Author: F. Ty Edmonson
Date: July 1, 2001
MARINE INSURANCE AND GENERAL AVERAGE
F. TY EDMONDSON
A COMPARISON OF THE
SP-23 AND SP-38 FORMS
There are three principal P&I policy forms used in the United States; these are
the American Club Protection & Indemnity policy, the SP-23 (revised 1/56) and the SP-38
(P&I 1955). (1) This article will offer a comparison of some of the more important coverages
contained in the SP-23 and SP-38 standard forms.
There are two major differences between the SP forms. The first is that SP-23
covers liabilities to cargo, whereas the SP-38 does not. The second difference is that for the
coverages provided, the scope of coverage in SP-38 is written more expansively than that of
SP-23. Thus, as a general proposition, SP-23 offers greater range of coverage on narrower
terms that does SP-38, which provides more limited coverage but in broader terms for the
coverage which does exist. It has been noted before that the SP-23 is primarily used to cover
"brown water" vessels due to a lack of "blue water" or Club business in the United States. (2)
a. Coverage for Vessel's Owner
i. Owner Defined
SP-23 covers the named assured for "all such loss and/or damage and/or
expense as the Assured shall as owner of the vessel...have become liable to pay and shall pay
on account of the liabilities, risks, events and/or happenings herein set forth." (3) Both SP-23
and SP-38 incorporate the traditional indemnity scheme of the P&I policies and define the
class of people -- owners -- to whom the duty of indemnification arises. Courts addressing
this issue have broadly interpreted the term owner to include not only the actual title holder,
but those with an interest in the vessel; including bareboat, time, and voyage charterers. (4) The
issue of whether the policy extends to cover lienholders and bailees has been a subject of
dispute. (5) There has also been a requirement imposed in some circumstances requiring that
the liability incurred arise out of the operation of a the vessel insured. (6)
ii. Implications for Time and Voyage Charterers
A common characteristic of both the SP-38 and SP-23 is that in addition to the
limitation to indemnify the "owner", they also limit the P&I insurer's indemnification
obligation to the amount for which the policy holder would have been responsible had it been
the actual vessel owner. (7) This gives the P&I insurer the right to limit its liability under either
policy to the amount that the insured could have limited its liability had the insured been the
vessel owner. This provision essentially extends to the underwriter the benefits of the
Limitation Act, regardless of whether its assured is an owner (8) or charterer. (9) Consequently,
time and voyage charterers employing SP-23 or SP-38 need to be aware they could be
exposed to damages over the amount to which the owner of the vessel would have had the
right to limit its liability. Additional insurance should be procured by a time or voyage
charterer which finds itself in that position to cover this potential uninsured exposure.
b. Cargo Liabilities
SP-23 covers "liability for loss of, or damages to, or in connection with cargo
or other property ... to be carried, or which has been carried on board the vessel...." (10) SP-23
then goes on to list eight specific exclusions related to the grant of cargo coverage including,
but not limited to: passengers effects; (11) stowage of under deck cargo on deck; (12) freight on
cargo short delivered; (13) and delivery of cargo without surrender of bills of lading. (14) In
addition, the cargo liabilities granted by SP-23 are subject to specified Jason Clause wording
and the COGSA limitations on package liability. (15) Additionally, SP-23 covers liability for
cargo's proportion of general average where those costs are not recoverable by the vessel
owner from the cargo owner or its insurance carrier. (16)
In contrast, the SP-38 does not cover the vessel owner for liabilities arising
from cargo damage. (17) Correspondingly, the SP-38 also does not cover cargo's proportion of
general average expenses. (18)
c. Excess Hull Coverage
SP-23 and SP-38 also differ in their hull policy exclusions. SP-23 excludes
recovery for "any loss, damage, or expense which would be payable under the terms of
the...form of policy on hull and machinery, etc., if the vessel were fully covered by such
insurance sufficient in amount to pay such loss, damage, or expense." (19) The intent of this
exclusion is to segregate losses as between the assured's hull and P&I policies, eliminating
the prospects of double insurance. However, in the case of Landry (Steamship Mutual v.
