Posted: October 20th, 2022

ESTABLISHIGN A NEW PROTECTION AND INDEMNITY (P&I) INSURANCE INSTITUTION IN TURKEY

ESTABLISHIGN A NEW PROTECTION AND
INDEMNITY (P&I) INSURANCE INSTITUTION
IN TURKEY

ABSTRACT
Title of Dissertation: Establishing a New Protection and Indemnity (P&I)
Insurance Institution in Turkey
Degree: MSC
Insurance draws attention as a sector that is understood much better in terms of
its importance especially in recent years globally and in Turkey as well and this
sector is developing each day. In direct proportion to the development of
insurance, the importance of marine insurance forming a special part of
insurance has also come to the surface.
Marine insurance, as a field has unique characteristics that can dominant from
general insurance principles from certain angles, and stands before us as a
dynamic field necessary to be reviewed and handled over and over again with
the developments in the world.
In Turkey, there have been various studies related to some of the fields of
marine insurance. In this dissertation, components of Protection and
Indemnity Insurance will be dealt with comprehensively. Furthermore,
problems and solution methods associated with club insurance practices are
addressed.
KEYWORDS: Protection and Indemnity, P&I insurance, National P&I Clubs,
IGPANDI, Liability, Third Party
(According to the English Law protection and indemnity insurance is called club insurance. This writer prefers to use
it as Club insurance in the first two chapters and will continue with P&I insurance.)
iv
TABLE OF CONTENTS
DECLARATION …………………………………………………………………………………………………………… i
ACKNOWLEDGEMENTS ……………………………………………………………………………………………… ii
ABSTRACT……………………………………………………………………………………………………………….. iii
TABLE OF CONTENTS………………………………………………………………………………………………….iv
LIST OF TABLES………………………………………………………………………………………………………..viii
LIST OF FIGURES………………………………………………………………………………………………………viii
LIST OF ABBREVIATIONS……………………………………………………………………………………………..ix
INTRODUCTION………………………………………………………………………………………………………… 1
CHAPTER 1……………………………………………………………………………………………………………….. 5
1 Historical Development of Marine Insurance and Marine Insurance General Overwiev .. 5
1.1 Historical Development of Marine Insurance ………………………………………………………. 5
1.1.1 Marine Insurance in Europe………………………………………………………………………… 5
1.1.2 Marine Insurance in England ………………………………………………………………………. 7
1.1.3 Marine Insurance in Turkey ………………………………………………………………………… 9
1.2 Marine Insurance General Overview ………………………………………………………………… 10
1.2.1 Definition………………………………………………………………………………………………… 10
1.2.2 Sources of Turkish Marine Insurance Law …………………………………………………… 10
1.2.3 Types of Marine Insurance………………………………………………………………………… 13
CHAPTER 2……………………………………………………………………………………………………………… 15
2 P&I Insurance ……………………………………………………………………………………………………. 15
2.1 General…………………………………………………………………………………………………………. 15
2.1.1 Definition……………………………………………………………………………………………….. 15
2.1.2 Historical Development……………………………………………………………………………. 16
2.2 Legal Quality of P&I Insurance ………………………………………………………………………… 18
2.2.1 Mutual Insurance ……………………………………………………………………………………. 18
2.2.2 Financial Liability Insurance ……………………………………………………………………… 19
2.2.4 Passive Insurance ……………………………………………………………………………………. 20
2.2.5 Voluntary Insurance ………………………………………………………………………………… 20
v
2.3 Structure of the P&I Club …………………………………………………………………………… 20
2.3.1 The P&I Insurer……………………………………………………………………………………….. 20
2.3.2 Members……………………………………………………………………………………………….. 24
2.4 P&I Insurance Coverage ………………………………………………………………………………….. 26
2.4.1 General………………………………………………………………………………………………….. 26
2.4.2 Guarantee Period ……………………………………………………………………………………. 26
2.4.3 Risks within the Coverage ………………………………………………………………………… 27
2.4.4 Risks Excluded From Coverage………………………………………………………………….. 39
2.5 Reinsurance…………………………………………………………………………………………………… 40
2.6 Debts of the Parties in Club Insurance………………………………………………………………. 42
2.6.1 Debts of the Member………………………………………………………………………………. 42
2.6.2 Liabilities of the Club……………………………………………………………………………….. 45
2.7 Fixed Premium Insurers ………………………………………………………………………………….. 46
CHAPTER 3……………………………………………………………………………………………………………… 48
3 National P&I Institution…………………………………………………………………………………………. 48
3.1 Introduction ………………………………………………………………………………………………….. 48
3.2 Proficiency of Countries for serving Cargo and Hull & Machinery insurance………….. 50
3.2.1 Historical engagement ……………………………………………………………………………… 50
3.2.2 Technical Engagement ……………………………………………………………………………… 50
3.3 Reaching National Statistics…………………………………………………………………………….. 51
3.3.1 Preparing Initial Plans for Setting Up ………………………………………………………….. 51
3.3.2 Mother Tongue Advantages………………………………………………………………………. 52
3.4 Coverage ………………………………………………………………………………………………………. 52
3.4.1 Relations in IGPANDI and the World Market……………………………………………….. 52
3.4.2 Fixed Premium versus Mutual …………………………………………………………………… 53
3.5 Reinsurance…………………………………………………………………………………………………… 55
3.6 Tax Exception ………………………………………………………………………………………………… 57
3.7 Insurance Sanctions ……………………………………………………………………………………….. 57
CHAPTER 4……………………………………………………………………………………………………………… 60
4 Examples of National P&I Institutions……………………………………………………………………… 60
4.1 Introduction ………………………………………………………………………………………………….. 60
vi
4.2 China P&I Club……………………………………………………………………………………………….. 60
4.2.1 Overall Status………………………………………………………………………………………….. 60
4.2.2 Coverage and Relations…………………………………………………………………………….. 61
4.2.3 Correspondent Network …………………………………………………………………………… 62
4.2.4 Claims Handling……………………………………………………………………………………….. 63
4.2.5 Advantages of Being a Local Institution……………………………………………………… 64
4.2.6 Management Team………………………………………………………………………………….. 64
4.2.7 Current Situation of CPI…………………………………………………………………………….. 65
4.3 Korea P&I Club ………………………………………………………………………………………………. 66
4.3.1 Overall Status………………………………………………………………………………………….. 66
4.3.2 Coverage and Relations…………………………………………………………………………….. 66
4.3.3 Correspondent Network …………………………………………………………………………… 67
4.3.4 Claims Handling……………………………………………………………………………………….. 68
4.3.5 Advantages of Being a Local Institution………………………………………………………. 69
4.3.6 Management Team………………………………………………………………………………….. 69
4.3.7 Current Situation of Korea P&I…………………………………………………………………… 69
4.4 Japan P&I Club……………………………………………………………………………………………….. 70
CHAPTER 5……………………………………………………………………………………………………………… 72
5 Club Insurance Applications in Turkey …………………………………………………………………….. 72
5.1 General…………………………………………………………………………………………………………. 72
5.2 Turkish Merchant Marine Fleet ……………………………………………………………………….. 74
5.2.1 The position of Turkish merchant fleet within the world fleet……………………….. 74
5.2.2 The position of the Turkish merchant fleet compared to the fleets of the
neighbouring countries…………………………………………………………………………………….. 75
5.3 Mutual and P&I Club Insurance Regulations in Turkey………………………………………… 77
5.4 Problems about Club Insurance in Turkey ………………………………………………………… 79
5.5 Inquiry Study …………………………………………………………………………………………………. 79
5.6 Case Study …………………………………………………………………………………………………….. 82
5.6.1. What is the logic of P&I Clubs? How do they operate? …………………………… 82
5.6.2. What advantages does a Turkish P&I Club bring to whom?…………………….. 83
vii
5.6.3. What are the challenges to face in establishing and operating a Turkish P&I
Club? 84
5.6.4. What to do, and what not to do?…………………………………………………………. 86
CONCLUSION………………………………………………………………………………………………………….. 88
References……………………………………………………………………………………………………………… 94
viii
LIST OF TABLES
Table 1 Turkish Ships under the National Flag and Foreign Flags………..75
Table 2 Turkish Merchant Fleet and the Neighboring Countries……….…76
LIST OF FIGURES
Figure 1 Reinsurance Chart of International Group………………………..41
ix
LIST OF ABBREVIATIONS
B.C. Before Christ
CLC International Convention on Civil Liability for Oil Pollution
Damage
CPI China Protection and Indemnity Club
D.W.T Dead Weight Tonnage
EU European Union
F.D&D Freight, Demurrage and Defense
GRT Gross Tonnage
HM Hull and Machinery Insurance
IDO Istanbul Sea Buses
IG International Group Clubs
IGPANDI International Group of Protection and Indemnity Clubs
ILU The Institute of London Underwriters
IOPC International Oil Pollution Compensation Convention Funds
IUA The International Underwriting Association of London
Korea P&I Korea Protection and Indemnity Club
MIA Marine Insurance Act 1906
P&I Protection and Indemnity
TTK Turkish Commercial Code
TUGS Turkish International Ship Registry
x
UK The United Kingdom of Britain
USA United States of America
1
INTRODUCTION
Since the ancient times of history, both commercial carriage and passenger
carriage have been realized mainly over seas. In other words, maritime
transportation of people and goods, has historically fulfilled the communication
function. Due to this characteristic, it is considered as being one of the fields that
has significantly contributed to the development of world civilization. Similarly,
the emergence of the insurance concept has also evolved in connection with
maritime adventures. For that reason, the first insurance policy known from
history was a marine insurance policy.
In the early part of the twentieth century, as the cargo carriage increased widely
together with the development of ship building techniques and development of
industrialization and mass production, the importance of marine insurance, which
had been already practiced since the prehistoric period increased in direct proportion.
Within the same period, petroleum started to be used as an energy source, which also
brought environmental damages around the middle of the century and added a new
dimension to marine liability insurances.
A marine adventure of a ship is a fact that is able to pose many risks. This may
be the reason why it is called a ‘marine adventure’ in English and ‘deniz sergüzeşti’
in Turkish, due to its highly risky structure.
It really depends on the existence of the insurance that maritime voyages,
which carry the characteristic of a full adventure, do not become adventures full of
fears for the ship owners. While risks of marine adventure can destroy the ship owner
commercially if the ship, which is a big asset on its own, is lost, damages to the
cargoes on the ship and the losses likely to emerge from the liabilities against third
parties can bring out bigger effects for the parties that are responsible for the
damages than the ship. On the one hand, that is what the financial dimension is and it
is another dimension to take into account that shipping can cause damages to all
stakeholders. There is no doubt that all living creatures will be affected from the
2
consequences of the damages caused by ships likely to result especially from
environmental disasters. As a result of all these, it can be concluded that the damages
caused by ship accidents are important in terms of states, people and even all living
creatures.
The above-mentioned features of the marine adventure make marine insurance
simply obligatory for the parties whose interests are under risk. In addition, marine
insurance is obligatory in terms of the contract parties in some international
agreements and state regulations. Especially, it is seen that Protection and Indemnity
(P&I) insurance is obligatory in various fields as it is liability insurance.
In Turkey, there is such an obligatory insurance application in obtaining the
CLC-92 certificate regarding the 1992 Convention about the International
Convention on Civil Liability for Oil Pollution Damage. Again, there are similar
regulations for having an obligatory insurance application; however, case and
contents of codes are different from the oil pollution responsibilities, in the relevant
legislations for ships imported from abroad and the Turkish Environmental Act.
It is seen that the maritime sector in Turkey is in a development process in
recent years. In previous years, some tax exemptions facilitating the transfer of ships
to flying Turkish flag and clearing the way for construction of many ships by
supporting the ship construction sector caused the Turkish merchant marine fleet to
develop and grow in tonnage. However, it cannot be said that these developments
have significant reflections on the field of marine insurance in Turkey.
Although there are some studies to ensure knowledge about Turkish marine
insurance, it can never be said that a limited number of previous studies is enough for
a sea country like Turkey. Especially, the lack of a study that examines the
insurance by putting primary marine insurance together and comparing it with each
other is really important.
3
In this dissertation, P&I insurance, which forms an important part of marine
insurance, will be addressed comprehensively and there will be information regarding
P&I insurance applications in Turkey. The Turkish Commercial Code will be
frequently referred to as it has the characteristic of being the exclusive regulation in
Turkey in terms of marine insurance. On the other hand, English law, the dominant
application will be reviewed. While reviewing English law, the Marine Insurance Act
will be the centre of attention, but club rules or P&I institution rules as well as institute
clauses and club insurance determining the contract rules in cargo and hull insurances
will also be analyzed. Expectations of the maritime sector actors related to the problems
and recommendations will be explained while giving information about P&I insurance
applications. The dissertation will be formed by five chapters.
In the first chapter, there will be information related to the historical
development of marine insurance and the Marine Insurance Act 1906. Under the
topic of Marine Insurance Act, a general overview, sources, factors, types of
marine insurance and characteristics of marine insurance contracts will be
explained.
The second chapter will be the chapter where P&I insurance will be analyzed.
After the historical background and legal features of club insurances are reviewed,
parties in the club insurance, club structure, scope of guarantee coverage,
International Group (IG) and debts of the parties towards each other will be
addressed.
The third chapter is about advocating the establishment of a national P&I
institution. This chapter puts forward the following premise in support of the
establishment of a national P&I institution; P&I insurance is one of the most
important services to national shipping, and therefore, such services should be
provided within the nation. It will establish data records about marine incidents, and
collect information from investigations, which is helpful for making risk analyzes.
On the other hand, most of the countries have enough capability to service hull and
4
machinery insurance. If both insurances were supported or served from the same
sources, claims would be handled proficiently and assessments of compensations
could be performed very quickly.
The fourth chapter will analyze the benefits and criticisms of the national P&I
applications. Being a participant of a club membership is creating some extra cost for
the shipowners, such as having to share some huge risks coming from the other
memberships’ property. Not only small risks have to be taken, but also the
responsibility for all the other members’ risks because of being part of a mutual
insurance system. In a national P&I model, if reinsurance arrangements are made on
a package basis of one national fleet, rate levels will be quite competitive. A national
insurer will find greater ease in obtaining a better spread of risks and more
reasonable terms and conditions of insurance, particularly in respect of premium and
terms of payments. On the minus side, for an ideal spread of risks a stable
management, the size and number of vessels are among the most important factors.
National portfolios are not large or diverse enough to provide a proper spread to
enable P&I to operate effectively. Eventually, the cost of localised P&I cover may go
up. There are some necessities for managing all claims, like access to an international
network of correspondents and lawyers. There is a good example for understanding
how they arrange to find success in Korea and other countries. The Korean P&I
institution is one unique example of how it is possible to manage a national P&I
insurance.
In the last chapter, club insurance applications in Turkey will be reviewed.
How club insurance is regulated in the country, where it is obligatory, problems
related to the insurance and how the sector sees the insurance will be discussed.
In the conclusion section, besides the general assessments related to the
dissertation, there will be solution suggestions and measures regarding the problems
identified in the dissertation.
5
CHAPTER 1
1 Historical Development of Marine Insurance and Marine Insurance General
Overwiev
1.1 Historical Development of Marine Insurance
1.1.1 Marine Insurance in Europe
When considering the historical development of insurance, the earliest
applications similar to insurance in the world are seen to have come up in Babel in
B.C. 2000. This primitive insurance in which capital owners undertook a risk of
their caravans getting robbed for a certain fee were legislated later by the king of
that era, Hammurabi. With the help of the act, it was made obligatory to share the
losses of the caravans which encountered attacks, between all caravan owners. This
is accepted to be a first in land based insurance.1
When considering the beginning of marine insurance, it is seen that2
the Rhodes
Rules3
are accepted to be the foundation of modern general average4
as applied in
Roman Law in the ninth century before Christ. Again, it is known that Phoenician
Maritime Law regulating general average and marine insurance in general emerged
in the seventh century before Christ. There is information that maritime loans had
begun to be applied in Roman Law in the third century before Christ.5 A maritime
loan contract was a contract where the payment of the debt and the interest
determining the loan amount of the borrower, called bottomry, depended on the
condition that the ship arrived safely to the port of destination.
The first applications similar to today’s insurance were marine insurance. The

