Interface between Hull Insurance and Machinery Insurance and P&I from the side of the PI claims administrator (2023)

Gard News examines collision liability coverage and third party property damage liability coverage under the most common standard hull conditions and P&I rules and discusses how the two types of coverage interact in practice.

P&I insurance is primarily intended to cover the liability of the shipowner or airline to third parties and generally excludes damage to the insured's property.1The hull and machinery are basically the insurance of the buyer's ship as the main asset. Where the two types of insurance are interrelated is in the realm of accident liability and third party property damage liability.

Is it necessary for those who process P&I claims to understand the basics of hull and machinery? For those dealing with premises liability claims, the answer is a resounding "yes." Hull, machinery, and P&I are often complementary in terms of collision liability and liability for damage to masts, cargo cranes, and other third-party property. In fact, the first need for protection insurance (the "P" in P&I) arose because hull insurers in the mid-1800s were unwilling to cover more than three-fourths of the owner's collision liability. vessel. Shipowners' mutual insurance associations were developed to protect each other against losses arising from third party liability as self-insurance.

Liability arising from collision or collision
Collision Liability means the liability of the Insured to third parties who suffer injury, damage or loss as a result of a collision between the Insured Vessel and another Vessel. These third parties may be the owner of the other ship involved in the collision, the owners of the other ship's cargo, persons on the other ship who may be injured, or other parties affected by the consequences of the collision, for example, an oil leak. . from another vessel.

All the standard hull terms cover collision liability, but the English terms only cover three-quarters of it. Therefore, in English circumstances, the insured is expected to take out insurance elsewhere for the remaining quarter of the liability, which is normally in addition to the P&I insurance. This addition must be explicit in the conditions of access to P&I.

Under the Norwegian marine insurance system, the shipowner can insure full (four quarters) collision liability with the hull contractor, but even then there are certain collision liabilities that are not covered, eg h. in respect of death or bodily injury suffered by persons on board another ship or liability for pollution resulting from leaks from another ship.2

The limitation that applies to all standard hull conditions is that the owner is insured against collision liability up to, but not beyond, the insured value of the vessel. In some cases, collision liability may exceed this insured value, in which case P&I Insurance will be liable. This is the so-called "excess collision liability coverage".

Another interesting aspect is that there are variations in standard hull conditions in different markets in terms of the scope and type of collision liability coverage. Example: If another vessel sinks as a result of a collision and authorities order the removal of the wreck, would the hull coverage cover the collision liability rate for the cost of removal of the wreck? The answer will vary depending on circumstances and markets,3and since P&I insurance will cover liability not covered by comprehensive insurance, the P&I insurer must obtain information as soon as possible to properly assess exposure and protect its interests.

1Rule 63 of the Ship Assuranceforeningen Gard Rules 2005 excludes damage to the ship or any part of it, unless it forms part of a rule 49 forfeiture claim. Rule 50, however, allows recovery if the member is the owner of the damaged property and they were liable if the property belonged to a third party.
2However, liability for the cost of cleaning oil from another vessel in the event of a collision is covered by hull insurance to the same extent that hull insurance covers liability in the event of a collision.
3For example, the Norwegian and German hull contracts include the removal of another ship's wreckage as collision liability. The English and Swedish expressions do not.

Some shipowners include full collision liability (four quarters) in their P&I insurance. This collision liability coverage would be the most comprehensive liability coverage as all third party liability arising from the collision would be covered in principle with no limits or monetary limits. However, a shipowner would still need hull and machinery insurance to cover loss of or damage to their vessel.

The standard hull and engine conditions also provide coverage for liability arising from the impact of the insured vessel on property of third parties other than the vessel. Insurance covers the risk of loss or damage caused by physical contact between the hull or insured vessel (or equipment permanently attached to the vessel) and third-party property, such as a dock or buoy. Americans sometimes refer to these incidents as "collusion," but this is not a universal term. FFO (fixed and floating object damage) is an abbreviation for cause damage in the English language.

While collision liability is sometimes split three-fourths/one-quarters between hull and P&I, FFO liability risk is rarely split this way. Standard English hull conditions exclude the risk of FFO liability, which the owner will then add to the P&I insurance. Under Norwegian conditions, the liability risk of the FFO is usually borne by comprehensive insurance. The same applies to the German conditions, which also cover damage to third-party property caused by the movement of the insured ship, even if there is no physical contact (eg.

Once again, the cornerstone of P&I insurance is meeting your obligations.escovered by all risk insurance. So P&I insurance would cover liability for "wave damage" when the vessel is insured in English hull condition.

There are also variations in standard helmet terms between markets in the scope of coverage for non-collision or impact-related liabilities as defined above. Some examples are property damage caused by the use of ship's equipment during operations, for example pulling a submarine fiber optic cable from a ship's anchor or damage to terminal equipment by a ship's crane . Again, P&I insurance will cover liabilities that are not covered by the terms of the comprehensive insurance.

Summary of collision conditions and FFO coverage based on available main hull and machinery conditions

Spanish – ITC Casco 834Alemán – D.T.V.5Norwegian marine insurance
Draft (and other Nordic hull conditions)
Compliance Clause (RDC):
Three quarters shall be covered by hull and machinery conditions, one quarter shall be covered by P&I.
Fixed and Floating Objects (FFO):
Four quarters cover P&I
Collision (RDC) and Impact (FFO) covered by hull and machinery provisions plus liability for damage caused by vessel movement or navigation measures, including wave damage.Shock (RDC) and impact (FFO) covered by hull and machinery conditions.

