Thursday, January 20, 2022

The Suez Canal Saga: Disruption, Dispute, Compensation

On March 23, 2021, Japanese owned colossal container ship, Ever Given grabbed the world’s attention after getting stuck in the Suez Canal, disrupting one of the busiest shipping lanes in the world.

After 6 days of financial and time loss, the ship was freed from the bank of the canal. However, it still remains far away from its destination, waiting to be freed by the Suez Canal authorities.

The Egyptian authorities have demanded compensation of 1 billion dollars. They say they wouldn’t release the ship until the owners agree to pay the compensation amount for dislodging it from the waterway and the cost of freeing it.

However, Ever Given’s owner company has said that the company hasn’t officially heard from the Egyptian authorities. It said it was free of responsibilities from cargo delay as it will be covered by insurance, according to the Bloomberg report.

In whichever direction the matter goes, in a situation like this, one must know about the P&I club. Normally, in matters of dispute like the Suez Canal and the Ever Given Company, the compensation is paid through the P&I club.

What is the P&I Club?

P&I stands for Protection and Indemnity. Any ship needs protection for its safe working, staff, and seafarers, and indemnity is required to compensate for any loss of life, environment, and property.

A P&I Club is the association of shipowner members that supports seafarer’s safety by providing the required necessities. In other words, a Protection and Indemnity club is a non-governmental, non-profitable association of members that mutually agrees to provide for its members, ships, crew staff in case of an emergency.

History of the P&I club:

P&I club’s history goes back to London, UK in the 19th century. During this period, ship owners and charterers sought insurance for their ships, cargo owners for their cargo. However, the ship owners and charterers realised they could be found at fault if the cargo on their ship got lost or damaged. Hence, they started seeking third-party indemnity insurance for cargo liability.

However, underwriters hesitated in providing the insurance, thus started the P&I clubs when all the shipowners mutually agreed to cover the loss.

However, the second half of the 19th century witnessed an increase in the number of insurance claims, usually related to collisions and third-party claims.

In response to the growing risks and inadequate insurance coverages, Shipowners’ Mutual Protection Society, the first protection association was formed in 1885. It was later called the Britannia P&I Club.

The club’s aim was to cover liabilities for loss of life and personal injury, collision risks excluded from marine insurance policies at the time. When the club got successful, many similar associations were formed.

Approximately 20-years later, the clubs started providing indemnity coverage to provide extra coverage for ship owners, hence the name P&I clubs.

India and P&I Club:

In India, there is no designated P&I club that looks out for shipping companies or their vessels. However, the New India Assurance Co Ltd (NIA) with The Maritime Protection & Indemnity Association of India launched India’s first P&I insurance cover in May 2018. It covers inland and coastal vessels.

The insurance covers vessels in Indian water and ensures a sum of Rs 33 crore for each vessel.

Moreover, the Insurance Regulatory and Development Authority of India (IRDAI) is in talks with Indian National Shipowners Association (INSA) to create a P&I insurance club in India. The insurance cover will protect and support marines in India.

What does the P&I Club cover?

-Personal injury, illness, and death claims from the crew, passenger, etc

-Stowaways ie, a person who secretly boards the ship, and its repatriation arrangement.

-Cargo claims related to damage or loss of it.

-Liability due to collision, like in the case of Ever Given

-Damage to fixed and floating objects

-Liability under approved towage contracts

-Removal of wreck

-Salvage operations

-Civil liabilities imposed due to pollution or oil spill

-Other fines

Is the club important?

The P&I club covers the risk that the shipping company might have to bear in its absence. The three major risks for a shipping company relate to the ship, the seafarer, and the cargo. The P&I club covers all three and supports the shipping company. More importantly, it covers the death or illness of human life that is one of the biggest losses one could ever have.

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