1
Soyer, B.,( 2001), Warranties In Marine Insurance, London: Cavendish Publish Ltd., p. 8, 9
2
Zimmermann R.,( 1990), The Law of Obligations, Roman Foundations of the Civilian Tradition, , Oxford Pub., p.11
3
Lex Rhodia de iactu
4
Damage to the ship or load in maritime trade
5
Koschaker, P., (1977), Introductiıon to Roman Private Law, Ankara University Publications, p. 30
6
reason for this is seen to emerge from its natural characteristic, as the maritime trade
carries a high risk. A marine insurance contract aiming to cover possible damages in
return for a certain premium is encountered in the beginning of 13th century in Italy.6
At the beginning, insurance contracts were certified through notaries. However,
this method was normally not suitable for the commercial life and gave place to the
method of issuing a policy.
The word policy was used for the first time during that era as ”polizza” in
Italian meaning promising, entering into obligation.7
In parallel with this information,
researchers show that the first known insurance policy was issued for a ship named
”Santa Carla” sailing from Genoa, Italy to Mallorca on October 23, 1347.8
In 1370,
reinsurance of a marine insurance policy was issued for the first time for a ship going
from Genoa to Brugges.9 However, issuing and delivering of the marine insurance
policies commonly started as of the 15th century. In this sense, the first insurance
company was founded in Genoa in 1424. Marine insurance spread to Spain, France,
Portugal, the Netherlands, England and North Germany after that era.
Apart from these, various legislations were enacted, which set down determined
rules regarding marine insurance in Europe in the 14th and 15th centuries. These can
be listed as ;
Barcelona Charter (1434-5), Philippe De Bourgogne Charter (1458),
Genoa Charter (1498), Florence Charter (1522), Burgos Charter (1537), Seville
Charter (1553), Bilbao Charter (1560), Amsterdam Charter (1598), Flandres Charter
(1537).10
Within the same periods, malicious behaviors of the insured led the insurers to
come together and form associations. In this regard, the first insurance association

6
Soyer. Supra. P.9
7
Soyer. Supra. p.9
8
Bennet, H.,( 2006),The Law of Marine Insurance, second edition, Oxford University Press, p. 1.02
9
Soyer, B., Supra. P.9
10 Ibid. p. 9
7
fulfilling functions such as determining the conditions and premiums of the insurance
policies, rescuing ships which had grounded or in danger was founded in Florence in
1552.11
Marine Insurance had been conducted by private individuals until the 17th
century and as these private individuals from time to time, had difficulty in paying
the claims liabilities from time to time, insurance companies began to be founded
and spread as of the 17th century. In this context, lots of insurance companies have
been founded through charters of the kings in many countries in Europe and these
insurance companies were granted the privilege to enter into a contract.12
1.1.2 Marine Insurance in England
Insurance was brought to England by Lombardian (Italy) merchants banished by
the German King Freidrich II in the 14th century and then settled in London. It can be
said that the first insurance applications in England were carried out by Italians.13
The Lombards possessed the marine insurance market during the period they resided
in London. At the beginning of the 16th century, when they left London, it can be
said that marine insurance applications had already become established in London.
14
After the Lombards, the foundations of Lloyd’s market, one of the most
important exchange markets of the world’s insurance sector, were laid in the 17th
century by a person named Edward Lloyd through his coffeehouse located in Tower
Street in London gaining reputation in terms of marine insurance.
This coffeehouse was known as a place where ship owners, seafarers and
merchants engaged in overseas trade came together. Customers used to come to this
coffeehouse to execute their work related to insurance. This coffeehouse, where
insurance conditions and tenders were passing around, was the most suitable place in

11 Ibid p. 10
12 Ibid. p. 11
13 Ibid. P.12
14 Tetley, W., (2002), International Maritime and Admiralty Law, Canada: Covanswille,
8
London to underwrite an insurance for any kind of marine risk.
15
In 1691, Edward Lloyd transferred his coffeehouse to Lombarel Street and
thus extended his business. He was reaching lots of information through his
connections in different ports and sharing this information with the relevant persons
coming to the coffeehouse. He began to publish ‘Lloyd’s News’ three times a week in
1692 in order to announce this useful information to a broader audience. This
newspaper was later forbidden due to its political content. However, the tradition of
sharing information via newspaper continued with the newspaper named ‘Lloyd’s List
and Steamship Newspaper’ after Lloyd’s death.
16
Although, two insurance companies were granted the privilege to enter into an
insurance contract through the charter of the King of England in 1720, this case did
not affect the Lloyd’s market significantly. Insurers and brokers conducting insurance
activities at Lloyd’s coffeehouse established a community named Lloyd’s after the
death of Edward Lloyd (1769). After five years, this community was transferred to the
Royal Exchange and in 1871 it became an association by an act legislated by English
Parliament. In 1779, the first standard marine insurance policy, the “Ship & Goods
Form” was issued. This policy was in use until the Lloyds Marine Policy Form took its
place in 1982.
17
An insurance association known as the ‘Institute of London Underwriters’ was
founded by marine insurance companies in 1884. The primary role of the association
was to prepare insurance conditions applied by marine insurers. Another association
founded in England was the ‘Salvage Association’ which was established in 1856.
18
The International Underwriting Association of London (IUA) is the world’s largest
representative organisation for international and wholesale insurance and reinsurance
companies. The IUA was formed on 31 December 1998, through the merger of the

15 ICS, (2012), Marine Insurance, ICS Press, p.3
16 Ibid. P.4
17 Tetley, Supra.
18 ICS. Supra. p.11
9
Institute of London Underwriters (ILU) and the London International Insurance and
Reinsurance Market Association (LIRMA).
In England, in the beginning, certain provisions of Lex Mercatoria originating
from Roman Law applied by all European merchants related to marine insurance,
were applied. In 1601, the first written law was brought into force in England to
regulate marine insurances. Important provisions of Lex Mercatoria were included
in English Common Law. In 1906, the Marine Insurance Act was enacted to regulate
marine insurance completely and is still in place today.
19
Legislation related to Lloyd’s was made through an act in 1911. Today, Lloyd’s
is not an insurance company but actually a leading ‘insurance market’ holding insurers
and intermediates within its structure.
1.1.3 Marine Insurance in Turkey
The first time insurance emerged in Turkey was, much later compared to the
western Europe due social, economical, regional and political reasons. Especially in
the Ottoman period, they stayed out of insurance for many years and insurance
was only able to develop after the Imperial Edict of Reorganization in 1839.20
In 1870, after the big fire in Beyoğlu, three English insurance companies began
to work in Turkey. After this development, foreign insurance companies began to
establish their agencies in the country. However, there was not any legislation to
regulate the practices of these insurance companies for a long time. The first
domestic insurance company was established in 1925. This company is Anadolu
Anonim Türk Sigorta Şirketi (Anatolian Anonymous Turkish Insurance Company)
founded jointly by Türkiye Cumhuriyeti Ziraat Bank and Türkiye İş Bank.21 This was
followed by the establishment of Milli Reasürans T.A.Ş. the first domestic reinsurance
company in 1929.

19 Tetley, Supra. p.
20 Nomer C.,&Yunak H.,( 2000) Sigortacılığın Genel Prensipleri, İstanbul, p.5
21 Helmis J., (1963). Deniz Sigortaları, Ülkü Basımevi, İstanbul, p.6
10
In Turkey, surrounded by sea on three sides, although development of
maritime business is adopted as a government policy, unfortunately it has not been
able to reach the desired levels. Likewise, the insurance sector is a newly
developing sector having an increasing share in financial markets recently. As a
result of these components, it cannot be said that marine insurance is developing
as it is in the west. Still, Turkey provides most parts of marine insurance from
overseas insurance markets.
1.2 Marine Insurance General Overview
1.2.1 Definition
Insurance contracts are divided into two main areas, land and marine
insurances, depending on the risk. The insurances taken against the marine risks
will be examined in this dissertation. Marine insurance is defined as ”One who has
a benefit measurable with a price in salvage of the ship or the keep safe of cargo
from marine risks can have insurance on this benefit ” in article 1339 of the Turkish
Commercial Code. The English Marine Insurance Act 1906 (MIA 1906) on the
other hand, defined marine insurance as “A contract of marine insurance is a contract
whereby the insurer undertakes to indemnify the assured, in manner and to the extent
thereby agreed, against marine losses, that is to say, the losses incident to marine
adventure ”in section 1 entitled ‘description of marine insurance”. It is understood
from the definitions that two main factors are necessary to sign a marine insurance
contract. These factors are benefit and risk factors.22
1.2.2 Sources of Turkish Marine Insurance Law
The body of rules being in the forefront in terms of marine insurance law in
Turkey is the fourth chapter of V. Book of the Turkish Commercial Code (TTK).
The chapter entitled “Insurances Against Marine Risks” is covered from article 1339 to
1459 of the Turkish Commercial Code.

22 Kender, R., &Çetingil, E., (2003) Deniz Ticaret Hukuku, Arıkan Yay. İstanbul, p. 129
11
In the Insurance Act no. 5684, special provisions related to marine insurance
have not been included. The rules valid for land insurances are also valid for marine
insurance.
Another important source for the marine insurance is general conditions.
Conditions prepared by the Undersecreteriat of Treasury in order to be utilized in the
contract having the characteristics of ‘general transaction terms’ regulating the
subject of the insurance, insurance coverage, cases out of the coverage and rights and
obligations of the parties are named general conditions of the insurance. In the field
of marine insurance, there are two general conditions, namely ‘Cargo Transportation
Insurance General Conditions’ and ‘Ship Policy General Conditions’, which are still
in effect.
The last paragraph of article 1266 of the Commercial Code states; “Apart from
the issues written in the first paragraph, insurance policy contains insurance extended
conditions confirmed by the Ministry of Economics and Trade and printed in a way to
be read easily; on the other hand a provisional policy contains a reference to aforesaid
extended conditions. In case the conditions contained in the confirmation and edition
in that paragraph are not fulfilled, the ones that are to the policy owner’s disadvantage
among the extended contract conditions, act of law are applied.”
Again in article 1264 of the Turkish Commercial Code, it is stated that the
above mentioned provision cannot be amended as it would be disadvantageous for
the policy owner and in case the provision is amended, acts of law will be applied
ex officio.
The fact that the insurance contracts should be signed in compliance with the
general conditions is expressed more clearly in article 11 of the Insurance Act no. 5684,
effectuated on 14 June 2007 and entitled ‘Insurance Contracts’ as ”The main content of
the insurance contracts is regulated in accordance with the general conditions to be
applied by insurance companies and approved by the Undersecreteriat. However,
special conditions can be utilized according to the characteristics of the work in the
12
insurance contract. These issues are stated explicitly in a way not to lead to any mistake
in the insurance contract and under special conditions title”, and the contracts signed in
contradiction with this provision will be penalized by an administrative fine as stated
in clause (f) of article 34 of the same Act entitled ‘Administrative Penalty’, that is ”In
case the regulation of general conditions is violated in contradiction to the first
paragraph of article 11, then one thousand Turkish liras…”.
It is understood from this provision of the Act that signing an insurance
contract in contradiction with the general conditions will be penalized with an
administrative fine. However, it is also accepted in the doctrine that regulating the
insurance contract in contradiction to the general conditions has no effect on the
validity of the contract.23 In other words, contrary to any general condition
provision, it is possible to conclude an agreement and such contract is valid. Yet,
the limits of freedom of contracts in terms of insurance contract are determined by
mandatory general provisions or Turkish Commercial Code provisions, which are
mandatory in favor of the policy owner.
24
As explained above, both cargo insurance contracts and hull insurance
contracts are to be signed in accordance with the relevant general conditions.
However, it should be stated that the validity of the contract will not be affected by
violating the general conditions. The responsibilities of the insurer issuing a policy
contrary to the general conditions for adapting the Turkish Commercial Code and
Insurance Act are covered.
In today’s marine insurance market, as a country marketing insurance to many
countries in the world, marine insurance legislation of the UK has a wider field of
application. It is not different in Turkey that meets the majority of the needs for marine
insurance from England. In this sense, another source for the contract of cargo and hull
insurance application is the clauses prepared by IUA in compliance with the Marine

23 Kender, R.,( 2008), Türkiye’de Hususi Sigorta Hukuku, Arıkan, p.43
24 Ibid. P.43
13
Insurance Act 1906. These clauses are included in the insurance policy and constitute
the context of the insurance contract.25
1.2.3 Types of Marine Insurance
Insurance contracts are differentiated according to the criterion of meeting the
needs in the doctrine. In this analysis, insurance contracts are classified as loss
insurance and amount insurance. Loss insurance is mentioned when the risks that
insurance holders encounter are realized and the damage they suffer are covered
concretely. If loss insurance is related with disappearance of the possibility of
decreasing or increasing of the active asset, ‘active loss insurance’ is mentioned and if
it is related with emerging or increasing of the liabilities in assets, ‘passive loss
insurance’ is mentioned.26
It is possible to consider marine insurance within the scope of loss insurance.
Marine insurance is grouped in various ways in the doctrine. According to an opinion,
marine insurance is divided into three, namely hull insurance, freight insurance and
liability insurance.
27 In this group, they are divided as follows;
Hull insurance; Freight and Loss of Hire Insurance, Ship Construction
Insurance, Hull insurance and Yacht Insurance,
Cargo insurance; goods and value insurance,
Liability insurance; contractual liability insurance and third party liability
insurance.
28
In another classification made in terms of marine insurance, it is possible to
divide marine insurance into two groups, namely property insurance and public
liability insurance.

25 Kender, R., &Çetingil, E., Supra. p.130
26 Algantürk, D., (2006), Protection and Indemnity Insurance , 2nd edition, Arıkan, p.85
27 Turner, H., The Principles of Marine Insurance, 1986, 7th edition, Stone&Cox Limited, p.65
28 ICS, Supra, p.67
14
1.2.3.1 Property Insurance
Insurance is taken out against reduction in assets of the insured as a result of
damage to the insured goods of an insurable interest. The insurable interest owners
in these insurances are mostly property owners.
Insurance types considered among the property insurance within marine
insurance are:
1- Freight Insurance
2- Hull and Machinery Insurance
3- Profit Insurance
4- Cargo Insurance
1.2.3.2 Liability Insurance
This insurance type is defined in the MIA as ‘Any liability to a third party may
be incurred by the owner of, or other person interested in or responsible for,
insurable property, by reason of maritime perils.’. It protects against the possible
losses to both properties and health of the third parties that are damaged because of
the incident caused.29
Insurance types to be accepted as public liability insurance in marine
insurance can be listed as:
1- Collision Liability Insurance
2- Protection and Indemnity Insurance
3- Other Liability Insurances.
The subject of this study will be Protection and Indemnity Insurances known as
Club Insurance.

29 Algantürk D.,Supra. p. 23
15
CHAPTER 2
2 P&I Insurance
2.1 General
This marine liability insurance type, also known as “Protection and Indemnity
Insurance” or “Club Insurance” will be referred to as P&I Insurance in the following
parts of the study as commonly used in the discipline. P&I insurance was among liability
insurance in the part of Chapter 1 related to marine insurance.
Liability insurance is an insurance type that protects against financial losses of
the policy owner due to the damages to both property and health of the third parties
that are damaged because of the incident caused by the insured.30
When considering marine insurance, the first thing that comes to mind is
warranty, yet P&I insurance was addressed in the previous chapter as it is involved in
liability insurance and emerged later than other types of marine insurance. As a key
element for the study, P&I insurance will be discussed in this part.
2.1.1 Definition
As there is not any P&I insurance practice in Turkey yet, a definition can not be
found in its legislation. However, it is known that P&I insurance can be concluded as a
liability insurance as per Article 1339 of the Turkish Commercial Code, “Any person
who has an interest measurable by money in experiencing maritime risks of the ship
or cargo safely may insure this interest.”
On the other hand, there are not any definitions for P&I insurance in the MIA.
Indeed, when the wider scope of guarantee is considered, it can be clearly understood
how difficult it is to define P&I insurance.
In doctrine, Algantürk (2006) defines P&I insurance as; An exceptional

30 Algantürk, D.,Supra. p.23
16
insurance type that member ship owner insures expenses and liabilities against third
parties are not involved in hull insurance coverage in accordance with mutual
insurance principles. Further, Acar (2008) defines P&I insurance as, An insurance
related to liabilities against third parties due to being the owner of the ship or operating
the ship and some expenses necessary to be obliged to make.
2.1.2 Historical Development
It is seen that the first P&I clubs emerged in England when protection
indemnity clubs are viewed. After all, the most developed country in the world in this
field is England.
After the ”Bubble Act” dated 1720 known as cartel law in which authority to
conduct insurance activities was given to two companies. The insurance sector was not
somehow balanced, ship owners were bound to two companies having authority to
conclude insurance. The insurance was expensive for the ship owners to purchase and,
furthermore, not providing sufficient protection. This led ship owners to search for new
initiatives. As a result of these searches, hull clubs were established as a solution. This
structure, not seeking for any profits, was a good alternative for the cartels of this era.
The Cartel Law did not affect the Lloyds sector, in which private persons concluded
insurance.
When the Bubble Act in question was abolished in 1824, big companies
started to enter into the insurance sector and the competition with Lloyd’s insurers
heated up .
Economic challenges in England in the 19th century led people to emigrate to
the United States and Australia. This emigration, which increased significantly in the
last quarter of the 19th century was particularly realized by lots of people travelling
with poor vessels. Naturally, the number of ships and seafarers increased in that
period. Within the same period (1846), the Fatal Accidents Act also known as the
17
Lord Campbell Act came into force.31 With this act, compensation rights were
granted for physical damages, including the ones who were destitute for dead.
After this act came into force when passenger transportation was dense, many
passengers and crew experiencing physical damages put the shipowners in a tight
spot as they claimed. Another issue challenging ship owners was that all of the
collision damages were not paid by hull insurance coverage.32
The aforementioned necessities formed a basis to put a structure similar to hull
clubs, which had emerged before, into practice and the ”Ship owners’ Mutual
Protection Society”, the first protection P&I was establish in 1854 as a sequence
to the Britannia Club, which was a hull club before.33 This P&I was operating
under the name of “The Britannia Steamship Insurance Association”.34
Towards the end of the 19th century, increasing compensation claims regarding
cargo resulted in adding indemnity assurances among the protection P&I assurances
at this time. With this development, clubs started to turn to P&I clubs and began to
provide both protection and indemnity assurance for the ship owners. 35
As the Hague Rules were accepted in 1924, P&I took ‘defense coverage’ into
the scope of P&I insurance.36
Increasing liability risks and growing demands led P&I clubs to face capacity
problems. P&I clubs desiring to overcome these capacity problems through
reinsurance signed the first pool contract aiming to share indemnity payments over

