LETTERS OF INDEMNITY AND P&I COVER
In most cases where letters of indemnity are given to a shipowner, the owner will have liability cover, for, inter alia , loss of or damage to cargo carried. Such cover will either be provided by one of the mutual P&I Clubs forming part of the International Group of P&I Clubs, or by a non IG Group Club, or fixed premium insurer on terms similar to those maintained by Clubs within the International Group. Acceptance of a letter of indemnity is likely to have a profound and adverse effect on the degree to which this cover will respond to any subsequent cargo claim. This is because, in many cases, the risks which a letter of indemnity is designed to mitigate are not regarded as mutual risks and so fall outside the scope of P&I cover. It is important to realise that it is not necessarily the acceptance of a letter of indemnity which voids cover, but the underlying transaction. 1 So for example, where a shipowner accepts a LOI in return for performing an act (such as discharge by way of an STS transfer) which does not fall within any of the exceptions to cover set out in the Club Rules, the owner’s cover will usually be unaffected.
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