Protection & Indemnity Insurance – Overview and Coverage Concerns

There are three basic types of marine insurance: Hull and Machinery, Cargo, and Protection & Indemnity (P&I) insurance. This article is an overview of P&I and coverage concerns related to it.

What is P&I?

 P&I insurance is liability coverage for vessel owners. The primary providers of P&I insurance for oceangoing vessels are “Clubs”, mostly overseas-based assessable mutual associations controlled by the vessel owners they insure. Clubs can assess members for additional premium if the original premium is insufficient to pay the Club’s losses and expenses for a coverage period. Most of the Clubs are based in London. In the U.S., conventional insurance companies write P&I insurance mainly on inland and coastal waters.

P&I is subject to many exclusions and special conditions. P&I Clubs do not use a standardized form of policy. Each Club has its own “Club Rules”. The domestic U.S. conventional P&I market mostly uses forms called SP-23, SP-38, and American Institute of Marine Underwriters (AIMU) clauses.

Subject to exclusions and conditions, the typical P&I policy covers loss of life, injury and illness of crewmembers, passengers, and other third parties, damage to cargo on board the vessel, damage to other floating objects not caused by collision, wreck removal costs, collision liability, damage to fixed objects, repatriation expense, damage to any other property, fines and penalties, costs of resisting mutiny or misconduct, quarantine expenses, putting in costs, cargo’s proportion of general average, and defense costs.

The most significant and costly exposure covered by P&I insurance is liability for loss of life, injury or illness, particularly the injury or death of crewmembers. P&I insurers cover their Assureds with very high limits of liability. The need for these high limits was the original motivating factor for the formation of the Clubs.

Coverage Concerns

Why do we see instances where the P&I insurer declines defense and indemnity in cases involving injuries to crewmembers?

A relatively recent example which perfectly demonstrates how a broad interpretation of crewmember status can have the effect of depriving the employer of the insurance coverage it has paid for and relied on is the case is Larry Naquin, Sr. v. Elevating Boats, LLC, decided by the U.S. Court of Appeals for the Fifth Circuit (states of Texas, Louisiana, and Mississippi) on March 10, 2014.

The injured worker in this case had the job title of vessel repair supervisor. He supervised the maintenance and repair of his employer’s (mostly docked) fleet of lift boats. He spent about 70% of his work time on board the vessels while they were typically moored in a shipyard channel. His duties consisted of inspecting, cleaning, painting, replacing defective or damaged parts, performing engine repairs, going on occasional test runs, and operating the vessels’ marine cranes and jack up legs. The remaining 30% of his work time was spent in the shipyard’s fabrication shop or operating its land-based crane. In other words, he was a ship repair worker.
The injury occurred while the plaintiff was operating a land-based crane. The crane toppled over for reasons that were never identified. Liability for negligence was assigned to the defendant under the tort doctrine of res ipsa loquitor – something obviously went wrong and someone had to have been negligent.

The jury at trial in federal district court found that this ship repair worker met seaman status as a member of the crew of the employer’s vessels, and this finding was affirmed by the federal Fifth Circuit Court of Appeals. This decision represents a broad interpretation of the phrase, “master or member of a crew of any vessel”, which is the definition, taken from language in the Longshore and Harbor Workers’ Compensation Act, used for “seaman”.

One of the (unintended) consequences of this decision resulted when the employer’s P&I insurance carrier declined to provide defense and indemnity based on the language of the policy.

The indemnity provision at issue:
“Subject to all exclusions and other terms of its Policy, the Underwriters agree to indemnify the Assured for any sums which the Assured, as owner of the vessel, shall have become liable to pay, and shall have paid, in respect of any casualty or occurrence during the currency of the Policy, but only in consequence of any other matters set forth hereunder ….”

When the employer sued the insurance carrier to enforce its coverage, summary judgment was granted to the insurance carrier. The court found no coverage under the P&I policy, as there was no causal connection between the “owner of the vessel” and the land-based accident. The court found that the “as owner of the vessel” and the “any casualty or occurrence” language must be read together. There must be some causal operational relationship between the vessel and the injury or there is no P&I coverage.

So, the employer did not have liability insurance coverage for an injury to its crewmember employee injured in the course and scope of his employment.

This is not a startling or unprecedented result, but it is a glaring example and a reminder of coverage limitations. As the definition of crewmember or seaman is interpreted more broadly, specifically to include more and more land-based workers, changing the underlying conditions of the exposure, it may be necessary to revise policy language to reflect the intent and expectations of the Assured.

It’s safe to say that the employer/Assured (and his broker) were unhappy with this sequence of events. The employer lost a liability judgment to an employee who was found to be a “crewmember” in a very broad sense of the word. Then, although the employer had P&I insurance to cover its liability to injured crewmembers, this coverage was not available for this incident.

While it would seem that the employer-employee relationship between the “vessel owner” and the “crewmember”, and an incident in the course and scope of employment sufficient to transfer vicarious liability to the vessel owner in the event of the employee’s wrongdoing, provides a sufficient causal relationship for P&I coverage to apply, it’s not always the case.

John A. (Jack) Martone served for 27 years in the U.S. Department of Labor, Office of Workers Compensation Programs, as the Chief, Branch of Insurance and Financial Management, and the Acting Director, Division of Longshore and Harbor Workers’ Compensation. Jack joined The American Equity Underwriters, Inc. (AEU), an AmWINS Group company, in 2006, where he serves as Senior Vice President, AEU Advisory Services and is the moderator of the AEU Longshore Blog.
Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

Insurance Impacts of COVID-19 on the Healthcare and Senior Living Industry


As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.

COVID-19 – Are Your Clients Covered?


The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.

From Seed to Sale: The Top 5 Issues Impacting the Cannabis Insurance Industry


​Over the last few years, the legal cannabis industry has seen rapid growth and had a significant impact on the U.S. economy. With states continuing to legalize its use, insurance needs for cannabis-related businesses are becoming a popular topic of discussion. This article examines the evolving cannabis industry by exploring five key issues impacting coverage.

Four Key Additional Insured Endorsements for Contractors

Construction contract negotiations, which determine the kind and amount of insurance required for a construction project, can be time-consuming, complicated and frustrating. Project owners require contractors on a project to name the project owner as an additional insured on the contractor’s casualty insurance program. It's important that both project owners and contractors understand the coverage provided by these additional insured endorsements. This article discusses four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors, including their limitations, conditions and exclusions.

How Parametric Products Benefit Catastrophe-Driven Risk Transfer


Parametric insurance is an innovative product that functions differently than traditional insurance by covering the impacts of an event and not just losses sustained to an asset. Proceeds of the policy are paid quickly and can be used flexibly to cover any expense associated with the triggering event. Coverages can be designed to capture the impacts of natural perils and other forms of non-damage business interruptions such as future epidemics. Learn how the parametric landscape has and will continue to play a major role in improving coverage and the recovery experience.

Understanding Property Theories of Recovery and Ensuing Loss Clauses

​The theories of recovery, as well as the ensuing loss provisions, contained in property insurance policies are often complex and, at times, seemingly in conflict. Although a policy may not directly address these theories, their application by courts plays a significant role in the coverage determination process after the claim. It is essential that brokers understand the primary theories of recovery – Efficient Proximate Cause, the Concurrent Causation Doctrine, and the Anti-Concurrent Causation Doctrine – in order to navigate the challenging post-claim process and effectively serve their clients.

Sign Up For Our Monthly Newsletter

Sign Up