A P&I club is a mutual insurance association that provides risk pooling, information and representation for its members.
[4] These clubs cooperate to provide funds in the event of huge claims using a complex system to determine liability.
An advantage was that a club worked for the shipowners, thereby eliminating the underwriters' profit margins and making P&I Insurance significantly cheaper.
[citation needed] Shipowners became aware of their insurers' compensation limits, especially when it came to damages caused by ship collisions.
After the Torrey Canyon grounding in 1967, covering the liabilities, costs and expenses of oil spills became an increasingly important aspect of P&I insurance.
Articles 13 & 14 of the Convention made provision for "Special Compensation", but the UK House of Lords case of the Nagasaki Spirit[8] revealed that the convention had been poorly drafted, thereby limiting the amount that environmental salvors could be paid to mere "out-of-pocket expenses", with no allowance for any profit margin.
As an antidote to this, the marine insurance industry and P&I clubs jointly developed the "SCOPIC clause",[a] which is a codicil that may be appended to an LOF and invoked should the statutory payment provisions prove inadequate.
Marine insurers are usually for-profit companies that charge customers a premium to fully cover ships and cargo in the time period when the policy applies.
If the risk pool cannot cover current claims, the club members will be asked to pay a further call.
The following are the major exceptions to P&I coverage: The European Union Directive 2009/20/EC[11] was implemented in all 27 member states by January 1, 2012.
As EU competence does not generally extend to penology, (see Re Tachographs (CJEU) 1979),[12][13][14] the directive requires the member states themselves to set penalties for any breach.
This would inevitably lead to an increase in the scope and importance of P&I cover, and might diminish the prevalence of standard cargo insurance.
Some non-mutual "charterers P&I clubs" have arisen [15] whereby a private company may act as broker to provide third-party cover via underwriters, on payment of a conventional premium, rather than a P&I call.