Protection and Indemnity (P & I) Cover

P & I stands for Protection and Indemnity. This is a specialist class of liability insurance protection for ship owners and charterers.

The initial idea of P&I cover is to protect the ship owner's interests against claims from third parties and to indemnity him in case ship owner is liable to compensate third party losses.

Normally you would face two "classes" of cover available from most P&I insurers, namely:

Class I - Protection & Indemnity (P&I):

This is general liability insurance, which would cover ship owners' liability for main exposures they may face in today's shipping, including, but not limited to

Passenger (and other persons carried on board) liability
Stowaways and refugees
Collision and contact with fixed or floating objects
General Average not recoverable under Hull policy

Class II - Freight, Demurrage & Defence (FD&D):

This insurance is covering ship owners' reasonable costs for necessary legal assistance in relation to disputes, which are directly connected with the operation of the insured vessel.

It goes without saying that you do not need to be liable to be held liable, so FD&D cover is becoming more and more popular within shipping community these days.

To make things simple P&I insurance providers could be divided in two categories:

Mutual clubs
Fixed price facilities

Basic principle of mutuality is that you would be a member of the Club (similar to share holder) and will be able to participate in general routines of your Club's operations. The benefit of the Club is that you automatically obtain the maximum possible coverage and certain flexibility and service level in claims handling and risk management, but on the other hand the premium you pay is also mutual and you may, in the end, contribute to somebody else's claim by paying a supplementary call (that's how Clubs are calling extra premium for already expired period of insurance) when you have not budgeted it.