31 Dover,V., (1975) A Handbook to Marine Insurance, London: Witherby, p.509
32 Hazelwood, J.S., (2010). P&I Clubs Law and Practice, 4
th edition, London: Lloyd’s List, p. 7
33 Ibid. P.6
34 Algantürk, D.,Supra. p.7
35 Arnould, T.,( 1981). Law of Marine Insurance and Average, 16th ed., London: Stevens&Sons,
p.128
36 Algantürk, D.,Supra. p.9
18
a certain amount between six clubs in 1899.37
P&I insurance in other countries developed very much later than it did in
England. There is currently not any P&I club in Turkey. The P&I insurance need in
Turkey is met from abroad, especially from England.
2.2 Legal Quality of P&I Insurance
2.2.1 Mutual Insurance
Mutual insurance is an insurance type in which the insured come together and
secure themselves against certain risks. According to Article 1263 of the Turkish
Commercial Code; “Mutual insurance is a contract under which the insurer
undertakes to give indemnity against a premium in case of occurrence of a danger
(risk) prejudicing a person’s benefit which may be measured by money or to pay
money or perform other actions due to life period of one or more persons or certain
events occurred in their life”. According to the first paragraph of Article 3 entitled
“Establishment of insurance companies and reinsurance companies” of Insurance Law
no. 5684; “Insurance companies and reinsurance companies which are going to operate
in Turkey have to be established as a joint stock or a cooperative. Insurance
companies and reinsurance companies shall not be engaged in other businesses
except insurance transactions and business which are directly related to insurance
operations.”
Ship owners come together to secure their interest within the scope of club
insurance in P&I insurance. This way, each one of the ship owners composing the
Club obtains a member title and deposits a certain amount of ‘premium’ to
indemnify potential damages. Premiums collected at the beginning of the policy year
are directed to investment. On the other hand, at the end of the policy year, all loss
cases are closed with the collected fund. If the money collected in the P&I fund is not

37 Anderson P., et al., (2010). Marine Insurance: Module Three- P&I Clubs and Mutual Insurance, Lloyds Maritime
Academy, p.19
19
enough for paying the losses, then the members are asked for additional premium. As
the P&I club does not seek profit, additional premium is only collected for such a
case. Again, according to the case, if the premium is not exhausted despite paying
for all losses, the P&I club can take it as reserves or distribute among the
members.38
There are also fixed premium insurers providing assurance given within the
scope of P&I insurance. However, primarily mutual P&I clubs will be addressed in
the study and fixed premium insurers will be explained briefly.
2.2.2 Financial Liability Insurance
A member ship owner secures decrease likely to occur in his/her passive assets
due to the claims given to third parties. For that reason, a P&I insurance is a type of a
financial liability insurance.
In order for the P&I club to make payment to the member, the member should
have made payment to the damaged first.
39 This rule is called the ”pay to be paid
rule”. As a result of this rule, the payment liability of the P&I club to the member is
equal to the money that has gone out of the pocket of the member.
2.2.3 Damage Insurance
When the risks of the insured are realized and the damage is indemnified
concretely, damage insurance is mentioned. If damage insurance is related to
diminishing of the asset or disappearance of increasing opportunity, ‘active damage
insurance’ is mentioned; if it is related to emerging or increasing of passive assets,
‘passive damage insurance’ is mentioned.40
In P&I insurance, P&I secures legal debts to emerge in the assets of the ship
owner. This damage to emerge in the assets occurs when a third party is damaged.

38 Acar, S., (2008), Protection and Indemnity, Vedat Kitap, p.235
39 Ibid. p.248
40Ibid.338-342
20
Expenses that the P&I club undertake through this insurance are the amount
the assets of the insured shipowners lose in value due to the damages of the third
party.
2.2.4 Passive Insurance
From the definition above, it is a passive insurance as it secures damages
related to the emergence of passive assets in P&I insurance, which is a damage
insurance or increasing of passive assets.
As a result, P&I insurance is passive insurance, like all passive insurances, the
‘insurance price’ is not determined, because the damage for the third parties is
unknown in advance and it is not possible to detect it beforehand. 41
2.2.5 Voluntary Insurance
It is determined whether an insurance is voluntary or obligatory according to
whether there is an obligation to conclude that insurance or not.
42
P&I insurance is an insurance in which the member is not obliged to sign a
contract as per a provision of law. In principle, it is an insurance that the member
concludes to protect his/her own assets and thus it is a voluntary insurance.
43
Besides, it can be necessary to have P&I insurance for the ship passing
through certain regions as per the legislation of that region. However, this case
does not eliminate the voluntary quality of the P&I insurance.
2.3 Structure of the P&I Club
2.3.1 The P&I Insurer
The structure where the ship owners come together with the purpose of
securing the part of maritime risks that is not indemnified with other marine

41 Hazelwood, J., supra. p.104
42 Algantürk, D., Supra. p.86
43 Ibid. p.86
21
insurances and which is based on mutual insurance understanding is called ‘P&I
club’.
As the P&I members are not company shareholders, they do not have rights or
roles to make capital commitment or participate in profits. The relationship among the
P&I members and the rights and obligations of the members are determined in Articles
of Association and the Rule Book. P&I members deposit a certain amount of
premium to the P&I club as per the Articles of Association and participates in the
damages that other members encounter.44
2.3.1.1 General Assembly
The superior body of a P&I club is the general assembly. All of the P&I
members are authorized to attend a general assembly meeting and each member has
a right to vote. A general assembly meets in two ways, as ordinary or an extraordinary
assembly as in company law. The general assembly is conducted once a year. For the
issues that must be handled immediately, general assembly can be called for an
extraordinary meeting.45
Powers of a general assembly include:
board of directors,
inspectors,
club or merging it with another P&I club,
the articles of association,

44 Hazelwood, J., Supra. p.64
45 Acar, S., 2008, Supra. p.48
22
wages the members of the board of directors.
46
2.3.1.2 Board of Directors
The Board of Directors is responsible for conducting the ordinary operations of
the P&I club and developing them in every respect. The Board of Directors is
authorized to incur every kind of expense when conducting the operations in
question.47
The number of members of the board directors cannot be below 10 and over
35.48
A person to be assigned to the board of directors should be younger than 70
years old.49

Members of the board of directors are elected for three years by the general
assembly and have the opportunity to be re-elected. The board of directors meets
regularly, yet they can meet for extraordinary sessions if necessary.
The principal tasks of the board of directors are;
in to amounts approval to be within lower
amounts left for the authority of board of directors,
member and the P&I club,
ount and collection time,
ing the processes regarding reinsurance,
club,
the administrative affairs within the P&I club,

46 Hazelwood, J.S.,Supra. P.10
47 UK P&I Rules, No:15 A
48 UK P&I Rules, No:13
49 UK P&I Rules, No:14 A
23
amendments in the P&I rules.50
2.3.1.3 Managers
Due to the need for professionalism in management of the clubs, managers have
been assigned to these roles from outside with the service procurement method.
Management needs of the P&I clubs are met by associations. A P&I club can appoint
a company, an association or administrative staff as P&I manager.
51
The primary duty of the managers is to take executive actions in line with the
policies of the board of directors. In this sense, the managers are responsible for:
the board of directors,
the board of directors and
investments.52
2.3.1.4 Correspondents
It is very important for the P&I clubs to be at the side of its members
anywhere required. In this sense, P&I clubs perform their activities for a fast and
efficient service all around the world through their correspondents. The task of the
correspondents is a kind of counseling. Correspondents are neither agents nor

50 Hazelwood, J.S., Supra. P.11
51 Ibid. p.21
52 Ibid. p.26
24
representatives of the member or the P&I club.
53
P&I correspondents make efforts to take necessary actions immediately when a
damage occurs or to shed light on the cause causing the damage.54 Apart from that,
another task of the correspondents is to inform the P&I club about the developments
in the country they live.
There are about 1000 correspondents working for P&I clubs all around the
world today.
55
2.3.2 Members
In the P&I insurance contract, the shipowners secure their liabilities and
expenses against third parties, which are unusual by the hull insurance policy of their
ships, in return for the premium paid is called member.56 Membership is a concept
related to mutual P&I clubs and in fixed premium P&I insurances the insured and
insurer are mentioned.
Although the member is defined to be the ship owner here, it is necessary to
understand the concept of ship owner broadly as insurable interest. The definition of
insurable interest is made in MIA as: Subject to the provisions of this Act, every
person has an insurable interest who is interested in a marine adventure. In particular
a person is interested in a marine adventure where he stands in any legal or equitable
relation to the adventure or to any insurable property at risk therein, in consequence of
which he may benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur
liability in respect thereof.

53 Ibid. p.15
54 Ibid. p.16
55 Acar, S.,supra. p.54
56 Algantürk, D.,Supra. p.34
25
In other words, it is accepted that ship owners in case of association, ship share
holder, charterer, ship operator or manager, mortgage holder are included in the
concept of having an insurable interest shipowner.57
Joint owners (association of ship owners);
In case there is more than one consecutive or joint owners of the ship in the
application for membership in the P&I clubs, this is called joint owners or
association of ship owners.
58 In this case, P&I membership is issued for names or
titles for more than one person. However, tasks and rights in terms of the P&I clubs
are considered to be one. Some of these persons will be explained below briefly.
Ship shareholder;
In English law, the ship is considered to comprise 64 shares. Ship owners have
property rights in proportion to their shares in the ship. For that reason, each ship
share holder has the right to insure the ship.59
Loss Payee;
According to Article 14/I of MIA: Where the subject-matter insured is
mortgaged, the mortgagor has an insurable interest in the full value thereof, and the
mortgagee has an insurable interest in respect of any sum due or to become due under
the mortgage.” In this sense, a loss payee holder can insure his/her ship as insurable
interest owner.60
Charterer;
In a bareboat/demise charter, as the management of the ship belongs to the
charterer, the charterer is not much different from the ship owner in terms of

57 Hazelwood S.J., Supra p. 65
58 UK P&I Rules, No:10
59 Alganturk, D., supra. P. 36
60 Hazelwood, J.S., supra p.74
26
financial liability. In parallel, a charterer is not different from the ship owner in
terms of insurable interest and entering the P&I club.
61
2.4 P&I Insurance Coverage
2.4.1 General
When P&I insurance is mentioned, a comprehensive coverage comes to mind.
P&I clubs are divided into classes providing insurance coverage with different
characteristics. The primary coverages provided by the P&Is are collected under the
classes of:
62

A member is not obliged to participate in all classes. The number of effective
classes determines the premium payable.
2.4.2 Guarantee Period
P&I insurance cover starts at noon on February 20 under normal
circumstances and ends at noon on February 20 the next year. The reason why the
insurance starts on February 20 is that the ice in the Baltic Sea is thawed on that day
and in the past ship owners, began to renew their commands on that date.63
Together with this rule, ships registered in a P&I club can be insured for more

61 Williams, R.,( 2008) Gard Guidance to the Statutes and Rules , Gard AS, p. 467
62 Ibid. p.70-77
63 Merkin, R., et al., (2008). ‘Marine Insurance’ in Southampton on Shipping Law, Informa, p. 341
27
than one insurance year. Again, it can also be agreed that the insurance should
continue for a certain period of time.64
Notifications regarding the continuation or the termination of the membership and
insurance conditions of the P&I club should be done before January 20. If there is a
notification related to increasing the premium by the P&I, this should be done before
December 20, otherwise the policy should be renewed at the rates of the previous
year.65
2.4.3 Risks within the Coverage
2.4.3.1 Protection and Indemnity Cover
2.4.3.1.1 Protection Cover
a) Liability to indemnify damages or compensation for personal
injury, illness or death of seamen or any other person, and hospital, medical or
funeral expenses incurred in relation to such injury, illness or death.
Losses and expenses emerging from injury, illness or death of the crew,
passengers or other persons due to the faulty shipping or management of the ship
registered under the P&I club, or negligence in, taking the necessary measures on the
ship are within the P&I insurance coverage.66 Within the scope of this insurance, the
persons mentioned as other persons are any persons related to the ship or cargo other
than the crew. These are dock workers, guides, substitute crew, surveyors, salvors at
sea, refugees and stowaways. Liability regarding these people is based on fault in
general. Treatment of the injured persons, funeral expenses and carriage charges are
within the scope of the insurance. Liability of the ship owner against the crew resulting
from the contract or law is not regulated within this article but within the article below.

64 UK P&I Rules, No: 16/B
65 UK P&I Rules, No: 17
66 UK P&I Rules, No:2/1,2,3,4, Skuld Rules No:7/1
28
b) Liability arising under certain indemnities and contracts due to injury, illness
or death of the crew, passengers or other persons.
In addition to the cover above, the kind of losses or expenses arising under law
or contract are within the scope of the guarantee.67
c) Repatriation expenses of crew of the registered ship,
Covering the repatriation expenses of the crew depends on realizing this with a
legal justification. In this sense, when there is no reason for the insurance to be involved,
as in the case of a number of crew whose labor contract is terminated is returned to
his/her country, these expenses should not be covered.68 However, it cannot be said
that all of these cases are excluded from the coverage. For example, repatriation
expenses of a seafarer who has left the ship to go to the funeral of a relative can be
covered.69
In particular, repatriation expenses incurred because of the following reasons
are within the scope of P&I insurance coverage:
the repatriation of the seafarer is necessary due to an injury, illness or
death,
the repatriation of the seafarer is necessary due to the fact that the ship is
involved in a serious accident.70
d) Substitute expenses of the crew of the registered ship,
When a new seafarer replaces another member of crew leaving the ship in cases
of injury, illness and death as mentioned above, these expenses are paid within the

67 UK P&I Rules. No: 2.14
68 Acar, s., Supra. p. 97
69 Skuld Rules, No: 7.1.6
70 Skuld rules, No:7, UK P&I Rules, No:2/4
29
scope of P&I insurance coverage.71
Particularly substitute expenses due to the
following reasons are within the P&I insurance coverage:
seafarer,
on is necessary for the seafarer repatriated to his/her country or
landed for a reason arising from the law.72
e) Diversion expenses.
As a rule, liability and expenses resulting or arising from deviation are
considered to be outside of P&I coverage. However, for treatment in cases of injury,
illness of ship men, losses or damages resulting from a deviation occurring due to
reasons such as presence of stowaways or refugees on the ship and salvage are
covered within the scope of P&I insurance. Again, port charges and other extra
expenses for landing of the persons aforementioned are included in the insurance.
73
f) Life salvage
If life salvage is realized within a salvage process, this is indeed related to hull
and cargo insurances and considered to be a moral duty. Thus, this activity is
accepted as not to be entitled to any indemnification. However, charges and
expenses, which are legally necessary to pay to the persons rescuing or trying to
rescue the ones on the ship are paid within the scope of P&I insurance. However, if
some of these expenses are covered by hull insurance or cargo insurance, P&I
insurance does not cover these.74

71 UK P&I Rules, No:2/4, Skuld Rules, No:7.1.10
72 UK P&I Rules, No:2/4, Skuld Rules, No:7.1.10
73 Skuld Rules, No: 11, UK P&I Rules, No:2/7
74 Williams, R., Supra. p. 192
30
g) Collision with other ships
Hull insurance secures the liability arising from the collision and excludes a
certain percentage of the liability in general. This proportion is 1/4 of the liability.
Here, this 1/4 proportion not secured by the hull insurance policy but by P&I
insurance.
75 Similarly, P&I will cover any liability which exceeds the amount
covered by the hull insurance.
P&I can provide other guarantees regarding the collision in addition to the 1/4
collision liability in return for extra premium.76
Collision losses with 1/4 assurance by the P&I insurance are as below:
other ship (collided),
other ship (collided),
other
ship,
Sue and labour expenses.
If two ships collide with each other, everybody will participate in the damage
with the proportion of their faults. If the damage occurred due to a force majeure
without anyone’s fault, in this case each one bears his/her own damage.
h) Loss or damage to property (fixed or floating objects)
Damages caused to ports, docks or similar fixed or floating objects by the ships
registered under the P&I club striking them and the damages to the cargo due to
much events are within the scope of the P&I insurance coverage.77
As the definition of a collision is two ships colliding with each other, ships

