DR.

RAM MANOHAR LOHIYA 
NATIONAL LAW UNIVERSITY, LUCKNOW

SUBJECT: INSURANCE LAW

TOPIC: Need for P&I Clubs in India

SUBMITTED TO: SUBMITTED BY:

Ms. Priya Anuragini Ravi Gangal
Assistant Professor (Law) Roll No. 96
Dr. RMLNLU, Lucknow Semester: VIII (B.A. LL.B.)
Contents
Introduction................................................................................................................................3
a) Lloyds of London............................................................................................................3
b) Marine Insurance in India...............................................................................................4
What are P & I clubs?................................................................................................................4
a) Historical Overview........................................................................................................4
b) Characteristics.................................................................................................................5
Conclusion: Need for P&I clubs in India...................................................................................6
Bibliography...............................................................................................................................7
Introduction
Marine form of insurance can very safely be considered one of the oldest form of protection
against losses.1 Contractual transfer of risk was pioneered through loans on the security of a
vessel or cargo, repayable at a high rate of interest should the secured property arrive safely
but otherwise not repayable. Such maritime loans existed in ancient Babylon, were used by
the Pheonicians, ancient Greeks and Romans, and were revived in medieval Italy.2
These ancient forms of insurance were succeeded by the system of “bottomry”. “Bottomry” is
defined as the mortgage of a ship ( i.e. bottom or hull), in such a manner that if the ship be
lost the lender likewise loses the money advanced on her, but if she arrives safely at the port
of destination, he would get back the loan and a certain premium previously agreed upon. 3
Initially, the system of bottomry loans was carried out by a group of foreign immigrants, the
“Lombards”- who took their name of the street where their businesses and trading firms were
established, i.e. Lombard Street and who were the first ones to have seriously engaged in the
area of marine insurance and only later on was taken over by Englishmen.4
a) Lloyds of London
It is believed that at some time during 1688 Lloyd’s Coffee House opened in Tower Street,
London. The first mention of Lloyd’s appeared in the late 1680s when an advertisement in
the London Gazette offered “a reward of a guinea for information about stolen watches,
claimable from Mr Edward Lloyd’s Coffee House in Tower Street”. After the English Civil
War, the growing importance of London as a centre of trade led to a steady increase in the
demand for insurance of ships and cargoes. Business in those days was conducted very
informally. In those days a ‘broker’ was supposed to take the policy from one wealthy
merchant to another until the risk was fully covered (of a merchant with a ship), the primary
task being to ensure that policies were “underwritten” only by people of sufficient financial
integrity.

Lloyd’s became a forefront for conveyance of maritime commerce and business. ‘By the time
Edward Lloyd died in 1713, leaving a substantial estate, Lloyd's was well established as a
centre for businessmen to meet and as a location for the holding of auction sales,
increasingly of vessels.’5 Further, in 1771, a Committee was elected to represent the
underwriters and alongside the payment of a subscription, this was the attempt towards the
assumption of responsibility for the organization of the market. However, it was only with
the passage of the Lloyd’s Act of 1871, that it became a structured organization regulated by
a constitution.6

Eventually, the position with regard to marine insurance was codified through the Marine
Insurance Act of 19067. This was proposed and initiated in an attempt to clarify and set forth
the regulations and policy variables associated with marine insurance agreements. This
1
Dr Kyriaki Noussia, The Principle of Indemnity in Marine Insurance Contracts: A Comparative Approach
(Springer- Verlag Berlin Heidelberg 2007), 1
2
Howard Bennett, The Law of Marine Insurance ( 2nd edn, OUP 2007), 1
3
Noussia (n 1), 1
4
Noussia (n 1), 2
5
Bennett (n 2 ), 3, 1.06
6
Noussia (n 1), 4
7
Marine Insurance Act, 1906, http://www.legislation.gov.uk/ukpga/Edw7/6/41/contents, accessed on March 17,
2017
enactment purported to codify only those principles of the law which related exclusively to
marine insurance and expressly enacted that the rules of the common law, including the law
merchant, save in so far as they were inconsistent with the express provisions of the Act,
were to continue to apply to contracts of marine insurance.8