Comparison of conditions
It is beyond the scope of this article to present all the variations in standard hull conditions around the world, but some of the most important differences between English, German and Norwegian conditions are listed below.

P&I coverage for collision, impact and other property damage
The P&I insurance is designed as a nominal risk coverage where only the risks that are positively established in the membership conditions and in the Club Rules will be covered. The member is covered for the risks listed in part II., III. and IV. Rules agreed between the member and the Union. P&I coverage for collision, impact and property damage only begins when standard hull conditions cease. This is clarified in article 71.6

Rule 36, Collision with other vessels,7and 37 Damage to immovable or floating objects,8cover liability that is not covered by comprehensive insurance. Additionally, Rule 39, Loss of or Damage to Property,9will be held responsible for property damage not normally covered by standard hull conditions. For example, liability for third party property damage caused by the use of marine equipment is not covered by the standard hull conditions. Therefore, any damage to the pier caused by the ship's loading equipment during loading operations will be the responsibility of P&I. Because standard insurance policies vary, and because P&I is designed to assume liability only when standard insurance policies cease, the P&I claims handler must know the facts of the incident and the terms of the insurance policy before deciding whether a particular property claim is covered by P&I. .

4Institute Time Clauses, Hulls, 1.10.83 (ITCH 83) remain the most widely used version of the English language contracts. According to its latest version (International Hull Clauses 2003), four quarters of RDC and FFO are optional.
5German Transport Insurance Association; DTV helmet clauses of 1978, revised in 1982, 1984, 1992 and 1994.
6"Rule 71 Other insurance
The association does not cover:
Liabilities, losses, costs or expenses covered by the Hull Policy or would have been covered by the Hull Policy if the vessel had been fully insured under standard conditions (...)'.
7“Rule 36 Collision with other vessels
The Union will cover liability for damages to any other person arising as a result of a collision with another vessel, if and to the extent such liability is not covered by Hull's policies for the vessel, including:
– a quarter of the obligation in charge of the member or
- four quarters of this obligation; either
– any other part of this responsibility may be applied and agreed with the Union (…)”.
8"Rule 37 Damage to fixed or floating objects
The association will cover:
(a) liability for loss of or damage to any fixed or floating object due to contact between the ship and that object, when not covered by the Hull Rules (...)'.
9“Rule 39 Loss of or damage to property
The Association covers liability for loss of or damage to property not specified elsewhere in Part II of these Rules."

claim issues
What factors push the owner to the risks of collision and impact (FFO) either with hull and machinery or P&I. The vital factor will always be the price, but there are other important factors as well. From a claims processing perspective, there are certain benefits of outsourcing total collision and FFO obligations to an insurer that should not be overlooked.

In the event of a serious collision or FFO incident, the interaction between the shipowner and the affected insurers is crucial. Various aspects need to be considered and coordinated at an early stage. One of those aspects is third party claims insurance to prevent the insured vessel from being seized. Such arrest may cause material loss as it will delay the inspection and repair of the vessel, which may increase hull exposure and loss to the charterer. As such, there will normally be some pressure on contractors to ensure safety. The more "successful" the coverage conditions are, the more difficult this will be.

The P&I contractor sometimes has to provide the P&I Club with a Letter of Undertaking (LOU) to cover the liability that the hull contractors should bear, for example in the event of a collision where the hull contractors cover three-quarters parts of the responsibility. One reason is that LOUs from International Group Clubs are accepted more frequently than letters of commitment from hull contractors and can be processed more quickly and at a lower cost. Gard's policy in these circumstances is that the P&I Club LOU may "insure" itself as security for the liabilities covered by the hull contractors if Gard Marine has a preemptive right to the hull policy. Gard P&I will do this in accordance with the Gard Marine cover letter which covers all hull contractors. Gard Marine will not charge a guarantee fee to Gard P&I in such an event, but Gard Marine will require adequate reinsurance from each of the other comprehensive insurers for their respective portions of potential liability and will charge a guarantee fee to each of them.

If, on the other hand, comprehensive insurance is taken out elsewhere, Gard P&I may be willing to issue an LOU as insurance for any comprehensive liability cover, but only against appropriate counterinsurance fromaprovider (troop leader, bank or other financial institution) with an acceptable credit rating. Collecting a multitude of guarantees from various insurers involved in hulls in sometimes very different markets - all subject to different credit ratings and collection conditions - is not attractive to the Garda when trying to help a member ship owner in need.

In such cases, Gard P&I will charge a guarantee fee equal to one percent of the amount of the insurance. An additional 1 percent annual guarantee fee will begin to accrue if the LOU Gard remains outstanding for one year after issuance.

Interface between Hull Insurance and Machinery Insurance and P&I from the side of the PI claims administrator (1)
Hull, machinery and P&I are often complementary when it comes to collisions and FFO.

Effective claims handling in high property value cases depends on the claims manager's ability to understand how the facts of the incident may affect various hull conditions. Basically, where should the loss fall at the end of the day? When the interaction between the hull and P&I conditions is identified early, it will be more efficient to make decisions about the roles of the different insurers. Before deciding to place RDC and FFO risks with a particular comprehensive insurer, homeowners should consider the service aspects that come with the insurance. ie, what will be the likely response of the insurers involved to the incident when the need for assistance arises? At the end of the day, there is more to this equation than insurance coverage. Quick, careful and skillful handling of accidents, well coordinated with perfectly coordinated insurance arrangements, will save money. Gard P&I and Gard Marine can provide the full range of insurance and services shipowners need to sleep easy when it comes to collision and FFO risks.

All comments on this article can be sent by email toGard news editor.


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