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1.8 THE DIFFERENCE BETWEEN P&I AND HULL AND MACHINERY INSURANCE
For more detailed information, please refer to Gard News 178, The interface between Hull and Machinery insurance and P&I from the P&I claim handler’s perspective and Gard’s website www.gard.no.
As Gard is 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.