b) Marine Insurance in India

Since independence Indian shipping had undergone a considerable expansion, and it became
mandatory for an Indian legislation consistent with Indian conditions, for the smooth
development of Indian marine insurance. Prior to legislation, questions turning on this branch
of law had to be decided by the general law of contract and the English decisions based on
the common law rules of contract.9 In India the law of marine insurance has been put in a
statutory from since 1963. Marine Insurance Act, 1963. The preamble to the Indian Act states
that it is " an Act to codify the law relating to marine insurance."10
The Indian law is a direct take- off from its English counterpart, and so, whenever it is not
self evident, case law spanning over two centuries is to be looked into to arrive at the true
position. Moreover, the Marine Insurance Act itself being a codification of previous case law,
an appreciation of past authorities is not only an essential requirement to the understanding of
the legal concepts generally, but also of paramount importance when wishing to gain an
insight into the very constitution of the sections within the Act.

What are P & I clubs?

a) Historical Overview
The abbreviations ‘P’ & ‘I’ stand for ‘Protection’ and ‘Indemnity’ respectively. Traditionally,
a shipowner’s main insurance cover was in respect of the hull of its ship. This was the time
when few underwriters at Lloyd’s and two insurance companies enjoyed state monopoly in
the business and charged enormous premiums for their insurance cover.11 As a consequence
against such hegemony, ‘the shipowners in the major maritime cities of Newcastle,
Liverpool, Bristol and London decided that they were not prepared to pay these enormous
premiums…the shipowners of those cities formed themselves into associations or clubs with
the purpose of agreeing to cover each other’s losses or damage to their ships’.12

The arrangement was such that whenever a member of the particular club suffered a loss and
had a claim to present, then a ‘call’ was made around all the members, who would each
contribute their share on a previously agreed percentage basis.13 The occurrence of these

8
Ruturaj Shinde, ‘Development of laws relating to marine insurance in India’,
http://www.legalservicesindia.com/article/article/development-of-laws-relating-to-marine-insurance-in-india-
654-1.html, accessed on March 17, 2017
9
Ibid
10
Gaurangi Patil, ‘Reeling back in History to Understanding Marine Insurance Protection Indemnity Clubs
(P&I)- Marine Insurance’ (November 27, 2012),
http://www.mondaq.com/india/x/208632/Marine+Shipping/Reeling+Back+In+History+To+Understanding+Mar
ine+Insurance+Protection+Indemnity+Clubs+PI, accessed on March 17, 2017
11
Noussia (n 1), 5; Phil Anderson, Loss Prevention Guide: The Mariner’s Guide to Marine Insurance ( The
Nautical Institute 1999), 21
12
Anderson (n 13), 21
13
Anderson (n 14), 21
clubs could be considered to be consequential to the insurmountable pressure in terms of
liability upon shipowners under newly formulated laws in England for damages caused to
piers, jetties and other harbor property.14 The shipowners felt that they could better fend
against these risks and liabilities themselves and thus turned to such mutual clubs. These
initially local clubs, have now transformed into national and as well global groups channeling
risks through innumerable members and thereby mitigating it.

The situation further changed ‘by a Judgment given by the English Court in 1836 relating to a
collision case called 'De Vaux v Salvador'. The Judges ruled in this case that an ordinary
policy against perils of the sea does not cover damage done to another vessel by collision.
That exposed ship-owners insured under the traditional hull policies to enormous potential
liabilities for which they were uninsured. The ship owners could not bear such new risk
therefore they approached their Hull underwriters and requested a amendment to cover the
new risk. However the ship owners will still not satisfied with their position and thus they
wanted to seek more comprehensive 'protection' from somewhere else to ensure that their
business could be developed in a healthy way. This is the most obvious factor leading to the
creation of the early protecting clubs’.15