Landry), 177 F. Supp. 143, 1960 A.M.C. 54, (D. Mass.), 281 F.2d 484 (1st Cir. 1960), the
Court interpreted similar wording as allowing the P&I policy to serve, in effect, as excess
insurance over the hull policy where the amount of the hull policy was insufficient to cover
the actual value of the vessel. In that case, the Protection & Indemnity Association took the
position that the wording similar to that now in SP-23 eliminated liabilities covered by the
American Institute Time (Hulls) form and, consequently, would not therefore be viewed as
covering liabilities for amounts in excess of that coverage. The Court disagreed and allowed
the P&I policy to serve as excess hull coverage. It is important to note that the language of
SP-23 did not change in reaction to the Landry decision. However, the language of SP-38
was amended to eliminate the potential excess coverage effects of the Landry decision. That
policy now states that it does not include liabilities for "any loss, damage, expense or claim
collectible under the [blank in which the assured's hull policy is to be named] form of policy,
whether or not the vessel named herein is actually covered by such insurance and
regardless of the amount thereof." (20) The SP-38 has therefore incorporated the Landry
holding into its language to specifically prevent it being applied as excess hull insurance. On
the other hand, the language of SP-23 continues to be particularly susceptible to that
d. Time for Suit
SP-23 and SP-38 both have the similar "prompt" notice of claim requirements (22)
and the same one-year time limitation for suits on the policy. (23) SP-23 additionally requires
that the assured present, with proofs of loss, any amount claimed under the policy within six
months of payment by the assured. (24)
e. Geographic Limits
SP-38 also differs from SP-23 and most other P&I policy forms in that it
incorporates the geographic limits of the vessel's hull policy as a term of the P&I coverage. (25)
This creates an issue for an owner of a vessel covered by a SP-23 form of P&I insurance
when a vessel's use is altered during the policy term. SP-38 owners and underwriters must
keep the geographic limits of the hull coverage in mind and make necessary alterations
should the use of a vessel change over time. (26)
The SP-23 specifically includes coverage for repatriation in its terms of
coverage. The policy provides for "[l]iability for repatriation expenses of any member of the
crew ... necessarily and reasonably incurred, under statutory obligation, ..." with certain
exceptions, such as attendant to the sale of the insured vessel. (27) Crew wages during
repatriation are also covered under SP-23 when the vessel owner is under a statutory
obligation to provide for them attendant to the wreck or loss of the vessel. (28)
In contrast, SP-38 does not specifically mention repatriation costs. However,
the SP-38's coverage clause does include "[h]ospital, medical, or other expenses, necessarily
and reasonably incurred in respect of loss of life of, injury to, or illness of any members of
the crew of the vessel...." (29) Thus, medical repatriation could be argued as being covered
under the terms of SP-38 where necessary.
g. Hospital Costs
SP-23 and SP-38 also differ somewhat in their treatment of hospital costs. SP-23 covers those "hospital, medical or other expenses" reasonably incurred in respect "of any
member of the crew...or any other person...." (30) However, SP-38 limits this coverage to "any
member of the crew of the vessel named herein." (31)
h. Compensation Claims
SP-23 and SP-38 similarly differ on the treatment of compensation claims. SP-23, unless modified by endorsement, excludes claims "to any employee of the Assured (other
than a seaman)...." (32) SP-38 excludes any claim "arising directly or indirectly under the
[LHWCA] or any workmen's compensation act of any state or nation[.]" (33) The SP-38
compensation exclusion is, therefore, not limited by its language to employees of the insured.
i. Salvage, General Average and Quarantine
SP-23 and SP-38 differ greatly in these areas. SP-38 contains a blanket
exclusion for "salvage, general average and detention...." (34) SP-23, however, grants coverage
for the general average contributions of cargo and does not specifically exclude salvage and
general average as does SP-38. In addition, SP-23 grants specific coverage for quarantine
under certain circumstances. (35)
SP-23 and SP-38 contain similar clauses allowing for the insurer to become
subrogated to the owner upon payment of a claim. (36) However, SP-23 contains a specific
paragraph indicating that the insurer "shall be entitled to take credit for any profit accruing
to the Assured by reason of any negligence or wrongful act of the Assured's servants or
agents, up to the measure of their loss, or to recover for their own account from third parties
any damage that may be provable by reason of such negligence or wrongful act." (37) SP-38
does not contain an analogous provision.
