P & I Insurance Coverage: How to Handle Common Disputes Over It

P&I insurance coverage is every shipowner’s financial safety net. But that net has holes, and if you’re not careful, they can swallow you whole.

The truth is, disputes over P&I coverage are more common than you’d think, and they can get ugly fast.

Think you’re covered for a lawsuit or an oil spill? Think again. If the coverage isn’t clear, it’s up to the P&I Club to decide whether or not you’re paying out of pocket.

It’s a murky world of discretionary claims, exclusions, and gray areas.

The goal of this article? To save you the headache when things go sideways. We’ll dive into:

• The 3 most common disputes shipowners face
• How to avoid getting stuck in the fine print
• Real-world tips and tricks to handle claims that leave others scrambling

Want to make sure you’re not left holding the bill when things go wrong? Keep reading.

What Is P&I Insurance?

When a shipowner faces a lawsuit after an oil spill or a crew member gets injured on deck and files a massive claim, who pays for the damages?

The obvious answer would be shipowners, charterers, and operators. But does it always have to be that way?

No—not if you have P&I insurance coverage.

You see, Protection & Indemnity insurance is a specialized type of maritime coverage designed to protect shipowners, charterers, and operators from financial ruin due to third-party liabilities.

And, unlike standard marine insurance, which covers physical damage to the ship, P&I insurance steps in to cover legal and financial liabilities—the kind that can bankrupt a shipowner overnight.

But here’s where it gets even more unique: P&I insurance isn’t provided by traditional insurers. Instead, it’s managed by P&I Clubs, which operate as mutual associations. That means there are no fixed premiums as you’d see with commercial insurance.

Instead, P&I Club members share risks and fund claims collectively. Shipowners contribute through “calls”—payments that fluctuate based on the club’s financial situation and the number of claims filed.

In strong years, contributions may be lower. In bad years, members might be required to pay more.

This flexibility ensures that when a major claim arises—whether it’s a pollution fine, cargo damage lawsuit, or crew injury payout—there’s always enough in the pot to cover it.

Pretty useful, right?

What Does P & I Insurance Coverage Include and Exclude?

P & I Insurance Coverage typically covers the high-risk, unpredictable liabilities that can come with owning and operating a vessel. This includes:

• Third-party liabilities, like if a crew member gets injured, a passenger sues, or even if a stevedore gets hurt loading or unloading cargo.
• Cargo-related risks, like damage or loss of cargo while it’s in transit.
• Oil spills, hazardous substances, and pollution penalties in case of environmental damage.
• Wreck removal costs, if your vessel sinks or runs aground. This could mean anything from tugboats to cranes, even if it’s in a remote area.
• If your ship collides with another vessel, a dock, or a floating object, P & I insurance coverage will cover the resulting damage. (Not just to your vessel, but potentially to the structure or other ships involved).
• If you’re hit with a lawsuit, your P & I insurance coverage can cover legal fees to help defend you.

Sounds like a solid safety net, right? But like any good safety net, there are some holes to keep in mind.

P & I insurance coverage typically excludes hull and machinery damage, war risks, and intentional damage or negligence.

The exact exclusions will vary depending on the provider and policy, and there is space for negotiation of additional coverage in case of specialized operations, so come prepared and thoroughly review your specific policy to know its exclusions and limitations.

You don’t want to be caught off guard when the stakes are high, do you?

3 Common P & I Insurance Coverage Disputes and Tips to Resolve Them

Now that we’ve covered what the P & I insurance coverage covers and excludes, let’s shift gears and explore the 3 most common P & I insurance coverage disputes and how to resolve them:

Disputes Over Discretionary Claims

Discretionary claims can be a major pain point in P&I insurance. These are claims where the coverage isn’t crystal clear, often requiring the P&I club’s board to make a judgment call.

Naturally, these disputes arise when the board’s decision doesn’t align with what a shipowner or operator expects.

So, what kinds of discretionary claims typically spark conflict? Here’s where the real headaches happen:

• Fines and penalties — Because P&I insurance generally doesn’t cover regulatory infractions or government-imposed fines. However, sometimes, a member may argue that the fine was related to a broader maritime risk.
• Sue and labour expenses made to prevent further damage or mitigate losses (e.g., hiring a tugboat after a collision) — On paper, they sound straightforward, but the board can often reject these claims if they feel the expenses were “extraordinary” or outside the scope of what’s usually covered.
• Omnibus Rule Claims — The Omnibus Rule is a bit of a grey area. It allows for coverage of unforeseen liabilities that aren’t explicitly mentioned in the policy. The problem arises when a new risk occurs, and both you and the board have to determine whether it qualifies as a P&I-type liability.

Notification and Settlement Breaches — If a member fails to notify the club promptly about an incident or mishandles a settlement, it can trigger a discretionary decision about whether to cover the claim.

So, how can you resolve these issues?