75 Ibid. p.219
76 Hazelwood, J.S., Supra. P. 127
77 UK P&I Rules, No:2/11
31
colliding into fixed or floating objects are not considered collisions.
i) Liability arising out of towage of or by an entered ship
Towage of the ship can be divided into two routine or not routine. Routine
towages are towing activities with the purpose of entering into a port, leaving the port
or making a movement in the port.78 On the contrary, non routine towages express
rather open sea towages.
79
Damages caused to others during the routine towage of the ship to the port and
within the member’s liability are also included in the P&I insurance coverage.
However, to benefit from the coverage, it is necessary that this damage should not
be a damage included in the hull policy.
j) Removal of wreck (Wreck Liabilities)
A wreck occurs when the ship becomes unserviceable and loses its ship feature
in one sense. In case the ship registered under the P&I club becomes a wreck, and per
the legislation is required to perform removal of wreck, it is within the P&I cover
provided that the operations are approved by the P&I club and the rights over the
wreck are not disclaimed and subjected to conveyance. The value of the wreck is
deducted from the indemnity to be paid by the P&I club. Expenses involved in the
wreck removal of coverage are as follows:
the ship,
ided
with in case of collision,

78 UK P&I, Rule No:2.13, Skuld Rule No:23
79 Standard, Guide to P&I
32
80
k) Quarantine expenses
For ships having epidemical dangers, measures like disinfection of the ship,
quarantine of the ship, or not being allowed to enter the port are applied. Among
these measures, the quarantine obligation causes additional expenses for the ship
owners. If the ship registered under the P&I does not know that it will be subjected
to a quarantine obligation at the destination port when it goes on a voyage,
quarantine expenses due to an epidemical disease are covered within the scope of
P&I insurance with the following conditions.81
losses of the quarantine and disinfection expenses encountered by the
member are within this coverage,
known or knowable that the ship will be quarantined at a port and yet
the ship goes to that port, the expenses are not indemnified.
82
2.4.3.1.2 Indemnity Cover
Risks involved in the indemnity cover are the liabilities arising due to the
income-generating function of the ship.
a) Cargo liabilities
The liability of the ship owner due to the deficiency of the cargo or subject of
the transportation and damages or losses are secured by the P&I insurance. Various
reasons can cause damage to the cargo.
83 In addition, in case some other conditions
occur, P&I insurance can be valid in terms of this liability. These conditions are

80 UK P&I Rules, No:2.15, Skuld Rules No:20, Britannia Rules No: 19
81 UK P&I Rules, No:2.16
82 Skuld Rules, No:21
83 UK P&I Rules, No:2.17
33
briefly mentioned below.
84 should be issued in accordance with the provisions of the 1924
Brussels Convention. However, with the consent of the P&I club, another bill of lading
can be used.
e over 2500 USD dollars is declared per piece for the cargo in the
bill of lading, the value exceeding this value is not indemnified.
a cargo, which is likely to be broken is carried.
ship without the consent of the P&I club, this damage is not covered by the P&I club. If
there is a deviation without the knowledge of the ship owner, the ship owner
should inform the P&I club about this situation immediately.
s of lading, damage to the cargo is not within
the scope of the P&I insurance.
cargo, which does not comply with the contract of carriage is
also out of the coverage.85
b) Liability arising from the damage to the cargo in case of collision (General
average contributions)
If the ship owner is responsible for the damages to the cargo on the other ship
as a result of a collision, this responsibility can be claimed from the P&I club.
86
The
liability here is 1/4 coverage in parallel with collision liability of the P&I.

84 Carriage of Cargo Contract
85 UK P&I Rules, No:2.17
86 UK P&I Rules, No:2/19, Skuld Rules, No: 17
34
c) General average contribution or salvage expenses of the cargo (General
average contributions)
If the general average share or salvage expenses of the cargo are not met by the
responsible cargo or another party due to the carriers breach of the contract, these
expenses are indemnified by the P&I insurance. The conditions related to bills of
lading mentioned in the indemnity of the damage regarding carrying of the cargo
should also exist here.87
d) Ship’s proportion of general average
P&I secures the ship’s proportion of general average and salvage under the
following conditions:
&I insurance provides cover for the part exceeding the part secured by
the hull insurance,
The reason for the coverage being left out of the hull policy should be that
the value calculated for the participation in ship’s proportion of general average or
salvage expenses should exceed the value written in the hull policy.
e) Pollution (Guarantee) Risks
Oil pollution experienced on March 18, 1967 in the Torrey Canyon disaster in
the English and French seas can be seen as the reason for the emergence of
environment liability law. This big pollution incident showed that the polluted
environment can reach unrecoverable dimensions.
After the Torrey Canyon disaster world states sought to constitute an
indemnity regime against the damages to the environment. Within this scope, the

87 UK P&I Rules, No:2
35
1969 Civil Liability Convention has included ‘strict liability’ and ‘compulsory
insurance’ concepts into maritime law. With this convention entering into force in
1975, the owner of the ship causing the pollution was held strictly responsible and was
allowed to limit his/her liability under certain circumstances for the damages arising
from pollution environment of the oil.88 On the one hand, strict liability of the ship
owner was issued, with the same convention, and indemnity of the ship owner was
guaranteed within the pollution liability by imposing an obligation to conclude
insurance.
The CLC 1969 Convention was a start in terms of regulations about the
environmental liability of ships and after that date, various conventions and
regulations emerged regarding the same issue. These regulations, also known as IMO
Conventions, are listed below:
International Oil Pollution Compensation Funds regarding Establishment of
a Fund for Compensation of Oil Pollution Damages dated 1971 (IOPC Fund)
With this convention, an international fund was established to cover
environmental pollution damages. The oil industry was obliged to make
contribution to this fund.
International Convention for the Prevention of Pollution from Ships
(MARPOL 73/78)
1992 Civil Liability Convention Protocol (CLC 92) and 1992 Fund
Convention Protocol (Fund 92)
CLC 1992 was accepted to correct the deficiencies in the Fund Convention
dated 1971.

88 Anderson, P.., Supra. P. 133
36
All of these regulations are important for the P&I insurance, because the
liability regarding the damages arising from the pollution is on the ship owner, and
shipowner obliged to be insured. Insurance regarding the pollution in question is
provided by the P& clubs.
The scope of the coverage provided by the clubs regarding oil pollution is
defined in the club rules as: ”The liabilities, losses, damages, costs and expenses that
the member will encounter as a result of the discharge or escape from an entered ship of
oil or any other substance, or the threat of such discharge or escape are within the club
insurance coverage.” 89
When the club rules are examined in details, it is seen that the scope of the
coverage is as below:
es arising from the pollution, which occurred during the
discharge of oil or other harmful substance from an entered ship,
minimizing pollution or any resulting loss or damage together with any liability for
loss of or damage to property caused by measures so taken,
the member or the club is involved,
sult of compliance with any order or
direction given by any government or authority, for the purpose of preventing or
reducing pollution or the risk of pollution,
argo on the ship or to the property of the member due to
the discharge or escape of oil from the ship, (These damages are within the coverage

89 UK Club Rule No:2/12, Britannia Rules No: 19, Skuld Rules No:19
37
as considered to be for the third parties. So, the pollution is not only considered to
occur outside of the ship.)
m the other ship
because of a collision.
90
f) Fines
Fines imposed by competent courts or administrative authorities for the
members are within the scope of club insurance coverage. In order for a fine to be
considered within the club insurance coverage, the fine should originate from the
member or crew of the entered ship or third parties for whom the member is
responsible in terms of activities and behaviors as per law or contract terms.
Fines within the scope of club coverage are listed as below:
1- Fines related to the notification or recording of the load on the ship,
2- Customs fines (fines regarding smuggling),
3- Immigrant fines,
4- Contamination fines,
The club insurance coverage is valid in terms of fines provided that:
The fine should be declared clearly in the club rules,
The member should make necessary efforts not to incur any fines,
ed by the crew are within club insurance coverage from the
member by the imposing authority. Fines that are obliged to be paid by the crew not
requiring the liability on the member are not within the scope. 91

90 Williams, R., Supra p. 233
91 UK Club Rules No:2.22, Skuld Rules No: 20, Gard Rule No:49, Shipowners Rules No: 2.19
38
g) Confiscation costs
Losses and expenses following confiscation of the ship by any legally
empowered court or authority can be paid within the discretional power of the club.92
h) Sue and Labour and Legal costs
After a risk involved in club insurance coverage occurs, legal costs of the
member are also within the scope of the guarantee. However, the costs should be
acceptable and preventive and reduce the total costs of the club.93
i) Omnibus Guarantee
It is called omnibus rule when the club makes payment for a claim by using its
discretional power, although it is not obliged to pay. This is an accommodation
payment. The club already has a very comprehensive discretional power in terms of
various damages. It can be possible to pay a risk, which remains outside of the
coverage.
94
2.4.3.2 Other Guarantees
a) Freight, Demurrage, and Defence (F.D.&D.)
This guarantee secures legal interests. When the member encounters a legal
problem, the club steps in and pays the legal costs. Almost every club has rules
regarding this guarantee.
However, there are clubs named ‘defence clubs’ established to exclusively
provide this cover.
The freight and/or demurrage in themselves are not covered here. F.D.&D.

92 UK Club Rules No:2.22
93 UK Club Rules No:2.25
94 UK Club Rules No:2.22, Skuld Rules No: 20
39
guarantee covers defence costs related to freight and demurrage. Thus, this
guarantee covers all legal costs.
b) Strike
Strike insurance covers the losses arising from the strikes of crew. Retention
of the ship by the crew and operational expenditures during this period are secured.
Club demands a separate premium for this guarantee.
c) War
War insurance left out of the scope of coverage in almost all insurance types are
within the club insurance guarantee. Clubs have special rules for war risks.
Furthermore, there are clubs established only to provide this cover.
2.4.4 Risks Excluded From Coverage
a) Insurable interests within hull insurance coverage are outside of the coverage. In
other words, losses or damages that an entered ship or its equipment will encounter are
not within the coverage, if they are covered under the hull policy. However, the club
rules can otherwise be stated.
b) Liabilities arising from carrying nuclear, explosive substances on the ship
registered in the club are out of coverage.
c) Using the ship registered in the club for illegitimate operations are out of the
scope of the club coverage.
d) In case of double insurance, only one indemnity payment is made. For that
reason, in the exclusions title under club rules, double insurance is mentioned.
e) Costs regarding the repair or cleaning of the ship are out of the coverage.95

95 Britannia Rules No:20, UK Club Rules No: 5, Skuld Rules No:30, North of England Rules No: 27, Standard Rules
No:19
40
2.5 Reinsurance
Reinsurance provider of the club insurance is an International Group which is
an association consisting of the clubs providing club insurance assurance
(International Group of P&I Clubs). The International Group has 13 members in total
with eight from England, two from Norway, one from the United States, one from
Sweden and one from Japan.
With the International Group, the relationship between the clubs are regulated
through a contract. The International Group has a secretariat established in London.
The basic purpose is to share the risk that each of the clubs poses among the group
members. Conditions related to this are regulated under the contract named pool
contract. For a club to be a candidate member of a member of the International
Group, it has to be established since five years at least and its financial status should
be stable and creditable in its own country.96
The International Group provides reinsurance for their members within the
conditions below:
According to that
Risks between 8 million dollars and 30 million dollars are shared between
themselves in certain proportions as per ‘pool’ contract.
The part between 30 million and 50 million dollars are within the coverage scope
with reinsurance system called as Hydra.
International Group provides assurance with ‘excess of loss reinsurance’ from
Lloyd’s sector for the losses between 30 million dollars and 2,050 billion dollars.

96 Hazelwood, J.S., Supra. P. 368
41
Losses above 2,050 billion dollars are treated as per a contract attachment of cosharing agreement named overspill agreement. These claims are collected from a
fund named the Catastrophic Reserve Fund.97
Figure 1: Reinsurance Chart of International Group98
There are three functions that the International Group fulfils.
The primary and the most important one is reinsurance function. With club
insurance, risks above 8 million dollars are within the scope of the coverage. Not
only the clubs involved in the International Group but all clubs can benefit from the
reinsurance coverage (time to time including the clubs with fixed premium).
The second function is ‘representation’ function. This function is fulfilled in
order to protect the interests of the clubs. Particularly, the International Group
represents the clubs in international organizations and operates as a pressure group
during preparation of a legislation.

97 https://monkessays.com/write-my-essay/igpandi.org/Group+Agreements/The+Pooling+Agreement, Last Visit: 15.08.2012
98 https://monkessays.com/write-my-essay/igpandi.org/Group+Agreements/Pool+reinsurance+programme, Last Visit: 15.08.2012
42
The third function is to provide information exchange between the clubs.
Subcommittees working within the International Group inform the clubs who in
turn inform the members. This information exchange can be related to general
issues like oil pollution, physical damages and can also be related to instant
information like maritime security.99
2.6 Debts of the Parties in Club Insurance
2.6.1 Debts of the Member
2.6.1.1 Premium Payment Debt
In club insurance, the basic debt of the member is to pay premium. The price
called premium or fee can differentiate in terms of fixed premium and mutual clubs. In
mutual clubs, premium, as stated before, is the amount arising as a result of sharing the
loss claim between the members paid by the club for the previous year. Here the
fundamental principle of equality of incomes and expenditures of the club works.
Premium is fixed in the clubs with fixed premiums and as will be stated later,
additional contribution, release contribution or extraordinary contribution fees are
not collected from the members as in mutual clubs. As a result of this, a certain
insurance amount is determined for each coverage type in these clubs and indemnity
payment is made as limited to this amount.
In mutual clubs, when incomes of the club are discussed, it is referred to
contributions and investment incomes. Indemnities and operational expenditures
compose the expenditures of the club. Premium can be collected with different names
at different times. These premiums will be addressed below briefly.
Advance Calls: The premium is paid in cash once the member enters the club.
This premium is determined according to the tonnages of the ship registered under
the club. It is a premium characterized with basic contribution given for both

99 https://monkessays.com/write-my-essay/igpandi.org/About, Last Visit : 15.08.2012
43
operational expenditures and damages.
Supplementary Calls: The members can be asked for additional premium for
the expenses of the club after the policy year ends. Particularly, it can lead to
additional premium demand whose amount of damage is realized over the
expectations and claim payments following the judgment decrees.
Release Calls: As per the club rules, the member leaving the club makes
release payment with the purpose of being exempted from additional premium in
the next policy year.100
Catastrophic Premium (Overspill Calls) : During the policy year, in case the
members demand indemnity claims with very large amounts, clubs demand
catastrophic premium from the members. In order to demand this premium,
indemnity claims should exceed the source of catastrophic reserve fund created
within the International Group.101
2.6.1.2 Obligation of Notification
The member should always share the information related to the quality of the
risk as per ‘utmost good faith’ rule having an important place in English law which is
also defined in MIA. In this sense, this obligation can emerge for the member before
the contract, during the contract and after the contract. The first point where this
obligation emerged first is the application form constituting a basis for the contract
between the member and club in club insurance. A Member is responsible for
declaring the issues determining the risks in membership application form. A Member
fulfills notification liability before signing the contract in one sense by filling in this
application form. A Member should also inform the changes declared in the
application form having important influences.
If a member insured the same risk with another club, he/she should inform the

100 Skuld Rules No:4/5, North of England Rules No: 16
101 Skuld Rules No:4/4, North of England Rules No: 13
44
club about this double insurance. A Member should also inform the club about the
address change. Otherwise, the notifications made to previous address is considered to
be valid. In addition to these, if any risks involved in the coverage are realized, this
should be reported to the club by the member immediately.
In case the member doesn’t fulfill his/her obligation of notification on time and
properly, it is possible to encounter consequences like not paying or partly paying the
indemnities.102
Although it is stated above that it is necessary to share the information
regarding the quality of risks with the club, due to the widely and flexible application
of utmost good faith rule, it is necessary to consider the liability in question as every
kind of information to take into consideration in the premium account of the member
and entered ship. Regarding this issue MIA brought an arrangement, namely “Every
circumstance is material which would influence the judgment of a prudent insurer in
fixing the premium, or determining whether he will take the risk.”
Circumstances not required to be reported unless wanted by the insurer are
listed in the same article of MIA. These circumstances are:
The insurer is presumed to know matters of common notoriety or knowledge, and
matters which an insurer in the ordinary course of his business, as such, ought to
know,

102 UK Club Rules No: 5/N
45
express or implied warranty.
2.6.1.3 Obligation to Take Protective Measure
One of the duties of the member to the club, is taking necessary measures to
prevent incurring of the damage and growing of the damage after it incurred. This
issue is defined in Article 78/4 of MIA as; “It is the duly of the assured and his agents,
in all cases, to take such measures as may be reasonable for the purpose of averting or
minimizing a loss.” Due to these measures taken and efforts to diminish the damages,
expenses are secured by sue and labour clause. Measures like surveying the ship and
performing necessary maintenance accurately are among the measures required to be
taken.
In the club rules, it should be stated that the member is obliged to have his/her
ship surveyed in a determined period of time by the surveyor assigned by the club.103
It is necessary to fulfill repairment requirements detected during these surveys.104
2.6.1.4 Pay To Be Paid Rule
The damage occurred for the third party should be paid by the member besides
the debts and obligations mentioned above so that the club can make payment to the
member.105
This rule named as “Pay to be paid” is among the liabilities of the member.
2.6.2 Liabilities of the Club
As the member has various liabilities against the club, club has also some
liabilities against the member. Primary liability is to provide insurance coverage
against the liability of the member to pay premium.