Both policies provide that if the Assured's liability is reduced by contract the
underwriters will have the benefit of the reduction. (38) However, SP-23 additionally states that
the costs of a subrogation action are to be proportionately divided between the underwriter
and policy holder in the ratio of "the amounts which they would be entitled to receive
respectively, if the suit should be successful." (39)
k. Grant of Coverage - Property
iii. The Grant of Coverage
SP-38 and SP-23 take very different approaches to their respective grants of
coverage in regard to their general property liability clauses. (40) The property grant of
coverage in SP-38 is a broad, inclusive definition of one sentence. (41) However, SP-23 takes
a more specific approach, breaking its property grant into three district provisions, namely
those due to: (1) vessel and freight as a result of collisions; (42) (2) to vessel and freight other
than from collisions; (43) and (3) to "any other fixed or movable object or property." (44)
iv. Could this Include Pollution?
Neither SP-23 nor SP-38 expressly cover pollution liabilities. However, it has
been noted that the effect of the policies' grants of coverage may have implications that
underwriters had not necessarily anticipated. (45)
As neither SP-23 nor SP-38 expressly address liability for pollution coverage,
the issue becomes whether the general grants of coverage could be read as implying such
coverage. As indicated above, SP-23 covers "liability for damage to ... any fixed or movable
object or property." ¶ 6. Similarly, SP-38 provides coverage for "[l]oss of, or damage to, or
expense in connection with any fixed or movable object or property of whatever nature." SP-38, lines 17-18.
One commentator has noted that this grant could arguably provide coverage
for pollution liability where the assured is liable for the release of a polluting substance
which then damages or causes a loss to property. Where the loss claimed for is from a
tangible "contact" event, coverage would appear to be available under both SP-23 and SP-38
to owners of property with which the oil makes contact. (46) In addition, it has been suggested
that pollution events that do not make contact with any other terrestrial object may also be
covered to the extent that U.S. waters, or those of a state, may be considered "property." (47)
Additionally, both SP-23 and SP-38 provide coverage for "fines and penalties
... for the violation of any of the laws of the United States, or of any state thereof...." (48) This
coverage could be argued to extend to fines assessed under OPA '90, various other federal
statutes (such as the Migratory Bird Act), and/or the oil pollution statutes of any state. The
significant constriction on any such alleged coverage is the requirement of both policies that
coverage for fines does not lie where the fine arises directly or indirectly from the "failure,
neglect or default of the Assured or his managing officers or managing agents to exercise the
highest degree of diligence to prevent a violation of such laws." (49)
m. Tower's Liabilities
SP-38 specifically excludes tower's liabilities from its grant of coverage unless
the liability arises from emergency salvage operations or resulting from the loss of life,
injury, or illness of any person. (50) SP-23 similarly excludes towage liabilities. (51)
n. Removal of Wreck
The removal of wreck provisions in SP-23 and SP-38 are very similar and both
include provisions for a deduction of salvage value. (52)
SP-23 states that "[l]iability hereunder in respect of any one accident or
occurrence is limited to the amount hereby insured." (53) SP-38 mimics this language but then
adds: "(For the purpose of this clause each occurrence shall be treated separately, but a series
of claims hereunder arising from the same occurrence shall be treated as due to that
p. Punitive Damages
Neither SP-23 nor SP-38 expressly exclude coverage for punitive damages. (55)
The Fifth Circuit has taken the position that there is no controlling federal precedent as to
whether a P&I policy being silent on the issue of punitive damages would allow the coverage
to be implied. (56)
q. Defense (Law) Costs
As a last note, there are certain differences in the defense costs provisions of
SP-23 and SP-38. SP-38 broadly provides for "[c]osts and expenses, incurred with this
Company's approval, of investigating and/or defending any claim or suit against the insured
arising out of a liability of the assured covered by this policy." (57)
First, unlike SP-38, SP-23 makes its defense costs provision subject to the
policy's deductible. (58) Second, SP-23 provides that the legal costs of a subrogation action are
proportionately divided, as discussed above. Third, where the deductible is exceeded, SP-23
states the underwriter will pay for the excess, being the greater of: (1) the cost of
investigating and/or successfully defending the assured from a claim; or (2) the amount paid
in judgment or settlement including all defense costs and expenses. (59)
1. There have been as many as five P&I forms used in the U.S. In addition to the three above,
the American Institute of Marine Underwriters promulgated a P&I form in June 1983
("AIMU") and the 1962 P&I clauses (Great Lakes) serves as a specialty form for the Great
Lakes. See Parks, The Law and Practice of Marine Insurance and Average 1032 (1987).