The concept still remains the same, although these initially local clubs have now transformed
into national and as well global groups channeling risks through innumerable members and
thereby mitigating it.

b) Characteristics
‘P&I is a special type of marine insurance. It is a liability insurance that a prudent ship
owner, manager or charterer needs, particularly if the ship is employed in international trade.
P&I insurance cover a ship-owner or charterer for liabilities and losses in direct connection
with the operation of the ship’.16

P&I clubs, as is suggestive of the name, provide for indemnity cover against third party
liability. It is designed to complement hull insurance available from the market and usually
P&I policies exclude liabilities covered under the hull insurance policies. 17 P&I insurance
generally covers a wide range of liabilities, costs, and expenses arising from or incurred in
respect of the operation of their vessels. Such as collision liability 18, in respect of people,
respect of goods19, against pollution risks20, against fines imposed by an judicial authority for
any violation of customs or immigration law and costs and expenses relating to the member's
legal liability for the raising, removal, destruction, lighting, or marking of the wreck of an
entered ship or property carried on board and liabilities incidental thereto.21 Keeping in mind

14
Ibid
15
Patil, ‘Reeling back in History to Understanding Marine Insurance’ (n 12),
http://www.mondaq.com/india/x/208632/Marine+Shipping/Reeling+Back+In+History+To+Understanding+Mar
ine+Insurance+Protection+Indemnity+Clubs+PI, accessed on March 17, 2017
16
Ibid
17
Bennett (n 2), 484, 16.03- 04
18
Ibid
19
Ibid
20
Ibid
21
Ibid
that a maritime casualty may generate vast liabilities, various leading P&I clubs form
international groups in order to pool claims in a mutual excess of loss insurance and
reinsurance scheme.22

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.’23

Conclusion: Need for P&I clubs in India

As stated earlier, marine insurance in India is regulated under the Marine Insurance Act of
1963. However, the same does not provide for P&I clubs. Whereas in the United Kingdom,
the Marine Insurance Act of 1906 when amended in the year 2015, was made inclusive of
provisions to regulate the practice of P&I clubs as well as IGs (International Groups). 24 This
may be for the mere fact that no P&I club as such has existed in India.
However, ‘proposals for setting up an Indian Protection and Indemnity Club has been mooted
a number of times in the past. Shipping trade being cyclic in nature, pressure begins to build
up on P & I Clubs especially when shipping is down. It could be said that such pressures in
the past may have been responsible for causing such proposals for setting up a P & I Club
doing the rounds in shipping circles.’25

In 2012, the same was proposed for coastal ships to Mr. Satish Agnihotri, Director General of
Shipping with further plans of making mandatory for coastal ships to insure with this Indian
P&I clubs and the same shall include small and medium sized vessels by Capt J.C. Anand,
Chairman Emeritus, Indian Register of shipping.26 The same could be seen as a knee- jerk
22
Bennett (n 2), 16.10.
23
P&I Clubs (Ship Arrest: India Jurisdiction), http://shiparrest.co.in/autre/piclubs.htm, accessed on March 17,
2017
24
Leif Ollivierre, ‘Insurance Act 2015: A reform of insurance contract law, what’s in and what’s out for the P&I
sector?’,
http://www.pacifics.co.uk/2017/02/insurance-act-2015-a-reform-of-insurance-contract-law-whats-in-and-whats-
out-for-the-pi-sector/, accessed on March 17, 2017
25
Joseph Fonseca, ‘Will there be an India P&I Club’(June 20, 2012),
http://www.maritimeprofessional.com/blogs/post/will-there-be-an-indian-p--i-club-13827 accessed on March
17, 2017
26
N K Kurup, ‘Move to set up Indian P&I association for coastal ships’(The Hindu: Business Line, June 15,
2012), http://www.thehindubusinessline.com/economy/logistics/move-to-set-up-indian-pi-association-for-
approach to the recent action (at the time) of refusal by the Europe-based P&I Clubs to
provide insurance to tankers carrying Iranian oil to India and denying India's request for
exemption.27