103 North of England Rules No: 30, UK Club Rules No: 5/Q
104 North of England Rules No: 29/5, UK Club Rules No: 5/K
105 Hazelwood, J.S., Supra. P. 335
46
Within the scope of the insurance coverage provided by the club, first of all
fulfilling the demands of the member should be mentioned. Within this frame,
activities such as performing necessary determinations, suing necessary law suits and
taking necessary steps are met by the club.
Another liability of the club is indemnity payment. In order for the club to make
indemnity payment, a risk within the coverage of the club insurance should be incurred.
In order for the member to have right for indemnity, he/she should fulfill his/her
liabilities. Another condition for the club to make indemnity payment is to be behaved
in accordance with the payment rule first.
Besides these liabilities of the club, there is a liability to provide financial
guarantee. This liability particularly emerges as to procure club guarantees and
bank guarantees rapidly to ensure that the ship with seizure or under seizure danger
starts to move as soon as possible.106 In case of detention of the ship at any port, this
liability should be fulfilled immediately.
2.7 Fixed Premium Insurers
An important recent development has been the proliferation of fixed premium
P & I insurers. The common perception is that such underwriters, although the
mutual P & I clubs usually have a good product for large operators, they can provide
coverage and service that is tailored to the requirements of a small owner operating
in a less complex environment. In other words, not everyone needs a five star
product, including unlimited liability, a strong legal support, detailed representation
worldwide and practical Helpance claims. Some owners will be very happy with a
more limited coverage and less sophisticated service demands. These owners are
almost invariably small craft operators in a niche market that does not stray far from
home and may not be able to share additional future calls. Fixed premiums insurers
believe that 10-15% of the total activity is to have a ship of their natural market and

106 Algantürk D.,Supra. p. 116
47
the owners should not be entered with a mutual club. As a consequence, several
alternatives have emerged, therefore, some of which are now well established.107
Some insurers are reinsured fixed premiums to Lloyd. Underwriters favor
small vessels engaged in local trade and prefer to stay away from transoceanic
voyages. These cover small tankers where the limits of the CLC
108 within their
coverage limit and they will issue blue cards (confirmation of P & I cover to CLC
authorities).109
The distinction between protection and indemnity risks today is largely
theoretical but originally covered passive protection to personnel and damage to
property, while compensation liability under the cargo owners under a contract of
carriage. Today, most owners still get their coverage of liability insurance from P & I
clubs although it is possible to achieve with other underwriters, usually for a fixed
premium and the limits of generally low coverage than those offered by the clubs.110
Two characteristics that distinguish the P & I clubs from other insurers are that they
are controlled and governed by their member shipowners, who provide the members
with a degree of flexibility, and they are run on a nonprofit or mutual, basis making
them economically attractive.111

107Drewry Briefing Report., 1998, Marine Insurance Issues, Practice and Costs, Drewry Shipping Consultants Ltd.,
p. 42
108 Civil Liability Convention 1992, shipowners have strict liability because of effecting oil spill for
carring perminant spill hidrocarboans or another words; crude oil.
109 Drewry Brief Report, Supra, p. 42
110 Merkin, R., et al., Supra, P. 337
111 Ibid. P. 337
48
CHAPTER 3
3 National P&I Institution
3.1 Introduction
The main objective of having a national P&I institution is to ensure that
domestic shipowners/operators will be able to meet their financial responsibility for
any legal liability arising out of any maritime related incidents.
A second objective is to ensure that there is adequate marine insurance
coverage, secure legal liabilities and expenses for damage, or compensation of risks
as they are not covered under existing local regulations.
This explains the interest of some of the local authorities why they see a need
to set up their own P&I institutions. Generally, domestic legal rules are the starting
point of their focal demand; cabotage trade is second in the queue because some
international conventions have mandatory international insurance covers, which are
really hard to find for shipowners due to insurance providers’ higher risk assessment
processes. Typically, the age of cabotage vessels is high, and they are sailing in high
collision risk areas like short sea shipping. Further, they have financially low trade
capability; therefore, they have many sub-standard features for risk assessment
criteria’ for the International Group of P&I members. However, local legislations are
ordering shipowners to have protection and indemnity insurance certificates. In other
words, it is not easy for the cabotage ships and weak operators to find a relevant P&I
insurance from five star clubs. Those ships have some legal liabilities, which come
from the national legislation but they are totally out of the IGPANDI risk assessment
scope.
There are many aspects that would need to be looked at to establish a purely
domestic P&I institution, not least the competition (law) aspect, if such a P&I
provider would have to abide by EU and domestic competition law. Capital
requirements would also need to be closely considered, particularly the future
49
Solvency II112 requirements if such a domestic insurer has to abide by those rules too.
Without a reputation to speak of, since it would be a start up facility, it would have to
obtain the confidence of a sizable percentage of the national fleet as well, if it were to
insure only nationally registered vessels. Since most of the oceangoing nationally
registered vessels are insured through the IG Clubs, and with some non-IG providers,
it would be necessary to question whether such owners in adequate numbers would
be prepared to leave the relative comfort of their existing P&I provider (if the word
“comfort” can be used) to join a start up facility that would not only have no
experience in the P&I world, but would be competing against the existing P&I
market, which can be quite cut throat!113
There are many critical questions before setting up a national P&I institution.
The following key questions have to be well answered before taking financial
decision to set up a national P&I institution. What sort of levels of cover would be
provided? For what risks? At what price? With what level of Club retention and what
level of reinsurance? Where would that reinsurance be placed? With what level of
security/rating requirements? How would the membership be serviced? Where
would the Club be registered? What would the Club’s policy be on its investments?
How would the premium calls be structured? Would it be a mutual or a fixed
premium insurer?
In this dissertation, the author will try to find answers to all the questions
especially in conclusion.

112 The Solvency II Directive 2009/138/EC is an EU Directive that codifies and harmonises the EU insurance
regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk
of insolvency.
113 İnterview with secretary of IGPANDI David BAKER date on 25.06.2012
50
3.2 Proficiency of Countries for serving Cargo and Hull & Machinery
insurance
3.2.1 Historical engagement
Most countries have enough capability to service hull and machinery (HM) and
cargo insurance. This experience always gives an advantage to them to follow to
resolve new challenges. As already mentioned in the first chapter, the mentality of
mutuality appeared in the area of H&M Clubs. National H&M insurance providers
could try to join together to share control of claims. This practice will support
development of a mutuality culture in the local market. Countries which plan to set
up a national P&I institution could start by this step and they might find success at
the end.
Historically, the concept of mutuality existed in the HM market. This reality
shows that it is the right beginning area for national insurers to train themselves for
the next step. Therefore, the next step will be establishing a national P&I Club.
3.2.2 Technical Engagement
When the provider of the HM insurance and P&I cover are coming from the
same origin as the shipowner, there will not be any conflict to resolve in finding a
responsible party for claims, or disputes regarding which insurer should compensate
a loss. A shipowner might prefer to get the insurance certificates from the same
provider who issued HM and P&I at the same time. In this case, the shipowner’s
intention is to try to protect himself from double insurance risk possibilities. The
source of this problem comes from the covering of the same risks with two different
insurance policies; all possible future claims negotiations can be resolved by having
a different insurance from same provider. This method will be helpful to easily find
the responsible party. All possible claims will be carried out with one provider, and
they will be compensated on behalf of the shipowner; in fact all claims will be
handled with safely compensated.
51
In other words, if both insurers are supporting or serving from the same
sources, claims are handled with very simple settlements, and assessments of
compensations will need only short time periods. This is an absolute comfort for the
shipowner to have the perfect insurance service. Additionally, there might be an
operational convenience for the insurer in the claims handling process.
3.3 Reaching National Statistics
P&I insurance is one of the most important services to national shipping and
therefore such services should be provided within the nation. It will be easy to
establish data records about marine incidents, and collecting information for casualty
investigation is carried out in a safe manner, and these data are helpful for making
risk analyzes.
3.3.1 Preparing Initial Plans for Setting Up
Preparing the initial plan is important, and it is easy to reach the national
statistics to create national policies by the recognized authorities who wish to be
pioneering in order to form an association of owners of small and medium sized
ships, which are operating on the coast. For example, this P&I institution, which will
provide insurance cover to these ships by collecting a fixed premium, will go for 100
per cent reinsurance. The structure of the institution will be worked out after taking
into account taxation and regulatory issues. All the outputs can be found from
national statistics to choose the structure of the P&I, which could be mutual or a
fixed premium.
There might be some alternative reasons for choosing the structure of the new
P&I facility, like in the case of small and medium sized vessels, claims will be lower
as compared to large ocean going vessels. So the recognized participants have
proposed to start with coastal ships in the initial plan.
52
3.3.2 Mother Tongue Advantages
Not only to analyze the statistics, but also during the operations,
communications between insurance provider and member or customer of the insurer
dialogs, using the mother tongue has an absolute advantage to find solutions for the
all possible situations like analyzing the data or asset to claims.
Using the geographical advantage, a new provider needs to register in its own
country. In the first decades, it will serve local and regional potentials. Because of
this, tax advantages are secondary unlike for most IGPANDI members.114
3.4 Coverage
Like the majority of Clubs, national P&I institutions cover their members or
customers for similar third party liabilities in respect of loss of and damage to cargo,
injury, illness or loss of life of crew or passengers, pollution damage, collision
liability, fines, and wreck removals.
3.4.1 Relations in IGPANDI and the World Market
As in market conditions, a national P&I institution should have a good
cooperation with the international P&I society. Although it may still not be a
member of IG Clubs, the coverage provided by itself is, in principle, identical to that
provided by a IG Club in respect of both scope of cover and possible service limits.
In other words, nothing has to be served different from IG Clubs by national P&I
institution. It might maintain very close links with some major clubs in the pool
through a co-insurance arrangement.
Initially, national clubs might need some support from one of the IGPANDI
members. This support is like an umbrella for sharing its market experience and

114 Some of the IGPANDI members has shifted their head Office to offshore countries instead of their
natural origins, because of benefit from tax advantages.
53
management knowledge. Finding a helping hand in the setting up period is getting a
unique advantage for the establishment of a new national P&I institution.
3.4.2 Fixed Premium versus Mutual
Both systems have their own advantages, and they will need to be compared
very clearly before starting the new institution.
A mutual insurance company, which is called a club, provides cooperative selfinsurance to its members. The membership is composed of a common interest group
wishing to pool their risks as well as for “at cost” insurance coverage. The club as a
“non-profit” mutual is therefore owned by the insured. As it has no shares to be
issued, it does not need to make profits or give dividends.115
Moreover, at fixed premium insurers, they generally tailor their policy and
costs according to each shipowner’s individual situation, and consensual agreed
premium for the policy year is fixed and final, so shipowner will never be asked to
pay any supplementary calls.116
IG clubs just expect to provide having high standard ships and operators. It is
quite normal for a ship to be inspected with a condition survey, as it has almost
certainly happened before being a new member. If ships do not reach the
international safety or security standards, then they will not be accepted until / unless
the deficiencies are corrected. There may also be a review of the office of the ship’s
operator and the management team. Again, if the club is not convinced that the
acceptable standard is in operation, it is likely that coverage will be denied.117 Those
mentioned ships, which are seen as sub-standard by the IG, will need to carry
insurance certificates on board for continuing their commercial trade. In this case,

115 Find more: https://monkessays.com/write-my-essay/epandi.com/ukpandi/infopool.nsf/html/About_Home last visit: 18.07.2012
116 Find more: https://monkessays.com/write-my-essay/raetsmarine.com/products/ShipownersLiabilityPandI/fixed-versus-mutual last visit:
18.07.2012
117 Anderson, P., (2011). Postgraduate Diploma in Marine Insurance 2010/2011 Module Three – P&I
Clubs and Mutual Insurance, LLoyds Maritime Academy, p. 22
54
those small ships or their operators ask to have P&I from fixed premium insurers.
Actually, they are not really sub-standard, but their current standard is below the IG
risk assessment level. In reality, the ships under IG insurance are continued to be
detained during port state controls118 because of their sub-standard technical
conditions. It does not mean that a ship by being entered in any Club membership
after a Club’s condition survey, will have port state control standards.
It appears, however, that these vessels or ship operators may find insurers
willing to provide liability insurance or they can navigate the ship without insurance
coverage.119
The historical background of the protection and indemnity insurance has
traditionally and originally been based on the mutuality concept. Some of the fixed
premium providers have withdrawn after limited service in the P&I market.
Generally, reinsurers prefer to use their underwriting capacity in the most profitable
areas instead of the limited income markets of third party liability insurance. So it is
not easy for the fixed premium insurance providers to find acceptable rates of the
reinsurance offers.
Third party liability itself is really a huge responsibility for the ship owner and
his insurer is carring out this responsibility on behalf of him. However, if you are the
insurer and assured at the same time, you may have control yourself, and it may be
practically feasible to compensate possible claims. In fact, the commercial insurance
market process is different from this situation and it has to find profit at the end of
the day. That is why countries prefer to set up their national P&I institutions in the
mutual concept instead of fixed premium. There are many examples where countries
have set-up mutual systems like Japan P&I, Korea P&I, China P&I and Filipino P&I.
The first three, P&I Clubs are considered to have capability to accomplish the

118 Port State Control (PSC) is the inspection of foreign ships in national ports to verify that the condition of the ship and
its equipment comply with the requirements of international regulations and that the ship is manned and operated in
compliance with these rules. Read more: https://monkessays.com/write-my-essay/imo.org/blast/mainframe.asp?topic_id=159 last visit: 30.08.2012
119 Anderson, P., Supra. p.22
55
reinsurance requirement from their own reserves or local capabilities. It means it is
not necessary for them to contact western reinsurers for obtaining reinsurance.
In national P&I institution concept, providers choose mutuality instead of
fixed premium. The Indian maritime administration and competent authorities have
started to negotiate to set up a national P&I institution for their cabotage ships based
on mutuality. Fixed premium itself is totally commercial, and local authorities or
national structures take care of strong protection against possible risks, first rather
than trying to have profit.
On the other hand, a smaller tonnage vessel shipowner has to be part of a huge
risks pool120, due to the memberships of the bigger tonnage shipowners in the same
pool. His marine peril risks are maybe lower, but automatically he has to share huge
potential risks of big pool contributors with their properties and trade capacities
because of being party of the mutuality system. Additionally, he has gigantic risk
cover limits, which maybe never need to be used. Maybe it is not necessary for his
trade to have those guarantee limits, and live together with five star standards. As
already mentioned, IG has upper insurance limits, and some shipowners never need
to ask for the compensation limits and it is not cost efficient to have these limits
because of their lower trade capacity.
3.5 Reinsurance
The balance of any P&I premium formula main outgoing expense will be
reinsurance premiums. Reinsurance premiums are fixed with the financial and
technical capability of the insurers, and there are differences depending on the
market conditions. Most of the time, insurers pay reinsurance premiums with their
levy premiums at a ratio of 30-40 percent of their premium income. Market players
who are party of the low market have to pay high premiums for reinsurance. In that

120 Although the Group clubs compete with each other for business, it is to the benefit of all shipowners insured by
Group clubs for the clubs to pool their larger risks. Pooling is regulated by the Pooling Agreement which defines the
risks that can be pooled and how losses are to be shared between the participating clubs. The Pool provides a
mechanism for sharing all claims in excess of US$ 8 million up to, currently, approximately US$ 6.9 billion. Read
more: https://monkessays.com/write-my-essay/igpandi.org/Group+Agreements/The+Pooling+Agreement last visit: 30.08.2012
56
case, the insurance service costs more because of the financial and historical
background, and reinsurance premiums are higher. Initially, a new institution is not a
good competitor in the market due to the need to pay huge reinsurance premiums.
The International Group clubs organize an excess of loss reinsurance for the
club’s individual members. It is the largest of most existing maritime liability policy
and is headed by the Janson Green Syndicate at Lloyd. Participating underwriters,
each with a relatively low line are distributed around the world and this is probably
the most complex political and international maritime market. (A notable absentee in
the policy is Munich Re, which became a P & I reinsurer to the “alternative” (nongroup) P & I market.) The excess loss reinsurance suits the international market in
that it has a share of U.S. $ 2 bn P & I industry without the need to develop the
expertise necessary to manage the intricacies of P & I claims.121
It is generally accepted that a large P & I account is necessary to provide
sufficient diffusion of risks and to avoid excessively volatile exposure to claims. The
question is how dire is the need of a portfolio for P&I to be self-sufficient and stable?
Indeed, is there an optimal size of a P & I Club? The issue is further complicated by
the pooling agreement, which absorbs all claims in excess of U.S. $ 8 million and the
shield of the IGA122
. In the 1980s two P & I Clubs have ceased their activities. The
main victims were the non-IG Oceanus Group, which collapsed when its reinsurance
underwriters withdrew, and the member of the group, Sunderland Club, which was
easily absorbed by the IGA colleague, the UK Club. This shows that the IGA looked
after its own and the owners could count on the greater security of the International
Group.123
Both examples show that reinsurance is one of the most important issues of
P&I management.

