A key strategy lies within the realm of marine insurance, where two principal policy types stand out: Hull and Machinery (H&M) and Protection & Indemnity (P&I).

These insurance types are indispensable tools for a shipowner, acting as a bulwark against the myriad risks that accompany maritime activities.

H&M insurance covers physical damages to the vessel, a crucial aspect of maintaining operational continuity after maritime accidents. On the other hand, P&I insurance covers a broader range of liabilities towards third parties, including damages to other vessels, injuries to individuals, and environmental pollution.

Together, these insurances form a comprehensive shield, fortifying a shipowner’s interests against the unpredictable seas of maritime operations.

Let’s delve into the specific risks and coverages relevant to shipowners in marine insurance:

Navigational Risks

The navigational risks could include groundings, severe weather damage, and damage to maritime structures. Such structures include docks, piers, jetties, bridges, undersea cables, and pipelines.

The H&M insurance is indispensable in this context, providing coverage for physical damage to the ship.

A classic example of where H&M insurance plays a crucial role is in the case of a vessel sinking without loss of life. In such a scenario, the insurance policy would typically reimburse the insured value of the hull to the shipowner.

Pollution Risks

In today’s environmentally conscious world, pollution risks stand out as a primary concern for shipowners.

The maritime industry, with its reliance on heavy fuels, has the potential to significantly impact the environment. Instances of oil spills, chemical leaks, or other forms of pollution can lead to severe ecological damage, resulting in hefty fines and cleanup costs.

Both H&M and P&I policies address these risks.

Collision Risks

Collision liability refers to the shipowner’s legal responsibility for damages caused by their vessel to another vessel, object, or property. 

In the event of a collision, the shipowner could be held liable for any harm inflicted upon the other vessel, its cargo, or any other property implicated in the incident. 

This liability may stem from various factors, including negligence, improper navigation, or other acts or omissions by the shipowner or crew.

Following a collision, the shipowner faces potential legal claims, liabilities to third parties, and significant repair costs.
To protect against these risks, they are covered under the H&M insurance policy. This policy typically covers three-quarters of the damages incurred in a collision. The remaining quarter is either absorbed by the shipowner or covered by P&I insurance.

General Average Contributions

The concept of ‘General Average’ is rooted in maritime law, wherein all parties in a sea venture proportionally share the loss resulting from a sacrifice for the common good. This can include the shipowner, cargo owners, and any other parties with a financial interest in the voyage.

For shipowners, the General Average principle can lead to substantial unforeseen expenses. Hence, having H&M insurance helps by covering their proportion of the loss, and ensuring that shipowners are not disproportionately affected by these shared maritime losses.

The Yantian Express incident in 2019, where cargo owners had to contribute to the losses, exemplifies the necessity of H&M insurance in covering such contributions.

Salvage Charges

In the event of an accident or emergency, the costs associated with the salvage and rescue of a vessel can be considerable.
These expenses are not limited to the recovery of the vessel itself but also include environmental cleanup efforts and measures to mitigate further damage. Additional costs such as legal and consultancy fees often emerge from incident investigations, litigations, or negotiations.

Furthermore, costs related to containment and mitigation are crucial for minimizing environmental and third-party property damage.
In scenarios requiring evacuation, expenses for crew accommodation and repatriation also arise.

A critical, yet sometimes overlooked, consequence is the loss of income during the vessel’s downtime.

H&M insurance typically covers the expenses related to the recovery and repair of the shipowner’s vessel, while P&I insurance may cover salvage-related liabilities towards third parties, including rescue operations for crew and passengers.

Miscellaneous Disaster-Related Expenses

In maritime operations, shipowners face “Miscellaneous Disaster-Related Expenses,” encompassing unforeseen costs from emergencies or disasters. These include emergency response and mitigation actions, legal and administrative fees, environmental cleanup, cargo-related expenses, crew accommodation and repatriation, and potential loss of income.

