Protection and indemnity insurance, commonly known as P&I insurance, is a form of marine insurance provided by a P&I club. A P&I club is a mutual (i.e. co-operative ) insurance association that provides cover for its members, who will typically be ship-owners,ship-operators or demise charterers. Unlike a marine insurance company, which is answerable to its shareholders, a P&I club is the servant only of its members.
Both P&I clubs and conventional marine insurers are governed by the provisions of the Marine Insurance Act 1906. Marine insurers provide cover for known quantifiable risks, mainly Hull & Machinery insurance for shipowners, and Cargo Insurance for cargo owners. By contrast, P&I Clubs provide insurance cover for broader indeterminate risks, such as third party liabilities that marine insurers are loath to cover. Third party risks include a carrier’s liability to a cargo-owner for damage to cargo, a ship’s liability after a collision, environmental pollution and war risk insurance; (although some marine insurers are also prepared to cover war risks).
It follows that any given cargo may be insured twice: the shipper/cargo-owner will take out conventional cover, and the carrier will have P&I cover. If the cargo is lost or damaged, the cargo-owner should first make a cargo claim against the carrier; but the latter may avoid liability because either (i) he did not cause the loss, or (ii) the Hague-Visby Rules grant exemption from liability . In such a case, the cargo owner will claim against his own insurer. If the cargo-owner fails to claim first against the carrier, but claims against his own insurer, the latter (having reimbursed their client) will, through subrogation, be able to pursue the claim in their own right against the carrier.