121 Drewry Report., Supra., P.67
122 International Group of Agreement
123 Supra.,Drewry, p.71
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3.6 Tax Exception
Today, most shipowners procure their P&I insurance directly from foreign
insurers. State treasuries do not have any income coming from the P&I insurance
market because the service providers are already located outside of their jurisdiction.
In that case, a new establishment of a national P&I facility may have some tax
exception in the domestic market. There will not be any changes for the state
treasuries’ incomes, never having had this benefit from abroad, nor in local
potentials. However, using this kind of tax practice technique may help the new
national P&I provider to stand on its own capabilities.
3.7 Insurance Sanctions
This concept is very new in the global market. Provision of P&I insurance is
used as a political argument as part of economical sanctions for blocking trade from
a target country. India has decided to create its own P&I insurer because of
sanctions from the Iran conflict. They have dealt with Iran for a long period of time
carrying cargo, but currently they do not have P&I cover because of sanctions
against Iranian trade.
EU and the USA have taken a decision to make sanctions against Iran,
especially its oil trade. Most of the carriers have confirmed they will not ship oil
from Iran. It is clear that the EU sanction to ban insurance has imposed a new
stranglehold on shipping. The banning of insurance specially for tankers creates a
relatively special position, as almost 95% of tankers are insured by a P&I club,
which is a member of the IG, and which in turn dominates the market.
Shipping lines have to have liability insurance on board according to relevant
international conventions in order to trade with Iran or attempt to find cover
elsewhere. The insurance sanctions have a deep impact on the tanker industry, not
just for the EU controlled fleet, which is being subject to a total trade and insurance
prohibition, but also on the great majority of tanker owners around the world who are
58
contracted to lift Iranian oil regardless of destination. According to Liz McMahon’s
article in Lloyd’s List, the IG has recently updated itself to follow EU sanctions
against Iran with information to the members concerned. Non-EU regulated clubs
are not directly affected by those sanction decisions, but their reinsurance
arrangements are EU regulated. Consequently, non-EU regulated clubs are
necessarily being part of the sanctions as well, because of their reinsurer relations
(Lloyd’s List, 2012).
For shipowners, P&I insurance is looking like a ticket for their trade. Asian
players have long term contracts to carry crude oil from Iran. For trying to keep their
trade potentials, Asian insurers have increased their own reinsurance for continuous
trade from Iran.
After all those developments, the Iranian government will now provide
insurance cover for any foreign ships entering its territorial waters. Therefore, the
government took a decision to provide a sovereign guarantee but said insurers must
limit cover to $50 million.
124
Unfortunately, the Indian Shipowners Association moved to set up its own
mutual P&I Club after the sanctions against Iran because of the need to cover their
current trade with Iran. “The move to set up an Indian P&I association assumes
significance in the context of the recent decision of the Europe-based P&I Clubs to
refuse cover to ships carrying Iranian cargo from July 1.”125
Countries need to protect their trade and their fleets against all possible
sanctions. P&I insurance is starting to be used as a political argument. However, oil
spills can occur even in innocent countries which originally are not part of the
current conflicts. For example, Iranian crude oil may be carried from Iran to China.
During this voyage, an incident may happen and spilled oil may affect the Sri Lanka
coasts. How is it possible to say that there are sanctions against Iran and this damage

124 McMahon, L., Iran Offers Insurance Covers to Oil Shipment Moving, Lloyds list no.60722,
20.07.2012
125 https://monkessays.com/write-my-essay/thehindubusinessline.com/industry-and-economy/logistics/article3533123.ece last visit: 01.09.2012
59
is without any guarantee. Therefore, countries should to set up their own P&I
facilities because of these possibilities.
60
CHAPTER 4
4 Examples of National P&I Institutions
4.1 Introduction
The International Group of P&I Clubs covers 90% of the world’s P&I
insurance market while the remaining 10% is covered by others, basically called as
small contributors of the market. It is clearly apparent that many of the others (most
of them are fixed premium institutions) can compete with the IG Clubs in terms of
pricing, security and services provided. This chapter will mainly focus on some of
these alternatives. They are really solid, viable businesses. Some are worth being
mentioned for their potential (much as China P&I Club or Korea P&I Club) or for
the alternative they offer in particular areas.126
On the other hand, the Japan P&I Club is part of the IG and an atypical P&I
Club. However, it is closer to a “national” club, despite being a member of the
International Group of P & I Clubs. In fact, even if it makes efforts to add tonnage of
Taiwanese, Singaporean or Korean ships, the majority of vessels entered in its
control are still Japanese. The club has its own “coastal” membership (payment of
fixed premiums) for members who are not international traders.
4.2 China P&I Club
4.2.1 Overall Status
China Shipowners Mutual Association, commonly known as the China P & I
Club or CPI, was established in 1984. Since then it has seen a spectacular
development and improvement in aspects such as tonnage entered, membership,
management and service levels in such a short time. With the full support of
government agencies and maritime communities, the CPI has already become a
major P & I Club in the Asia Pacific, offering suitable P & I cover and

126 Omni sectoral report 2011
61
comprehensive professional services. Nowadays, the members of this association are
very diverse, not only limited to mainland China, but also include eminent owners in
Hong Kong, Singapore and other parts of Far East Asia.127
CPI has adopted a policy of prudence and consolidation in underwriting. Its
main concern is the benefits of mutuality: providing excellent service in a non-profit
organization. The tendency to increase the reserve Fund shows that the financial
situation of the club has been growing stronger over the years.
CPI reported that for February 20th of 2011, the Association had 135 members
with a total of 1043 registered vessels totalling 27.8 million GT. The total tonnage
registered increased by 3.79 million GT, an increase of 15.79% over the previous
policy year. In the 2010 policy year, 207 ships, totalling 7.02 million GT, were newly
joined in the Association, among which 95 ships, totalling 4.27 million GT, were
newbuildings, accounting for 61% of the newly entered tonnage.128
The legal and management infrastructure of CPI is very similar to the IG P & I
Clubs located in Britain and Scandinavia. According to its statutes (by-laws) and
rules, the general membership and Board of Directors are the governing bodies of the
Institution.
129
4.2.2 Coverage and Relations
4.2.2.1 Coverage
As the majority of clubs, CPI covers its members for similar liabilities towards
third parties for loss and damage of goods (cargo), injury, illness or the loss of life of

127 Read more https://monkessays.com/write-my-essay/cpiweb.org/ last visit: 04.09.2012
128 CPI Annual Report 2010
129 Bye-law rule:34
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the crew or passengers, oil pollution damages, collision liability, fines, and wreck
removals.
130
4.2.2.2 Relation with IG
The CPI has a co-operation with the international P & I society as a coinsurance provider association for their members. Although the CPI is not a member
of the pooling agreement, coverage by the CPI is, in principle, identical to that
provided by a pool club regarding both scope and limits. CPI maintains close
relations with some dominant clubs of the pool through an agreement of coinsurance.
4.2.2.3 Relation with Hull Insurance
Mutual Hull cover is also offered to its members for reducing costs and to fully
protect their interests, and the scope of coverage is similar to the related international
insurance clauses.
131 As already mentioned in chapter three, providing members both
HM (Hull and Machinery) and P&I insurance together is giving unique advantage to
the shipowner for resolving all possible claim challenges. In this respect, CPI has
mutual hull cover as well.
Additionally, FD&D coverage and Time Charterers Liability cover are being
offered to members as well.
4.2.3 Correspondent Network
CPI reported that it has built up a global network of correspondents reaching a
number of about 200, covering all major ports in the world in 2011. Having
understood the important role of correspondents, CPI has established a strong
network of correspondents from the beginning of its foundation.

130 CPI Rule Book. Rule:3
131 https://monkessays.com/write-my-essay/cpiweb.org/ last visit: 05.09.2012
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4.2.4 Claims Handling
4.2.4.1 Service
The claims services are centralized at the headquarters in Beijing with
managers, executives and support staff, divided into three divisions. Corresponding
to the management union is the headquarters. There are two representative offices
and a designated service company with claims processing teams based in Dalian,
Shanghai and Hong Kong taking care of local members there.
4.2.4.2 Additional Services
CPI has served to Help its members with FD & D services, drafting of
contract terms, and advisory services. Other loss prevention services are required by
individual members for financial safety. One of the most important services for
members is to ensure continuous financial safety during arrest of ships or detention
in the port in any condition. Shipowners hope to expect continuous trade with
minimum cost conditions from their insurers.
4.2.4.3 Letters of Guarantee
According to a CPI declaration, currently, a letter of guarantee from the CPI
is not only one of the three officially accepted forms of security by the Supreme
Court of China, but it is also accepted by many government agencies and different
applicants around the world. In case of difficulty of CPI, co-insurance Clubs are also
ready to help by providing a pool member letter of guarantee. In addition, the CPI
has an agreement with the financial guarantee from the Bank of China, Bank
National de Paris (BNP) in France and other facilities with bond insurers, reputable
local or other financial institutions in Hong Kong, the Philippines and Singapore. All
of these security measures have proven effective and fast when needed.132

132 https://monkessays.com/write-my-essay/cpiweb.org/ last visit: 05.09.2012
64
Having effective letters of guarantee is of vital importance for the P&I
institution members or clients for protecting their trade. Every P&I institution has to
have effective letters of guarantee to cover safe trading lines for their
members/clients.
4.2.5 Advantages of Being a Local Institution
It has to be easy to resolve problems for CPI, because it is the only local P &
I Club in mainland China. The CPI can make use of its benefits and privileges as the
location advantages to its members for offering lower cost services, such as a lawyer
in the internal courts, who is legally approved to release arrested ships immediately.
All those related advantages are not only existing for the CPI, but are also real for all
substantial national P&I institutions.
4.2.6 Management Team
As mentioned before, realizing that only a good management team can
guarantee an acceptable service quality, the P&I institutions have always focused on
training staff for keeping them dynamic. When the CPI management board
members’ backround was checked, it was discovered that it is now being managed
by a team of managers and staff who have expertise in law, insurance, accounting
and seamanship. Some of them have acquired qualification as claims proficients and
/ or proficiency in maritime law in British universities, and many of them have
undergone training in the P & I Clubs and London-based international law firms
abroad.
They all have well educated backgrounds and impressive market experiences.
Qualification of management team is very important for members because of cost
efficiency. This criteria has to be the minimum level for a national P&I institution
setting up business.
65
4.2.7 Current Situation of CPI
CPI stated that underwriting work has made significant progress since the 2010
policy year. The volume of tonnage entered has maintained a high growth rate.
Due to a flat shipping market, competition in the insurance market has become
more severe. In such circumstances, the Institution still maintains an increase in
entered tonnage, due to the high quality of service, solid financial position and the
competitive price the institution has offered for the past 10 years. These factors have
gained wide recognition among the majority of Chinese shipowners.133
It is clearly understandable from the annual report of CPI that in aspects of
underwriting and marketing, the CPI has done extensive work in research, screening,
promotion and Assessment. To ensure the quality of members, the Institution
demanded from each new applicant to observe their operations, and explain the rules
to themselves.
It is interesting to note that despite a tonnage of only 28 million GT in 2011
(slightly smaller than the Swedish Club had at the same time), free reserves of the
club were at a record of 686.2 million dollars. Only seven clubs in the International
Group of P & I Clubs have free reserves greater than this figure. The total assets
were $ 723 million in 2011.134

133 https://monkessays.com/write-my-essay/cpiweb.org/en_gongzuohuibao/annalsindex.jsp read more from annual report 2012
last visit 01.09.2012
134 Read more: https://monkessays.com/write-my-essay/cpiweb.org/cpien_index.jsp last visit: 01.09.2012
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4.3 Korea P&I Club
4.3.1 Overall Status
The Korea P & I Club was established on January 26, 2000 in order to provide
reliable P & I insurance to support the Korean shipowners in accordance with the
Shipowners’ Mutual Insurance Associations Act of 1999.
Principal owners, such as Hanjin, began to enter in the club in 2005, and coinsurance with the IG clubs started. Entered tonnages passed 1 million GT in that
year. Only three years later, in 2008, tonnage had reached more than 5 million GT.
135
Since 2011, the Korea P & I Club has an independent club offering P & I
coverage limits up to $ 300 million. Members of the Korea P & I Club are Hanjin,
Hyundai Merchant Marine, STX PanOcean, SK Shipping, Chang Myung, Korea
Line, Korea Shipping, Sinokor, Pan Korea Line and Boyang.
136
4.3.2 Coverage and Relations
4.3.2.1 Coverage
The KP&I has the same principles of coverage as found in international P&I
insurance law and practice.
4.3.2.2 Relations with IG
The Korea P & I Club also has aimed to attract larger vessels through a new
experience by sharing coinsurance agreements with a common IG body. It already
has a co-insurance with IG, but this is based on the Korea P & I Club taking the first
part of each loss, with higher cost incidents being covered by its partners. But this

135 https://monkessays.com/write-my-essay/kpiclub.or.kr/eng/About/history.htm last visit: 03.09.2012
136 OMNI 2011 annual P&I report, page 47???
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quasi-free structure could be supported by a system between the Korean Club and IG
each taking a specific percentage of risk.
137
4.3.2.3 Relations with Hull Insurance
As reported by Trade Winds (2011), the Korea P & I Club, founded ten years
ago, aims to become a much larger, more international club as part of a “Vision
2020” strategy. However, KP & I did not yet intend to enter the market of the hull
insurance according to its strategic planning.
4.3.3 Correspondent Network
The Korea P & I Club has an extensive network in the world ports and Korea P
& I Club is suggesting to its members and captains to seek advice and Helpance
from the Club’s correspondents on the list published by the Club, when they are in
trouble or facing unexpected difficulties.
The KP&I Club maintains a worldwide network of surveyors and
correspondents who have different experiences in claims management. When the
vessels of the club members are arrested in any country because of cargo claims,
collisions, and oil pollution, correspondents may still be available to Help members,
as in the case with IG rules. Currently, the KP&I club has about 590 correspondents
in all major ports around the world and can provide corresponding services from
neighbouring ports if there are no designated contact points in any specific port.
Principally, the Club prefers to work with a local correspondent who always tries to
provide faster and better service with full knowledge of local laws and excellent
experience.
138

137 Trade winds, 28.10.10, Korea P&I Club aims to double tonnage by 2020
138 https://monkessays.com/write-my-essay/kpiclub.or.kr/eng/Services/claim.htm last visit: 04.09.2012
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4.3.4 Claims Handling
4.3.4.1 Service
According to the Club policies, when accidents happen, a claim team provides
a fast interest in order to protect the interests of club members, including the
appointment of experienced surveyors to determine the cause and extent of damages.
In addition, if necessary, the claims team appoints a competent lawyer who has
experience in the initial phase. To provide timely legal services, KP&I Club has a
legal consultant contract with three law firms named Choi&Kim, Yoon&Yang and
Kim&Chang. In addition, the club has potential to appoint other firms depending on
the nature of claims or incidents. In cases abroad, the Club has contacts to appoint
surveyors and lawyers through its local correspondents to protect the interests of club
members. KP&I is known for its claims team providing faster action and better
services to protect the interests of members in the market.
4.3.4.2 Additional Services
Korea P & I Club has intended to expand into areas such as freight, demurrage
and defence, and time charterers responsibility. It aims to move from being a fixed
premium provider to a mutual insurer, but as already mentioned, it did not intend to
enter the market of the hull insurance.
139
4.3.4.3 Letters of Guarantee
The previous information lead to one strong reality about KP&I that it really
has a strong financial structure and growth capacity. KP&I’s renewal results for 2012
with the expansion of the limits of cover up to 10 billion dollars and strengthening its
ability to issue a letter of guarantee to attract larger vessels in overseas trades shows
the entry of large shipping companies and overseas fleets is on the right track. The