First things first, if you’re facing a fine or penalty, document everything. Was it an incidental fine or something directly tied to a maritime incident? Your best bet is to prove that the fine was caused by an event covered by P&I.

Sometimes, you can even argue that the fine is a consequence of a broader liability that falls within P&I’s scope. Communicate early with your P&I Club to preempt these issues. It’s always better to raise questions before a penalty arises.

Next, always get approval upfront for sue and labour expenses. If the board hasn’t pre-approved the expenditures, you might be stuck fighting for reimbursement. Also, keep thorough records of why these expenses were necessary, as this could be your best defense.

In case of an Omnibus Rule dispute, you’ll need a strong argument that the incident is in line with traditional P&I coverage risks. Focus on precedents or industry standards that suggest the risk is indeed maritime-related. Contact ParrisWhittaker maritime attorney to help you frame the risk within the scope of P&I.

Lastly, always follow the notification procedures to the letter. Timely reporting is your first line of defense against a claim denial. If you’ve already breached this, work with your attorney to show good faith efforts in trying to comply with the notification guidelines. Courts are more lenient if you can prove that you reasonably tried to adhere to the rules but fell short due to circumstances beyond your control.

Disputes Over Exclusions Based on Other Insurance Types

One of the trickiest and most common disputes in P&I insurance arises when a claim is rejected on the grounds that it should have been covered by another type of insurance.

For instance, claims involving collision damages may be denied under P&I if they fall under hull insurance coverage. That’s because hull insurance is specifically designed to cover physical damage to the vessel, while P&I typically covers third-party liabilities (like damages to other ships, injuries to crew members, or environmental pollution).

So, what can you do in this case?

Our tip is: Before submitting a claim to P&I for collision damage, double-check whether hull insurance should cover it. If there’s any doubt, document every detail of the incident to argue the case that P&I coverage is applicable, especially if there are other third-party liabilities tied to the collision.

Similarly, incidents tied to war risks (e.g., damage due to a pirate attack) could get pushed away by the P&I club if war risk insurance is deemed the proper coverage. It’s a classic case of figuring out who picks up the bill when there’s a grey area between policies.

If you’re involved in a claim that could be tied to war risks, immediately check your war risk insurance. If the damage falls within the war risk policy, you might be out of luck with P&I. But if there’s any ambiguity, gather evidence that shows the damage is maritime-related but doesn’t clearly fall under war-related exclusions. In these cases, legal advice is crucial.

There are also numerous other exclusions that can trigger disputes, like pollution or environmental damage caused by an incident or certain types of liabilities covered by other specialty policies.

The point is: Always ensure that your claims are tied to the correct policy type. If there’s ambiguity or conflicting policies, consult a ParrisWhittaker maritime insurance attorney before proceeding.

Disputes Over Claims Related to Intentional Acts or Negligence

The line between an innocent mistake and deliberate misconduct can often feel blurry, and it’s this grey area that frequently leads to legal headaches.

Say you have a crew member, tired or distracted, improperly securing cargo. This causes damage during transit, leading to a significant claim.

The insurer may argue this wasn’t an accident but negligence that could have been avoided. So, how do you handle it?

Document everything. Ensure that crew members have undergone proper training and are regularly assessed for competency. If you can show that you took all reasonable steps to prevent negligence, the claim has a better chance of being viewed in your favor.

But don’t stop there—prove it with accident reports, training logs, and records of any safety drills or precautions taken before the incident.

Now, what about trickier situations, like if an owner knowingly disregards regulations or fails to maintain the vessel, causing a disaster (think of a shipwreck due to ignored maintenance)?

In this case, insurers are likely to argue that it falls under willful misconduct. To counteract this, keep meticulous maintenance logs and ensure your vessel is up to the standard set by industry regulations.

If you’re accused of willful misconduct, a strong defense is showing that the act was an oversight rather than a deliberate violation.

Another common dispute of this kind is if an accident occurs because a ship owner or operator didn’t enforce proper safety protocols, in which case insurers might claim that the event was preventable.

But again, if you can show that safety measures were in place and the failure was an isolated incident, you’ve got a stronger case.

Ultimately, it all boils down to reviewing your policies and procedures regularly. It’s essential to stay proactive and not wait for a mishap to update your safety protocols.

In case you do end up being accused of intentional misconduct, act quickly and have a lawyer experienced in maritime litigation on your side.

How to Avoid Disputes Over P & I Insurance Coverage Claims?

Prevention is better than cure.

Disputes arise when coverage terms are misunderstood or claims are poorly documented, so to minimize conflicts:

• Make sure you know exactly what your policy covers—don’t assume all liabilities are included.
• Keep detailed records—from crew contracts to maintenance logs.
• Get legal advice early—the sooner you involve a maritime lawyer, the better your chances of a successful claim.

P&I insurance coverage is a shipowner’s safety net. But like any safety net, you need to understand how it works—or risk falling straight through it.