Owner loses court case with American P&I Club

American P&I Club: New York Court Decision, correction

A shipowner member of American P&I Club has been found by the US District Court for the Southern District of New York to be bound to the P&I Club’s board of directors’ decision to deny coverage for that member’s losses arising from a maritime casualty. In the underlying incident, Transatlantic Lines LLC chartered a barge from McAllister Towing Co and used the barge to transport cargo, which later fell overboard. Cargo interests sued McAllister and Transatlantic to recover their damages. Pursuant to the terms of the charter, Transatlantic was obligated to pay for McAllister’s defence costs. Transatlantic, in turn, sought coverage from the American Club for a number of items, including the reimbursement of McAllister’s defence costs. After the American Club’s board had denied Trasatlantic’s appeal, Transatlantic filed suit in federal court, arguing that American Club’s rules were fundamentally unfair. Those rules provide that a member can appeal a denial of coverage only to the association’s board of directors. The appeal is considered at a regular meeting of the board, which in turn issues a final, binding written decision. Transatlantic complained that the American Club’s rules were deliberately designed to prevent a member from challenging any coverage determination, especially in this
instance, since Transatlantic was no longer a member of the club by the time it challenged the board’s decision. The court observed that Transatlantic had agreed to the American Club’s rules and voluntarily participated in the hearing, therefore it ruled Transatlantic effectively had waived its right to object to being bound by the outcome. The court said that P&I clubs in the US were regarded as mutual insurance associations that were not governed by state insurance laws or regulations. They were instead governed by their rules that their members voluntarily agreed to abide by upon accepting membership in the club. As such, a shipowner member could not seek to overturn a P&I club’s rules based on the traditional notions of fairness that would govern a normal insurance policy.