139 Trade winds 01.11.2010 Korea P&I Club hoping to land new quote-share deal
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renewal result will be a driving force for the development and continuous motivation
of the Korea P & I Club to expert growth for years to come. 140
4.3.5 Advantages of Being a Local Institution
Korea P&I club managing director BS Park says the message from owners is
that they want a local, Korean language P&I because of easy communication, but
they also want to see the same limits in KP&I like the group clubs offer. 141
The advantages of using local language have been mentioned previously in
this dissertation.
4.3.6 Management Team
The staff are employed by the Club. However, the CEO, responsible for the
overall management and operation of the Club (executive management director) is
elected through open competition.142
All of the managers and experts are well educated and have strong market
experience in maritime law and/or claims assessment.
4.3.7 Current Situation of Korea P&I
The Club is independent and is owned and operated by the ship-owners
(members) and Ship-owners’ Association. Principally based on non-profit making
and non-corporate tax paying, it is operated as a special organization, to some extent
sovereign guaranteed and underwritten by the Republic of Korea. The Club has to
report certain important matters to the Ministry of Transport and is also subject to
regular auditing by the National Financial Agency Service. Like other insurance

140 Trade winds 28.10.10 Korea P&I Club aims to double tonnage by 2020
141 Trade winds, 01.11.2010 Korea P&I Club hoping to land new quote-share deal
142 Email interview between Korea P&I management CEO Mr. B.S.PARK 11.09.2012
70
companies and banks in which the Government put some amounts of funding as key
start-up capital (without possession of any share or shareholder rights by the
Government), the Korean government gave some start-up capital for KP&I. The
major part of KP&I’s reinsurance is placed at Lloyd 143
Korea P & I lists among its main benefits the lack of language barrier and time
difference. As a non-profit organization focused on Korea, KP & I is not directed by
commercial managers; therefore, the Club says it can offer more competitive call
rates than other clubs.
144
The Club’s approximate total levy of premium is around $ 30 million in 2012,
which is $4 million more than the previous year. The Club’ free reserves rose more
than expected to $ 18 million, about $ 6 million more than at the year of 2010.
Currently, Korea P & I Club covers about 870 ships with around 10 million GT (one
million GT more than in the previous year). Plans for the future are even more
aggressive, with tonnage objectives for 2020 being 20 million GT and around $ 100
million for premium.
145
4.4 Japan P&I Club
The Japan P&I Club has long been the only Asian representative within the
IG.146 The Japan P & I Club is the only organization in Japan underwriting P & I
insurance for oceangoing vessels and Japanese coastal vessels. It was founded on
October 2, 1950 in accordance with the Shipowners’ Mutual Insurance Association
Law. The Japan P&I Club became a member of the International Group of P & I
Clubs in 1976 and joined the other clubs in the pooling agreement of the

143 Ibid, interview
144 Asian maritime march april 2011 KOREA P&I BOOST ASIAN PROTECTION MUSCLE

145 Trade winds, 09.03.2011, Korea P&I Club expands by 20% in a year
146 Asian maritime, march april 2011, KOREA P&I BOOST ASIAN PROTECTION MUSCLE
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International Group of P & I Clubs in 1989. The Japan P & I Club celebrated its 60th
anniversary in October 2010.147
This club is already part of the IG, which is why it will not be discussed in
details in this study.

147 Read more: https://monkessays.com/write-my-essay/piclub.or.jp/E_rep/gaiyo/gaiyo.html last visit: 14.09.2012
72
CHAPTER 5
5 Club Insurance Applications in Turkey
5.1 General
Today, many countries of the world have current clubs which have been
established and operating in the market. Turkish shipowners, the state or foreign
owners have not had an established P & I insurance club so far in Turkey. Therefore,
the Turkish owners obtain their needs for liability insurance from clubs established
overseas.
In this context, the Turkish shipowners generally prefer to procure club
insurance from the British P&I clubs. The British clubs market is inflexible for
Turkish shipowners in terms of small tonnage vessels which are under 10000 GT.
The Turkish merchant fleet does not only have large vessels, but also small-tonnage
vessels and those ships are not at all suited to the IG. The IG market has provided the
same amounts of protection limits for all types of vessels without regard to
particulars of the ship. However, some types of ships have different risk potentials,
and never need the existing limits, which are provided by the IG Clubs. Having those
limits is a part of the fixing of the premiums in Clubs’ insurance policies. A ship may
carry less risk than a floating platform, which has a high risk potential for
environmental pollution, however, this related ship is insured to the upper limit at
almost equal risk premiums. In short, some ships have high-risk and others have lowrisk, but they pay nearly same premiums to purchase the same pool of P & I
protection, which lead to injustice for small and medium sized vessels of Turkish
shipowners.
Selection of the club for a Turkish shipowner is sometimes complicated and it
is changed depending on various conditions. Sometimes there is not even any
alternative choice for the shipowners. During the acceptance process of the club
membership, the club will evaluate to ask for the premium with the possible potential
73
burden of risks, and when the club thinks that the candidate shipowner will bring a
serious charge for club is financial body, in this case the club does not accept the
application.
In fact, over the time, clubs have two different structures. The first group
gathers lower limit risks and others collect high potential risks. Due to the structure
of the non-profit clubs, competition between clubs may never be considered as
existing, but they do compete with each other. However, a combination of
competitiveness shows its face when low potential risks are collected in good
volumes; they have fluctuating movements depending on the size of the damage. In
this case, large and financially strong clubs can provide a wide range of covers and
limits with lower premiums.
While shipowners in Turkey, with large tonnage and ships carrying less risk,
prefer their ships to enter the British P&I clubs or other more powerful clubs;
nevertheless due to the above-mentioned reasons, owners of small tonnage or having
old ships are turning to some different alternatives. Consequently, they may select a
fixed premium P&I insurer or have to enter clubs which are asking high premiums
with limited covers.
Some of those fixed premium insurers are notorious institutions working with
inadequate capability to handle damage claims. These companies are not preferred
by the owners, especially due to their bad reputation of compensation payments.
Particular club insurance, which is asked from the maritime authorities of
certain countries to have club insurance on board, has to be provided by accepted
P&I club list. Authorities in some countries have accepted the insurance certificates
with a “reputable club list” due to the sheer fact like Singapore and Turkey.
74
5.2 Turkish Merchant Marine Fleet
5.2.1 The position of Turkish merchant fleet within the world fleet
In 2011 the Turkish merchant marine fleet tonnage under foreign flags
amounted to around 12 million DWT. As of 1 January 2011, vessels of 1000 GRT
and above, the total tonnage of Turkish shipowners, both under Turkish flag and
foreign flags, reached 19.6 million DWT. (Table 1)
As of the beginning of 2011, regarding the Turkish shipowners’ ships of 1000
GRT and above, around 40% percent of these ships were registered under the
Turkish flag and 60% were registered under foreign flags (Table 1).
148
At the end of 2011, Turkish registered ships alone reached a number of 1245
ships and a total tonnage of 9,7 million DWT with an average age of 21.149 The
tonnage area of 0-1000 DWT of the Turkish fleet registered mostly fishing vessels,
fishing boats and pleasure yachts.

148 https://monkessays.com/write-my-essay/denizticaretodasi.org/DetoPortalIng/Default.aspx?tabid=567 last visit: 18.09.2012
149 Source: statistics of General Directorate of Merchant Marine
https://monkessays.com/write-my-essay/denizcilik.gov.tr/dm/istatistikler/ResmiIstatistikler/ last visit: 19.09.2012
75
Table 1:

5.2.2 The position of the Turkish merchant fleet compared to the fleets of the
neighbouring countries (Table 2 (National Registry data))
The capacity of the Turkish merchant fleets and the neighbouring countries is
shown in Table 2. Greece is in the first place being among the three largest merchant
fleets of the world, and Turkey is in the third place in this region.
76
Table 2:

The number and tonnage of the ships in Turkey are adequate for
implementing a national P & I institution when comparing this potential with the
countries in the region. This club may be not only national, it may also provide the
potential for the regional demands. This situation can be acceptable as a substantial
size in terms of club insurance. However, the quality of members as much as
quantity of members, is also important for club insurance. The majority of the
Turkish merchant marine vessels are small and old. According to data, the average
age of the Turkish merchant fleet was 21 years in 2011.150 In 1999, this figure was

150 Ibid, last visit: 24.09.2012
77
considered to be 17. Merchant marine fleet renewals and reconstructions have
become a necessity.
Due to, the above-mentioned reasons, having P & I insurance is becoming
problematic for the Turkish shipowners. However, it is worse because shipowners
are prevented from gathering intelligence to verify the existing problems in the
maritime sector. There is another reality why some shipowners have insurance which
is only because it is mandatory and because of the legislation.
Therefore, to know whether they purchase sufficient protection for a paid
premium is also not possible.
5.3 Mutual and P&I Club Insurance Regulations in Turkey
In Turkey, due to the absence of a P & I club, current legislation does not
cover to explain specifically the club insurance. Insurance risks, which are covered
by a club, are all referred to the in Turkish Commercial Code (TTK) as marine risks
in general. However, in this code, the club insurance terms, and limits, are not
specifically determined. These insurance coverage areas are already mentioned as
extremely large insurance covers.
Insurance Law No. 5684 permits procurement of “vessels liability insurance”
from abroad. This indication is understood to be a provision related to P&I insurance.
However, at the moment there are not any available arrangements in legislation about
defining P&I insurance, explaining insurance limits and determining solutions to
problems that may arise due to carrying out insurance business outside the country.
Although P&I insurance is not regulated specifically in national law, in recent
years, it has been entered into legislation as a necessity due to the impact of
international agreements. The following arrangements are examples in this regard:
In Penal regulation of Article 21 of the Environment Code, it is expressed
that, after any pollution incidents in Turkish waters, vessels are responsible to pay
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administrative fines. A letter of guarantee given by a P&I insurer is acceptable for
previous payments for releasing the detained ship.
Regulation on The law of Development of Maritime Trade Fleet and
Promotion of the Ship Building Facilities has an Article, namely “Obligations of
Insurance and Class”. Ships are imported under this regulation, and have to have a
P&I insurance certificate on board. This P&I insurer should be an acceptable P&I
insurer for the Turkish Maritime Administration.
There is a regulation on the requirement to obtain insurance cover for
vessels against maritime claims and supervision thereof since July, 2011. The
purpose of this regulation is to set out the obligations and requirements of vessels
flying the Turkish flag. Vessels, regardless of the flag state, arriving in or sailing out
of ports, terminals, anchorages and other port facilities in Turkish territorial waters,
must obtain insurance cover against maritime claims and to establish policies and
procedures for their supervision.
Turkey is part of the Civil Liability Convention 1992 (CLC 92). In the
Regulation of Issuing CLC 92 Certificates, identified ships are obliged to undertake,
in accordance with arrange CLC-92 certificate from IG clubs, or the club has to be
on the Turkish Maritime Administration determined clubs list.
The Turkish Straits Maritime Traffic Regulations Application Instructions
include another application for P&I. In Article 12 of this Directive, the ship cannot
pass through the Turkish straits without having P&I club insurance corresponding to
the requirements laid down.
As can be seen, an insurance type is undefined in the legislation of Turkey;
however, the same legislation requires it under certain circumstances.
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5.4 Problems about Club Insurance in Turkey
It has already been mentioned about the problems of the shipowners not
finding appropriate insurance from the market and paying higher premiums for P&I
insurance applications in Turkey. P&I Insurance awareness has started to develop in
the Turkish maritime industry in short time period. The clubs having a very wide
discretion to indemnfy claims is known in the market. Claims traffic is not the main
factor for processing how to use the discretion of the clubs, it is the members’
condition.
Therefore, to be strong in the eyes of the club, owners have to defend their
rights against the club. It is essential for an efficient utilization of insurance. This can
be performed by Turkish shipowners by working existing together and being
involved in management of the certain clubs.
Perhaps recognition of the right in the Turkish courts to directly sue based on
possible unfair behaviour of the clubs may be a solution. However, the recognition of
the right to directly sue may also have a negative impact. It has led to increased
premium rates for Turkish owners at the same time. This situation may cause them
to exit from the Turkish registry to foreign flag quickly .
151
However, there may be no legislation about pleading right against clubs in the
Turkish courts now. This is definitely recognized, especially with regard to third
parties damage, but not in terms of shipowner. Otherwise, the sense of justice is
incompatible with waiting and following of the injured third party pleading against
the club where the club is located.
5.5 Inquiry Study
Regarding the determination of the maritime sector’s attention for the
establishment of a local P&I insurance club by the Turkish maritime administration,

