Iranian insurance companies and clubs are offering insurance cover for liabilities, known as P&I cover,
as well as for damages to the own ship, known as Hull and Machinery cover, a
brief summary will be provided to explain the basic differences between these
two types of cover.
P&I insurance is primarily intended to cover a shipowner’s or operator’s
liability towards third parties and it generally excludes damage to the insured’s
own property or direct loss of the Company.
Hull and Machinery insurance is basically insurance of the client’s vessel
as its primary asset. The two types of insurance interact in the area of collision
liability and liability for contact damage to third party property.
Hull and Machinery insurance and P&I insurance are often complementary
when it comes to collision liability and liability for damage to piers, loading
cranes and other third party property, generally known as damage to fixed and
floating objects (FFO).
Hull and Machinery (H&M) insurance may include cover for liabilities towards
third parties depending upon the type of policy and scope of cover of that specific
policy. Under the standard English Hull and Machinery insurance terms (ITC Hulls
– Institute Time Clauses Hulls), collision liability cover has, historically,
been limited to 3/4ths of the own ship’s liability towards the other vessel
in a collision. However, under Norwegian and German Hull and Machinery insurance
terms, the liability cover provided is for 4/4ths, i.e 100%, of the own ship’s
liabilities towards the other vessel. Similarly, under the United Kingdom Hull
and Machinery insurance terms, damage to so-called Fixed and Floating Objects
(FFO), i.e. objects others than a vessel, is not covered at all whereas under
Norwegian and German insurance terms these risks are covered 100%.
Some shipowners have placed full (4/4ths) collision liability under their P&I
insurance. This collision liability cover would be the most comprehensive liability
cover available, as all third party liability arising out of the collision would
be covered in principle. However, the shipowner would still need his Hull and
Machinery cover to deal with the loss of or damage to his own vessel.
Under Norwegian and German Hull and Machinery insurance conditions, cover is
also provided in respect of liability arising out of the insured vessel striking
third party property other than a vessel. The Hull and Machinery insurance covers
loss or damage caused by the physical contact between the hull of the insured
vessel, or equipment permanently affixed to the vessel, and third party property,
for example a pier or buoy. Americans sometimes refer to such incidents as “allision”
but this is not a term used universally. FFO (damage to fixed and floating objects)
is the shorthand for striking damage under the English terms.
The situation is more complicated when oil escapes from the other vessel as
a result of the collision. Under the Norwegian Hull and Machinery insurance
conditions these liabilities are not covered, whilst they are covered under
German Hull and Machinery insurance conditions.
The situation for damages and resulting liabilities becomes even more complicated
if the vessel drags an anchor.
Remember, the cornerstone of the P&I cover is that it responds to liabilities
that are not covered under the Hull and Machinery cover.
It is important that the Master and the ship’s officers have a full understanding
of what is covered under the Hull and Machinery insurance policy as this determines
what is covered by the P&I insurance. The Master will thus be in a position
to understand whose insurer’s representative or correspondent should be
contacted in any given incident.