Protection and Indemnity Clubs Article Example | Topics and Well Written Essays - 2500 words

Protection and Indemnity Clubs - Article Example Ninety percent of shipowners in modern times is a part of one of these clubs. These clubs also cover the shipowner from liability to third parties, as well as coverage against injury or death of the crew-members. (Finnern, 2007, p. 5). The shipowner becomes both the insured and the insurer, because claims are paid out of the Clubs funds, and these funds are collected from all the members of the Club. (Finnern, 2007, p. 6). A normal clause of most, if not all, of the PI Clubs, is the â€Å"pay to be paid† rule. This rule states, in a nutshell, that if a shipowner has a claim for which he wants the club to reimburse him, he must first settle the claim with the injured party on his own, with his own means. (Hawkins, p. 3). He can then seek reimbursement from the Club for the money he spent out of pocket. (Finnern, 2007, p. 7). The reason for the â€Å"pay to be paid† rule is that the PI Clubs only provide indemnification for their members, as opposed to regular insurance. The difference between regular insurance and indemnification is that, with regular insurance, all claims against the insured are paid, whereas, with indemnification insurance, only the claims for which the insured has already paid are covered. With regular insurance, the insured does not have to suffer an actual financial loss to collect, and advanced payment is not necessary; with indemnification, the insured does have to suffer an actual financial loss to collect, advanced payment is necessary, and the amount that he collects from the indemnity insurance is only as much as he has already paid out. (Finnern, 2007, pp. 8-9). Further, the third party generally has to have a judgment against the insured, otherwise, the PI does not kick in. In other words, if the insured gives money to a third party to settle the claim, but the third party did not first obtain a judgment, the PI may not pay the claim, even though the insured has fulfilled the requisite requirement of payment.