Such expenses are unpredictable and significant, necessitating comprehensive insurance to safeguard against financial instability.
These risks in the maritime industry may be covered under both H&M and P&I insurance policies, but the extent of coverage depends on the specific terms of each policy.

Constructive Total Loss

This occurs when the cost of repairing a vessel exceeds its value. H&M insurance covers such scenarios, providing vital support to shipowners.

Crew Liability Risks

Shipowners are responsible for their crew’s safety and wellbeing. These encompass responsibilities for crew injuries or illnesses, including medical expenses and compensation, and extend to repatriation and accommodation in emergencies or contract terminations.

Shipowners are also bound to honor contractual wages and benefits, even during vessel inactivity. Negligence, resulting in harm due to unsafe working conditions or inadequate equipment, can lead to significant liability. Additionally, labor disputes or contractual breaches may invoke legal challenges.

P&I insurance offers coverage for any liabilities arising from crew-related incidents.

Passenger and Third-Party Liabilities

Liabilities towards passengers and third parties, such as injuries or damage to cargo, are significant concerns in maritime operations. The risks increase manifold in situations like onboard accidents, cargo mishandling, or navigational errors.

P&I insurance provides protection against claims arising from such incidents.

Risks of Wreck Removal Liabilities

Shipowners are legally bound to remove wrecks, a duty that entails potentially expensive and complex operations. This responsibility often arises in the aftermath of maritime accidents where a vessel has sunk or been abandoned, posing navigational hazards or environmental threats.

P&I insurance typically covers these responsibilities.

Loss of Hire Risks

Loss of Hire insurance addresses the financial implications when a vessel is temporarily non-operational due to covered perils. Scenarios like repair, salvage operations, or inability to fulfill commercial activities are included.

Risks Not Covered by Hull and Machinery (H&M) Policy

Exposure to risks that fall outside the scope of H&M insurance necessitates additional coverage.
These risks might include certain types of environmental damages, specific legal liabilities, or other extraordinary expenses that are not traditionally covered by H&M policies.

Cargo Damage Risks

Cargo insurance, typically separate from H&M and P&I policies, offers coverage for damage or loss of goods in transit.
This insurance is crucial for safeguarding the financial interests of both the shipowner and the cargo owners, ensuring compensation for any harm or loss to the cargo

War Risks

The perils of war, including hostile acts, hijacking, and piracy, are unique challenges in maritime operations.
These dangers are explicitly excluded in the standard H&M insurance clauses, most notably in the Institute Time Clauses (ITC). Recognizing this gap, there exists a specific attachment known as the Institute War and Strikes Clauses, which addresses these exceptional risks.

War risk insurance is essential for providing coverage against these unique threats. It offers crucial protection in areas of heightened risk or during periods of conflict.

This type of insurance is especially vital for vessels operating in high-risk zones or during volatile times. With the standard H&M policies excluding war-related risks, the War and Strikes Clauses attachment becomes a key element in ensuring that shipowners have financial protection against these extraordinary risks.

Cyber Security Risks

As shipowners increasingly integrate technology into all aspects of a vessel’s operations and shore-side activities, cyber security emerges as a significant concern. The growing interconnectivity of these technological systems heightens the risk of cyber attacks, which can disrupt operations and lead to substantial financial losses.

Given the novel nature of these risks, they are not covered under the standard ITC in H&M insurance policies. To address this gap, the shipping industry has introduced a specific attachment known as the Institute Cyber Attack Exclusion Clause. This clause is a critical adaptation to the evolving landscape of maritime risks, acknowledging the unique challenges posed by cyber threats.
The Institute Cyber Attack Exclusion Clause outlines the limitations and exclusions related to cyber risks, highlighting the need for shipowners to seek additional, specialized insurance coverage for cyber threats.

For further information or to check if a specific claim is covered under your policy, please contact us.

Content reviewed by Guillermo Zamora.