Protection and Indemnity Insurance - Growth of Third Party Liabilities

Growth of Third Party Liabilities

Although marine insurance dates from the Middle Ages, British shipowners did not feel the need to purchase liability insurance until the 19th century when injured crew members began to seek compensation from their employers, and the Fatal Accidents Act 1846 facilitated claims by passengers or their survivors. The likelihood of claims was greatly increased by the vast numbers of passengers who constituted the flood of emigrants to North America and Australia in the second half of the century. Shipowners were also becoming increasingly aware of the inadequacy of the available insurance cover in respect of damage caused by their ships in collisions with other ships. The usual cover for claims by other ships and their cargo for collision damage excluded altogether one fourth of such damage and, more seriously, was limited in amount. (The maximum recovery under hull policies, including both damage to the insured ship and liability for the damage it had caused, was the insured value of the ship).

The first protection association, the Shipowners' Mutual Protection Society, was formed in 1855. It was intended to cover liabilities for loss of life and personal injury and also the collision risks excluded from the current marine policies, particularly the excess above the limits in those policies. Similar associations were subsequently formed in various cities and towns within the United Kingdom, and later in Scandinavia, Japan, and the United States.

In 1874, the risk of liability for loss of or damage to cargo carried on board the insured ship was first added to the cover provided by a protection club. The values of cargoes had risen and cargo underwriters, encouraged by the courts, had become keener on recovering their losses from shipowners. After 1874 many Clubs added an indemnity class to provide the necessary cover. Subsequently, most of these separate classes were amalgamated with the class reserved for the original protection risks, and the distinction between the two classes virtually disappeared.

Following the grounding of the Torrey Canyon in 1967, coverage for the liabilities, costs and expenses arising from oil spills became an increasingly important aspect of P&I insurance.