Direct actions against protection and indemnity insurance clubs (P&I clubs) may be a topic for debate in some jurisdictions, but not in Brazil.
Despite some court cases, in which cargo owners or insurers have attempted to hold such clubs jointly liable with the shipowner for eventual damages, the Brazilian courts have repeatedly rejected such claims – confirming that direct action should not be admissible.
One clear example was a case judged in 2018 by the courts of Rio de Janeiro, which established a landmark precedent on the topic.
The facts of the case relate to a cargo claim filed by a subrogated cargo insurer against the ocean carrier. The claim was granted and the carrier was condemned to indemnify the cargo damages.
However, the cargo underwriters were not able to enforce the decision against the carrier in Brazil. Instead of pursuing the enforcement abroad, the claimant decided to take another route and use the court decision to justify the filling of a lawsuit directly against the P&I club.
Through a separate lawsuit, filed under the name of the legal firm that represented the cargo insurers, the claimants sought a declaratory judgment aiming to obtain a court decision recognising the P&I club's joint liability for indemnifying the losses for which one of its members was originally held responsible.
After the P&I club had been summoned and had presented its defence in the proceedings, the claim ended up being rejected by the first-instance judge of the Fourth Corporate Court of Rio de Janeiro.
The Court's decision raised several relevant arguments of a procedural nature and analysed the legal nature of P&I clubs to confirm why the claim against the club should be dismissed. Some of the grounds of the decision were as follows:
- The enforcement of a previous decision rendered in different proceedings filed against a different party could not be claimed against the club, which was not listed as a defendant in the original claim.
- The rights of a subrogated cargo insurer against a shipowner/carrier cannot be extended against the club of which such owner is a member.
- P&I clubs are associations formed by shipowners and charterers, aiming to mutually safeguard the losses and damages suffered/caused by the members, directly related to the operations of the vessels entered therein.
- The P&I club regime is distinct from traditional insurance in several ways. The former is regulated by the club rules, while the latter is governed by a formal insurance policy. The first has a flexible regime of "calls", "supplementary calls" and even "return calls", as opposed to the traditional insurance premiums.
- P&I clubs do not aim for profit, while traditional insurance seeks profit from the risks they cover.
- The relation between a club and a member is of an association and not a bilateral contract as is the relationship between an insured party and its insurer.
- The legal nature of a P&I club differs from that of a traditional insurer. While the latter may even be forced to indemnify the victim of a covered damage, the first is bound by the "pay to be paid" principle, constituting no relation between the club and the victim of the event, but solely between the club and its member.
The decision was subject to an appeal, as the claimants insisted on taking the matter to the analysis of the Court of Appeals of Rio de Janeiro.
However, the outcome of the case at the Court of Appeals of Rio de Janeiro did not change.
Through a decision rendered by a group of three judges, the Court of Appeals of Rio de Janeiro unanimously rejected the appeal. The judgment stated that the first-instance decision provided an accurate resolution for the case and confirmed that the claim should be rejected not only on procedural grounds, but also due to the fact that, under the P&I club regime, a club cannot be considered liable to directly indemnify third parties for claims against its members.
The decision became final and the referred judgment became an important reference, having been quoted in subsequent decisions made on the subject.
Following the same conclusions reached in the case above mentioned, there is not one single court decision in Brazil accepting a P&I club's liability for cargo claims arising out of damages caused by a shipowner that is a member of a P&I club.
On the other hand, court decisions have repeatedly rejected any attempt to hold clubs directly liable, as can be seen from some of the other precedents below:
- "A P&I club is characterized as an association of shipowners/charterers that act for mutual support to its members, in the activities of carriage of cargo by sea – there is no legal connection with the claimant to allow the club to be included as a defendant to respond for a debt of its member."(1)
- "In the P&I regime there is no legal connection between the third party that was damaged by a club member and the respective club."(2)
- "The protection granted by the P&I clubs cannot be mistaken with an insurance contract, as the institute entails a contribution by all members to a loss suffered by one of them, there being no indemnity payment per se from the club to the member. The club functions basically as an administrator of the funds destined to safeguard certain risks."(3)
Although cargo interests may eventually still seek further attempts to hold P&I clubs directly liable, it is understood that such initiatives would be barred not only by the several legal grounds presented in the precedent decisions discussed, but also by the absence of any legal provision that could support such a claim against a P&I club in Brazil.
For further information on this topic please contact Lucas Marques or Marina Falcão at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected] or [email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.
(1) TJSP, Bill of Review 2254137-84.2018.8.26.0000, judged in 2019.
(2) Fifth Court of Santos, Proc 0042376-18.2010.8.26.0562, judged in 2012.
(3) TRF, Appeal 5001232-81.2013.4.04.7008/PR, judged in 2019.