1.7 Global limitation and P&I insurance
Shipping companies regularly cover the risk of claims in respect of damage resulting from the operation of ships by liability insurance, ordinarily P&I insurance. Traditionally, P&I insurance provides liability insurance for each specified ship, covering the various risks of claims related to the particular properties and operations of the named ship. In general, however, P&I contracts do not specify the insured amount. In most cases, consequently, even the liability of the P&I insurer is subject to the limit of the applicable limitation regime – international or national – as applied to the actual tonnage of the insured ship. This link means that the restructuring of the international and national limitation regimes – establishing new regimes each applicable to different types of claims subject to different limits of liability – also entailed substantial changes to P&I liability insurance practices in international shipping.
The major impact on P&I liability insurance, however, does not follow from this restructuring as such. Its primary objective was to amend the limitation regimes in order that, in practice, the role of the liability insurance of shipowners would be extended to also serve as a vehicle for the provision of adequate compensation for damage caused by ships to uninsured non-shipping interests in coastal areas (supra 1.4). This pre-supposed, however, that the new limitation regimes be supplemented by schemes for obligatory liability insurance of each of the groups of maritime claims subject to limitation, containing also minimum requirements to the insurance cover to be provided. These schemes proved to have substantial consequences quite foreign to traditional P&I business. Nevertheless, P&I insurers readily provided the new liability covers needed by shipowners, in fact also assuming the administrative tasks required by insurance contracts protecting not only the insured shipowner, but also various groups of third parties.
The principle of obligatory liability insurance was first recognized by the 1974/1992 Liability Convention and, subsequently, by the 2001 Bunker Convention. Both conventions apply to oil pollution damage attributable to ships, and require the registered owner of the ship to provide full liability insurance cover up to the applicable legal limits for oil pollution damage claims (MC §§ 197 and 186). The ship must carry an insurance certificate confirming such insurance cover. In addition, both conventions expressly provide that injured parties may enforce their claims by direct action against the P&I liability insurer (MC §§ 200 and 188).
In addition, the EU directive 2009/20/EU now provides a general regime for obligatory liability insurance, requiring that ships be fully insured against all liabilities for claims limitable under the 1976 Convention as amended by the IMO 1996-Protocol (MC §§ 182a-182c). According to MC § 182a, however, it is a duty of the actual operator, as either the owner or the bareboat charterer of the ship (the “reder”), to obtain such liability insurance, evidenced by an insurance certificate. Another difference is that the EU directive itself does not contain provisions on the right of injured parties to enforce their claims by direct action against the liability insurer, thereby leaving this to be determined by national law, such as NFAL §§ 7-6 to 7-8 and the DFAL § 95. This, however, is likely to cause important uncertainties as to the interaction between P&I insurance and the limitation regimes.