Shipowners take out insurances for their vessels. The insurances cover a wide range of different perils which are relevant to the shipping industry and which reflect the areas navigated by the vessels. A vessel's insurances form an important part of a lender's security, and a lender will therefore always demand that a vessel's insurances be assigned to it.
When financing a vessel, Danish Ship Finance will always demand that the shipowner has at least taken out the three insurance types set out below in an adequate manner: Hull & Machinery, Protection & Indemnity (P&I) and War Risk.
Hull & Machinery mainly covers total loss of a vessel and partial loss, salvage and collision liability (in part).
The P&I insurance is a form of liability insurance which mainly covers personal injury, damage to docks, wreck removal, collision liability (in part) and oil pollution. There is generally no upper limit on the amount of third party liability cover. However, there is a limit of USD 1 billion on pollution liability.
War insurance covers claims attributable to war or war-like conditions which are neither covered by hull insurance nor by P&I insurance.
In addition, Danish Ship Finance will usually demand MII/MAPP coverage.
The MII insurance only provides cover for the mortgagee if the shipowner's primary insurances do not, e.g. if the vessel was unseaworthy or if class suspension had been registered for the vessel at the time of the event.
The MAPP insurance is a different kind of mortgage insurance which protects the mortgagee if authorities have a right to confiscate or sell the vessel after a pollution event in order to cover any uncovered claims due to the amount limit in the P&I insurance. Like the MII, the MAPP insurance only covers the mortgagee's claim against the vessel insured.