The suggestion was once again made at recent as in 2016. ‘Public sector general insurers,
including official reinsurer GIC Re and shipping companies, are planning to set up an
exclusive entity known as P&I Club to provide cover to shipping companies.’ 28, the same was
considered to be an ambitious project being undertaken by GIC re to gain more ground as an
international reinsurer in the market.29

Successfully now, India first P&I club by the name of "The Maritime Protection & Indemnity
Association of India" was launched on the 3rd of February, 2016.30 This is considered to be
the outcome of the efforts of Capt. J. C. Anand. The same was confirmed to now function
within the frame set by the Insurance Development and Regulatory Authority of India
(IRDAI).

It will only be the right way ahead if the Parliament, now sensing the shift in the policy may
incorporate the same by making requisite amendments to the Marine Insurance Act, 1963.

Bibliography
a) Books:
i. Dr Kyriaki Noussia, The Principle of Indemnity in Marine Insurance Contracts: A
Comparative Approach (Springer- Verlag Berlin Heidelberg 2007)
ii. Howard Bennett, The Law of Marine Insurance ( 2nd edn, OUP 2007)
iii. Phil Anderson, Loss Prevention Guide: The Mariner’s Guide to Marine Insurance ( The
Nautical Institute 1999)

b) Online Articles:
i. Ruturaj Shinde, ‘Development of laws relating to marine insurance in India’,
http://www.legalservicesindia.com/article/article/development-of-laws-relating-to-
marine-insurance-in-india-654-1.html

ii. Gaurangi Patil, ‘Reeling back in History to Understanding Marine Insurance Protection
Indemnity Clubs (P&I)- Marine Insurance’ (November 27, 2012),
http://www.mondaq.com/india/x/208632/Marine+Shipping/Reeling+Back+In+History+T
o+Understanding+Marine+Insurance+Protection+Indemnity+Clubs+PI, accessed on
March 17, 2017

coastal-ships/article3533123.ece, accessed on March 17, 2017

27
Fonseca, ‘Will there be an India P&I Club’ (n 27)
28
ENS Economic Bureau, ‘Insurers plan P&I Club for shipping companies’ (Indian Express, January 31, 2016)
http://indianexpress.com/article/business/companies/insurers-plan-pi-club-for-shipping-companies/, accessed on
March 17, 2016
29
Ibid
30
‘Maritime Protection & Indemnity Association of India launched (Exim News Service, February 8, 2016)
http://www.eximin.net/NewsDetails.aspx?name=31877 , accessed on March 17, 2017
 iii. P&I Clubs (Ship Arrest: India Jurisdiction), http://shiparrest.co.in/autre/piclubs.htm,
accessed on March 17, 2017

iv. Leif Ollivierre, ‘Insurance Act 2015: A reform of insurance contract law, what’s in and
what’s out for the P&I sector?’,http://www.pacifics.co.uk/2017/02/insurance-act-2015-a-
reform-of-insurance-contract-law-whats-in-and-whats-out-for-the-pi-sector/, accessed on
March 17, 2017

v. Joseph Fonseca, ‘Will there be an India P&I Club’(June 20, 2012),

http://www.maritimeprofessional.com/blogs/post/will-there-be-an-indian-p--i-club-13827
accessed on March 17, 2017

c) Newspaper Articles:
i. N K Kurup, ‘Move to set up Indian P&I association for coastal ships’(The Hindu:
Business Line, June 15, 2012),
http://www.thehindubusinessline.com/economy/logistics/move-to-set-up-indian-pi-
association-for-coastal-ships/article3533123.ece

ii. ENS Economic Bureau, ‘Insurers plan P&I Club for shipping companies’ (Indian
Express, January 31, 2016) http://indianexpress.com/article/business/companies/insurers-
plan-pi-club-for-shipping-companies/

iii. ‘Maritime Protection & Indemnity Association of India launched (Exim News Service, February 8,
2016) http://www.eximin.net/NewsDetails.aspx?name=31877