's physical damage insurance
- 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 standards.
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.