THE DANGERS OF PLACING SEPARATE P&I INSURANCE FOR CREW

A ship owner can either place the insurance of his ship with underwriters himself or alternatively pass the responsibility of insuring the ship onto the ship manager under the ship management contract.

Usually the Protection and Indemnity (P&I) cover chosen is for all P&I risks, including that of crew.  However, a ship manager can place a separate crew P&I insurance at the request of the ship owner.  The reason for this split in insurance is either for administrative reasons (i.e. the manager can deal with the crew claims directly), or tax considerations as a ship owner may not wish to be seen as the employer of the crew.

The ship owner will then exclude crew cover from his P&I Club insurance.  This leaves the responsibility for crew insurance in the hands of the ship manager, which can be to his advantage as it can help build loyalty with that crew and develop a long-term relationship with the crew P&I insurers.

However, it is important that both the ship owner and the manager understand that serious problems can arise if crew P&I insurance is placed separately from that of the ship owner’s P&I cover.  The ship manager should consider the following:

1. has the manager made it clear in his ship management contract what type of crew insurance he will be purchasing.  Other considerations in this respect include:

a) whether he is insuring the crew just for their contractual liability under local crew considerations;

b) whether insurance is also required for claims by crew in tort.  This may be difficult for the ship manager to place as most claims in tort are against the ship owner, not the ship manager;

c)  the limit of liability to be purchased.  The Club has seen some policies as low as USD 200,000 per claim.  We would recommend a minimum of USD 5,000,000 per claim.  The ship owner should also agree to the limit being purchased before such cover is placed, as he may wish to take out an excess cover.

2. If the manager is only placing crew P&I insurance to cover contractual liabilities under local crew conditions, the owner will need to take out cover for claims by the crew in tort.  Some P&I clubs will offer the owner cover that excludes P&I risks insofar as they are covered by the crew P&I insurance purchased by the manager, but which will cover claims against the owner in tort.  Another option is to name each company as a joint assured on each other’s P&I insurances (for both the ship owner and the crew), but this may not always be practical or tax efficient.

3. Even where the ship owner and the ship manager have properly insured for their respective risks they have then see arguments between the two P&I insurers as to which party should face the loss.  A crew P&I insurer paid a contractual liability claim for crew and then pursued a recourse claim against the ship owner for providing an unseaworthy ship.  A crew member also pursued a claim against a ship owner in tort.  The P&I Club dealt with the claim in tort on behalf of the owner.  However, there was a potential dispute between the crew P&I insurer and the ship owner’s P&I insurer as to whether the claim should fall under the tortious or contractual cover.  Not an ideal situation!

These gaps in cover between the ship owners and the ship manager’s P&I cover for crew can be avoided by careful planning between the owner, the manage and their respective insurance brokers. Ironically, the premium saved by excluding crew P&I risks from the owner’s P&I policy is minimal, but without careful thought the uninsured risk can be substantial. If in doubt discuss this with your insurance broker.

Please contact the managers if you require any further advice.