151 Acar, Supra 2009
80
an inquiry was carried out with maritime and insurance industry representatives to
measure the club expectations in the two sectors.
In the related inquiry, 26 Turkish flag shipowners participated. Questions
were asked about shipowners’ insurance problems in the survey area of their current
clubs and dimensions about a local club. The shipowners which answered the
questionnaire/inquiry were a large proportion of having a say in the maritime sector.
 Are you satisfied to run with your current P&I insurer club?
The question was addressed to shipowners to observe if they were satisfied to
run with their current P & I insurance clubs. Three of the 26 owners expressed they
were very satisfied, 14 of them stated they were satisfied, six of them revealed some
problems, and three of them were dissatisfied with their current P&I clubs. Here,
35% of participant shipowners were dissatisfied with their current clubs. Even such a
rate a strong representation of ship owners group means that there is actually quite a
high rate of dissatisfaction with their current clubs in the maritime sector.
 How do you communicate with your current club?
When shipowners were addressed the question of communication capability
with their clubs, 20 participants replied; “I’m communicating through
correspondents”, 6 participants said; “I’m having a direct connection to my club”.
The means of shipowners’ communications with P&I insurers are largely being
provided by the correspondents in Turkey. It was also asked how club
communications were in terms of the activities of correspondents. In this respect the
response was largely positive. Only one shipowner could not communicate at all, and
two of them said ‘communication is bad’. It is clearly understandable that
correspondents’ activities are strong enough to be greatly enhanced in Turkey. Yet
another result is, Turkey has qualified human sources for P&I insurance to satisfy
operation of P&I institution.
 What is the most important factor affecting the choice of your club?
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17 shipowners responded to this question that the most important factor was
attention to the club’s financial position, and five members stated that the club’s
prestige was important. As can be seen, prestige in the sector and financial structure
of the club are important for a large proportion of shipowners. The club must have
sufficient financial strength to compensate the claims for compensation. The prestige
of the club is related to the nature of providing financial security of the club. There is
special importance of these points where it is necessary to provide a letter of
guarantee. In fact, here the shipowners are seen to expect a financially strong and
reputable structure in the event of the establishment of the Turkish club. Even if the
financial situation criteria can be achieved quickly, the prestige gain of the club is a
phenomenon that takes a period of time. Therefore, it can be expected that the
Turkish shipowners would stay out of the local club for a long time.
 When the Turkish club is established, would you join this club?
In this context, the shipowners were asked for their attitudes about what they
intend to do when a local P&I club is established. The majority of shipowners (20
shipowners) stated that if the conditions were appropriate, they may regard a local
club positively. Only three participants expressed unconditionally that they would be
included. However, three other shipowners stated that they would adopt a course of
action corresponding to the attitude of the rest of the industry.
It is understandable that shipowners engaged in maritime trade are thinking of
their short-term commercial interests, so the fact that there is a suspicious approach
to a new club can be acceptable. The shipowners were stating as a main concern for
not participating in a local club that it will take time to acquire market prestige for
the new club, and they may think that they could find themselves in difficult
situations in this process.
 Is the government support needed for the establishment of the Turkish club?
As for governmental support for establishment of the club is necessary or not,
17 shipowners answered that state funding must be found, at least in the setting up of
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the organization. Nine members stated that a club can be established with the
maritime sector’s own efforts and at all stages without state support.
Shipowners largely believe that the Turkish P&I club cannot be established
without support of the State. Structured as a mutual shipowners’ club, such an
institution takes decisions on premiums to be paid as well as which damage claims
to be paid together.
5.6 Case Study
5.6.1. What is the logic of P&I Clubs? How do they operate?
5.6.1.1. P&I insurance is an indemnity insurance, to indemnify owners for the
liabilities. It provides a very comprehensive coverage for loss claims of third parties
related to the operation of the ship. Claims include cargo damages, crew demands,
collision, wreck removal and pollution.
5.6.1.2. It is traditionally executed by cooperative type organizations named
as ‘clubs’ as mutual insurance.
Each insuree is the member of the provider club and has voting rights
depending on the tonnage and can be selected for the executive board of the club.
Clubs do not provide insurance to make profit. On the contrary, in order not to pay
higher premiums to the insurance companies seeking profit, they work to provide
insurance coverage that they would obtain from them at cost. Claims ruled to the
members as a result of the lawsuits of the third parties are paid from the club safe
deposit box; then these monies are shared among the members as ‘contribution
margin’. Contribution margin is something like premium, but the amount is not
known in advance; it changes according to the accounts of that year.
5.6.1.3. The 13 largest P&I clubs of the world are based in London under the
name of the International Group of P&I Clubs. The majority of these clubs, which
have been operating for 100-150 years, are English.
83
The most important duty of the IG is to provide reinsurance from the Llyod’s
market and big reinsurance companies for all of the clubs with a single contract.
Thus, it significantly decreases reinsurance costs of the clubs. This decreases the
contributions collected from the club members. The 13 clubs have collected premium
amounting to 2 billion USD per year by the end of 2007.
5.6.1.4. There are some insurance companies that provide the same coverage
for fixed premium and with known methods in the P&I market. There are big
insurance companies behind some of those but the financial power of some is not
clear. These companies generally insure ships that are not in demand by big clubs;
furthermore they make use of dissatisfaction against big clubs. The coverage is
generally more restricted, due to the amount limit. As it does not bring profit, none of
those companies have a long history in P&I market.
5.6.2. What advantages does a Turkish P&I Club bring to whom?
For the Insurance Sector
5.6.2.1. It is hard to gain advantage directly because of the following:
i. If the club will be a mutual pool, it will aim to decrease the insurance
cost of the providers, not to gain profit. It will provide insurance at cost but not
profit.
ii. If the club is a fixed premium insurer, it will either not profit or have a
little profit. Otherwise, it cannot compete with the big clubs. However, it can gain
profit in the sector of other fixed premium insurers (ships with smaller tonnages
and/or standards).
For the Shipping Sector
5.6.2.2. There is no direct advantage at first sight of the club being Turkish,
because ship owners prioritize their expectations, instead of being nationalistic in
selecting the club. (See Par. 5.6.3.1).
84
If a foreign club meets these expectations, they do not hesitate to prefer that
club.
5.6.2.3. On the other hand, explaining to a Turkish club and achieving the
demands can be easier for Turkish ship owners. Because, the clubs have such
discretionary powers to fulfill these demands that can not be seen in other types of
insurance.
It is a very important issue to search how satisfied Turkish ship owners are
with the services of the foreign clubs.
For the Law Sector
5.6.2.4. A policy should be followed imposing the claims handling of the
Turkish club to be established in Turkey as far as possible. If so:
i. Legal accumulation regarding maritime law and insurance in Turkey
gets richer.
ii. Turkish Corporate Arbitration gets stronger.
iii. Turkish attorneys get stronger.
5.6.3. What are the challenges to face in establishing and operating a
Turkish P&I Club?
5.6.3.1. A club that does not meet the following two requirements will not
have competitive power:
i. Low prices (contribution – premium), and
ii. Quality of services (claims handling – letter of commitment).
Low Prices
5.6.3.2. If the club will be a mutual pool, the ships within the scope of the
pool will be much less than the international clubs, and collected contributions can
85
be inconsistent. Compared to the big clubs, in some years much less contribution can
be collected, but in some years, it can be necessary to collect more.
5.6.3.3. If the club will be a fixed premium insurer, Turkish insurance
companies can be reluctant to invest their funds in a field that does not bring any or
only little profit.
5.6.3.4. Reinsurance is highly important for both a mutual pool and a fixed
premium insurer. This should be provided from abroad. Reinsurance will be
purchased more expensively when compared to the big clubs and many fixed
premium insurers. This is a factor creating an impact which is challenging for raising
the prices and decreasing the competitive power of the club to be established.
Quality of service (claims handling – letter of commitment)
5.6.3.5. A club that is not able to give a world-wide, high quality claims
handling service does not benefit the ship owners. Besides, how cheaply the claims
of the third parties (cargo damage, collision .) are handled affects the price of the
insurance. Handling the claims cheaply or expensively depends on the
professionalism of the central claims office of the club and the correspondents.
5.6.3.6. Claims are handled with the help of commercial correspondents who
should be responsible for duties like survey and legal correspondents who should be
responsible for things like litigation.
Therefore, there is a necessity for a correspondent network ready to serve in
each of the important ports of the world. Regarding this, it can be considered to make
contracts with the correspondents existing in the current network of the big clubs;
however, it should not be more expensive to get service from them.
5.6.3.7. As the third parties have the ship arrested as being the first thing in
case of any kind of disputes, a guarantee should be provided to release the ship. Both
the third parties and the courts accept letters of undertaking (LOU), depending on the
reputation of the club. This reputation is gained through recognition of the club and
86
rating scores. If the letter is rejected, the club or the ship owner can receive a letters
of guarantee from a bank in that country in order to provide a counter guarantee.
Bank commissions can be an important item playing a role in the rise in the prices.
Regarding this, cooperation with one of the biggest clubs can be achieved. Letters of
Undertaking issued by the national P & I provider would probably be more easily
accepted in other countries if they were guaranteed by the government.
Governmental guarantees always have stronger backing than bank guarantees.
5.6.4. What to do, and what not to do?
What to do?
5.6.4.1. Big ship owners should be willing to participate in administrative
functions of the clubs. Here is the place for real influence in every kind of
relationship between the club and the ship owner (insurer and insured). This should
make limitless contribution indirectly to both that ship owner and the Turkish
shipping sector. Ship owners can have themselves selected to the administrative
council by collecting the votes of the other ship owners with a proxy method, even if
their own marine fleet is not sufficient.
5.6.4.2. In order to establish a Turkish club, creating a pool insuring the ships
with government funds can be a correct point to start. İDO is a good example
because of the sailing area of the company ships. They are sailing in cabotage.
Instead of having these insured under the big clubs, ensuring only reinsurance from
those big clubs can be cheaper. It can be understood that whether it is the case or not,
through a cost benefit analysis performed by using retroactive premium and
indemnity records, the scope of the pool can be expanded with the participation of
other big fleets.
5.6.4.3. High quality with low prices depends on the quality of the
management. In the establishment of a P&I institution, it is inevitable to have a
professional management. This contains technical specialty and good relations. Fund
87
management, reinsurance regulations, claims handling and marketing are among the
management tasks. Although it is unnecessary to be conservative about foreign
management, it is fair to consider that as a transition period to train local staff.
5.6.4.4. For a Turkish club to be established, providing convenience in the
subjects like corporate tax, and benefiting from the funds can affect the competitive
power, as it will decrease the cost and the price. As duties are currently not collected
in this field, because Turkish ship owners are still provided insurance from foreign
clubs, such a convenience will not decrease the state’s tax incomes.
What not to do?
5.6.4.5 With an amendment in Insurance Law, including the club insurance in
the scope of obligatory insurances, can make a positive contribution to the
enhancement of Turkish clubs. However, this impact should not be as big as in the
other insurance types. Furthermore, it is a slippery field requiring attention. If the
Turkish club does not meet the requirements of Turkish ship owners (See Par.
5.6.3.1), escaping to foreign flags can start to get insurance from the foreign clubs
which can lead to problems like lower tax incomes.
88
CONCLUSION
1- It is seen that marine insurance track back to Roman Law before
Christ and marine insurance contracts aiming to indemnify possible losses for a
certain premium are encountered in the beginning of the 13th century in Italy.
Marine insurance law in Turkey is included in the fourth paragraph entitled
“Insurances against maritime risks” (art. 1339-1459) of the 5th Book in the Turkish
Commercial Code.
Marine insurances are described in Article 1339 of the Turkish Commercial
Code as “Any person who has an interest measurable by money in experiencing
maritime risks of the ship or cargo safely may insure this interest.” From the
provision of the article, it is understood that interest and risks are the necessary
factors for insurance. Maritime risks are any kind of risks related to a marine
adventure. The one to suffer physical damage by being exposed to maritime risks can
be defined as interest owner in terms of marine insurance.
Insurance contracts in Turkey are signed in compliance with the general
conditions approved by the Undersecreteriat of Treasury. There are two general
conditions in place, ‘Cargo Freight Insurance General Conditions’ and ‘Ship Policy’,
in the field of marine insurance. Another source for the contract in freight and hull
insurance practice is the clauses prepared by the International Underwriting
Association composing the content of the insurance contract.
Hull insurance is a marine insurance type covering a decrease of the ship
owner in his/her property, likely to occur as a result of a damage or loss to the ship.
In practice, hull insurance provides an insurance with a ratio of ¾ in terms of
collision liability, reasons taken in assurance coverage in the UK market. The upper
limit of the protection provided by the hull insurance is the insurance value of the
hull. The insurance value in hull insurance is the full value of the ship subject to the
owner’s interest. The insurer and insured can agree how to determine the value of
ship in the contract and it usually is for a certain amount of money. If the ship value
89
is not determined in the contract, the value of the ship when the risk starts is taken as
a basis.
2- P&I insurance is defined as an exceptional insurance contract in which
a member ship owner insures liabilities and expenses against third parties not
covered by hull insurance in accordance with mutual insurance principals. A
member, the party of the club insurance contract, is the ship owner who secures
indemnity for liabilities and expenses of his/her ship against third parties not covered
by the hull insurance policy in return for the premium s/he has paid.
Club insurance is a mutual insurance. In this insurance, ship owners come
together to secure their interests within the scope of the club insurance. Therefore,
each of the ship owners composing the club gets member ships and deposits a certain
‘premium’ to the club to meet potential losses. Premiums collected at the beginning of
policy year are directed to investment. On the other hand, at the end of the policy
year, all loss cases are closed with the collected fund.
If the money collected in club fund is not enough to pay the losses, then the
members are asked for additional premium. As the club does not seek profit,
additional premium is only collected for such a case. Again, according to the case, if
the collected premium is not used up despite paying for all losses, the club can put it
in reserve or distribute it among the members.
Rights and liabilities of the club and members are determined in a deed of
partnership and the Rule Book. Again, in the deed of partnership, there are
conditions for acceptance of the member to the club, termination conditions of the
membership and regulations related to management.
Clubs are separated into classes providing insurance cover with different
features. The main categories of insurance that clubs provide are collected under
classes of, Protection, (Indemnity), F.D.D ( Freight, Demurrage, & Defence), Strike
and War.
90
The reinsurance provider of the club insurance is the International Group of
P&I Clubs, which is an association consisting of the clubs providing club insurance.
The basic purpose of this association is to share the risk that each club carries among
the group members. Conditions related to this are regulated in the contract named
Pool Agreement. Other than the reinsurance function of the International Group, the
group has the function of representing its members in international platforms and
providing information among its members.
In club insurance, the basic liability of the member is to pay premium. In
mutual clubs, premium is the amount emerging as a result of sharing the claims
losses, which the club has paid within the year for the members. Another
responsibility of the member is to inform the club about the risk type. This
responsibility can arise before the contract, during the contract and after the contract.
Among the duties of the member towards the club, there are preventing losses from
occurring, named protection measures, and taking necessary actions to prevent
increasing losses after the damage occurs. The club is on the other hand, liable to
the member for meeting the demands, paying the claims and providing financial
security.
3- There has not been any P&I clubs established in Turkey until now.
Therefore, Turkish ship owners meet their needs for P&I insurance from the clubs
established abroad. Turkish owners gets insurance mostly from English clubs. The
English P&I club sector is a sector which is not flexible and in this sector insurance
is maybe provided with a different amount for every kind of ship with considering
the characteristics of the ship. However, as a result, ships with smaller tonnage have
to purchase insurance in higher limits than their needs (by paying more premiums).
Whereas the owners of ships with greater tonnage and less risks among
Turkish ship owners tend to register their ships in English clubs and other relatively
stronger clubs, ship owners with smaller tonnage and old age, comprising the
majority of the Turkish merchant marine fleet, prefer generally fixed premium
insurers or the clubs less recognized worldwide. P&I insurance policies issued by
91
these clubs with bad reputation are not accepted in certain fields152 per the list
(recognized club list) published by the Turkish Maritime Administration, the
authority for marine matters in Turkey. The clubs which appear on the aforesaid list
are determined via Assessment reports published by international credit rating
institutions on a yearly basis regarding the financial situation of the clubs and
annotations prepared jointly by the Undersecreteriat of Treasury and Turkish
Maritime Administration using the credit ratings of the clubs. The Turkish Maritime
Administration currently includes the clubs with the credit rating of ”BBB” and
above obtained from independent credit rating institutions.
Although there is not any legislation issued for P&I insurance, P&I insurance
has entered into Turkish legislation as compulsory as a result of international
conventions agreements in recent years. It is inevitable for this legislation to increase
as environmental responsibilities expand. In relation to this development, the
definition and scope of insurance type should be involved in the Turkish Commercial
Code and the establishment type should be included in the Insurance Law in terms of
a possible local club initiative. Actually, it is possible to establish a club
cooperatively within the scope of the regulation in Article 3 of the Insurance Law no.
5684. However, the provision regarding the number of partners which cannot be
below 200 in this article, is an obstacle for the establishment of a club according to
the aforementioned article. The regulations to be made considering the structure and
characteristics of the club in terms of establishment and operation should be included
in this Law.
P&I insurance is not an existing insurance type in Turkey. This field, even in
the insurance sector, is a field that very few correspondents have a grasp of. In direct
proportion, many ship owners do not have enough knowledge of the characteristics
of P&I insurance. The fact that ship owners do not have sufficient knowledge of the
scope of the insurance coverage they purchase in return for the premiums they pay
may result in paying higher premiums for the insurance not providing any claim

152 In club insurance required for ships bought within the scope of the credit received from abroad to obtaining CLC 92
certificate in terms of tankers and again per relevant legislation.
92
payment. One of the things which initially is necessary to do about this subject is to
organize training activities in order to give information regarding P&I insurance by
the Turkish Maritime Administration, maritime sector and even insurance sector.
Especially, sharing the reports published by the clubs in renewal periods with the
maritime sector at certain intervals will make the ship owners act more consciously.
In order to ensure this sharing, it could be proper to create a committee where the
representatives of the maritime sector are involved with the Chamber of Shipping.
This will contribute to the shaping of the ‘Recognized club list’ published by the
Turkish Maritime Administration that the problems faced in the field of P&I
insurance are conveyed to this committee first and then to the Turkish Maritime
Administration. At the same time, the work of this committee will give positive
results in terms of directing the ship owners to certain clubs.
The fact that ship owners focus on certain clubs is important to show their
strengths. This will have positive impacts on both the premiums to pay and
indemnities to be recovered.
The opinion to establish a mutual club with the participation of Turkish ship
owners is brought forward frequently by various interests in Turkey diversely. This is
a well-intentioned opinion, yet hard to bring into action in a short time. A Turkish
club to be established may provide knowledge accumulation and raise
professionalism in this area. A Turkish club can be a national source of pride,
providing guarantees abroad. However, establishment of a local club is not
considered as a first solution to solve the problems related to the P&I insurance
needs of the maritime sector in Turkey. Ship owners are highly reluctant to invest in
establishing a local club.
Even if such a club is established with government funds or support, the ship
owners are likely not to be involved in an organisation which is new, unknown and
inexperienced. Yet, from the results of a questionnaire made by the Turkish Maritime
Administration, it is understood that the ship owners will mostly approach a Turkish
93
club with caution (even though 35% of the ship owners who participated in the
inquiry stated that they have problems with their clubs).
Some of the reasons for keeping the interested people away from a local club
opinion are insufficient size of the Turkish merchant marine fleet, containing mostly
old and small tonnage ships and low awareness of insurance in the sector.
Besides, there is not sufficient statistical data to allow for making proper
analysis regarding what kind of a club to be established in the maritime sector can
provide assurance. It should be ensured that a study should be started by the Turkish
Maritime Administration to fulfil the need of data in question and at least, premium
paid by the ships registered under TUGS to the clubs, their claims and damages
recovered.
This is the case for mutual clubs, yet the issue can differ for fixed premium
insurance. Fixed premium insurance is an activity which can be conducted by any of
the insurance companies currently operating in Turkey. However, the work of the
mutual clubs without profit making purpose will lead the ones desiring to do fixed
premium insurance business to continue this activity with very low profits in terms of
competition and the insurers will prefer to invest in the fields that bring more profits
when they face a situation incompatible with the realities of life. However, an
insurance company owned by government can provide club coverage with fixed
premium insurance. A decision of a public authority in this direction will be enough
to achieve that.
Particularly, the progress of this system may in time be followed by starting
to provide P&I insurance coverage for the ships used in internal waters, ships owned
by the government, sea busses and ferries. Such a structure will raise the knowledge
level and will help to fill the deficiency of qualified manpower existing in Turkey in
the field of P&I insurance. Furthermore, it will help fulfil the need for data to some
extent.
94
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