Shipowners are often faced with a number of issues following serious allision and collision accidents, especially when trading abroad. Some foreign claimants may try to rip off the owners by taking advantage of the detention regulations of local maritime authorities or the court’s tendency to protect their own citizens. The ship may be arrested for an extended period if their appeals cannot be satisfied. In such cases, hull cover and P&I cover become two important ways for shipowners to get out of trouble and sometimes both are indispensable. Prudent owners will need to understand the extent of liability cover under hull and P&I insurance and coordinate with different insurers to properly navigate the problems.

I. Collision Claims

Since the 19th century, with improved legislation, greater liability in collision cases has been imposed on shipowners, but only 3/4 of the collision liability is covered by hull underwriters with a number of exclusions (e.g. liabilities in respect of person, pollution, and wreck removal). To cover the remaining 1/4, shipowners have spontaneously formed P&I Clubs based on the concept of mutuality. Nowadays, there are generally 3 conditions under hull and P&I policies.

Under the first condition, the placing of guarantees may become a problem as both hull insurers and P&I Clubs may require counter security when requested to provide a guarantee. In cases where clubs provide 1/4 RDC cover counter security for the 3/4 collision liability will be required before full guarantee can be available.

The problem is simpler under the second condition, but in cases where the claimant or the foreign court does not accept the guarantee provided by hull insurers, counter security for the 4/4 collision liability will be required before the non-cover security can be provided by P&I Clubs.

The third option can save a lot of trouble when apportioning each part of the individual loss, whether it is hull damage or P&I’s proportion to the collision. It can make things easier in the event of serious accidents when significant loss is sustained by shipowners, but both insurances will be involved even if it’s only a minor incident.

Most domestic shipowners would prefer the second condition where most claims can be handled under the hull policies while liability relating to person, pollution, wreck removal and other listed insured damage is covered by the P&I policy. For example, in the case of the oil spill at Qingdao Port on April 27, owners of the Sea Justice may rely on the P&I cover for the claims arising in respect of oil pollution by A Symphony.

Serious collisions may lead to claims of significant amount or even arrest of vessels. Shipowners will need to appoint a professional surveyor for assessment of the loss and an experienced lawyer for anticipation of the court’s decision (hull insurers and P&I Clubs can do the job for shipowners), on which the negotiation with the claimant will be premised. If the claimant insists on an unreasonable amount of claim or security, the owners may urge the claimant to negotiate rationally by setting up a limitation of liability fund (if applicable) or involving the court mediation.

II. Allision Claims

Allision is different from collision as, according to rules for domestic ocean-going vessels, allision happens when a ship makes contact with any object fixed, floating or otherwise (quays, shore cranes, aqua valves, buoys, cables, offshore drilling rigs etc.) whereas collision means one ship running down into another. For allision claims, indirect losses and expenses, such as loss of earnings during the period of repairing, arising from the allision is not recoverable, while indirect losses are recoverable in the case of collision claims, such as the other ship’s losses due to delay. Nowadays, there are generally two kinds of arrangement for coverage of allision liability.

Under the first condition, it is convenient to apportion each part of the individual loss as the allision liability is fully covered under the P&I policy and only P&I Clubs will be involved when guarantees are requested by shipowners. It can make things easier in the event of serious accidents when significant loss is sustained by shipowners, but both insurances will be necessary even if it’s only a minor incident.

Under the second condition, allision liability is covered by different underwriters, and therefore the placing of guarantees will require coordination from the shipowners. Counter security will be required before the non-cover security can be provided by P&I Clubs.

Most domestic shipowners would prefer the second arrangement. For example, in the case where cargo ship Z accidentally allided with a wharf in Dalian on December 26, the costs for wharf repairing are payable by the hull cover while indirect losses can be recovered under the P&I policy. Where guarantees are necessary to avoid detention of the ship or to get the ship released from detention, owners may request provision of guarantees by hull and P&I underwriters to the extent of their respective cover.

III. Conclusions

In the unfortunate event of a collision or allision incident, Members are advised to have the VDR data well preserved on board, and in particular records of situations affecting the manoeuvring of the ship prior to the accident, e.g. whether any ships have suddenly inserted themselves into the main channel, creating an imminent situation between two ships and whether the ship is affected by the swell before hitting the wharf. Detailed records of the situation of nearby passing ships will be helpful in apportioning collision liability and in recovering compensation from other vessels. Members should also report the incident to hull insurers and P&I Clubs and provide the Master’s report as soon as possible. In order to meet different demands, the China P&I Club has provided marine hull insurance cover since 1998, to assure Members of a safer, easier, one-stop insurance service.

The above content does not represent any views of the organization which the author works for. For more information, please contact Managers of the Association.