2. S.A. Vogel, "Comparison between American Steamship Owners' Mutual Protection and
Indemnity Association, Inc. For of Policy and the American SP-23 (Revised 1/56) Form of
Protection and Indemnity Policy" Marine P&I Policy Annotations, p.112 (1982); N.
Healy, Jr. "Comparison of the American Club and the SP-23 Forms of Policies with the
AIMU Protection and Indemnity (P&I) Clauses of June 2, 1983" Marine P&I Policy
Annotations, p.32 (1st Addenda, 1985).
3. SP-23. The SP-38 is similar, providing the underwriter "undertakes to pay up to the amount
hereby insured...such sums as the assured, as owner...shall have become legally liable to pay
and shall have paid...." SP-38, lines 10-13.
4. See Randall v. Chevron U.S.A., Inc., 788 F.Supp. 1398 (E.D. La. 1992)(time charterers).
5. See Vogel, supra, at p. 113 arguing that the SP-23 can only inure to the Assured.
6. This issue often arises where a drilling rig owner seeks coverage under a crew boat or
similar policy since it can control the actions of the vessel. This has been generally
unsuccessful. See Davis, Maritime Law Deskbook, 420-21 (1994). See also Employers
Mutual Liability Ins. Co. v. Aetna Ins. Co., 254 F.Supp. 263 (E.D. Mi. 1966); American
Motorists Ins. Co. v. Vest, 500 F.Supp. 1365 (N.D. Miss. 1985); Randall v. Chevron U.S.A.,
Inc., 788 F.Supp. 1398 (E.D. La. 1992); Windsor Mt. Joy Mutual Ins. Co. v. Pozzi, 832
F.Supp. 138 (E.D. Pa. 1993) for operation requirement.
7. SP-23, General Conditions; SP-38 lines 99-102.
8. Owners or bareboat charterers are entitled to limit their liability to the value of the vessel
and pending freight under the LLA, providing certain conditions are met. Interestingly, the
ability of an owner or bareboat charterer to limit its liability under the LLA has been
radically curtailed in the area of pollution by OPA. Their silence on this matter may lead to
arguments that both the SP-23 and SP-38 appear to have adopted this increased potential
exposure by not affirmatively excluding it.
9. Time or voyage charterers cannot limit their liability under the LLA.
10. ¶ 8.
11. ¶ 8(c).
12. ¶ 8(d).
13. ¶ 8(f).
14. ¶ 8(h).
15. ¶ 8(bb).
17. "[T]his Company will not pay for...[a]ny claim for loss of, damage to, or expense in respect
of cargo on board the vessel named herein;" SP-38, line 43.
18. Nor does it include any general average expense. See SP-38, lines 38-39.
19. SP-23, General Conditions.
20. SP-38, lines 60-62 (emphasis added). See also, SP-38, lines 103-05 where again excess
coverage is excluded under the "other coverages" section. Note that the similar provision in
General Conditions of SP-23 does not specifically exclude excess coverage, only referencing
"double insurance or otherwise."
21. However, see Vogel, supra, at 114 stating that an endorsement is available to the SP-23
policy which would eliminate this problem.
22. Though, interestingly, note that SP-23 requires the owner to exercise due diligence to
notify of a real or potential claim while SP-38 states that an owner "will notify this
Company..." Compare SP-23, General Conditions with SP-38, lines 63-66.
23. SP-23, General Conditions; SP-38, lines 92-95. "No action shall lie against this Company
for the recovery of any loss sustained by the assured unless such action is brought within one
year after the entry of judgment or decree in any litigation against the assured, or in the event
of a claim without entry of such final judgment or decree, unless such action is brought
within one year from the date of the payment of such claim."
24. SP-23, General Conditions. "The Assurer shall not be liable for any claim not presented
to the Assurer with proper proofs of loss within six (6) months after payment thereof by the
25. SP-38, lines 106-07. "The navigation limits in the policy covering the hull, machinery, etc.
of the vessel named herein are considered incorporated herein."
26. "This provision has on more than one occasion caused underwriters some difficulty in
cases wherein the Hull and Machinery Policies are cancelled and the P&I Policy remains in
force on the vessel which is lost outside of the navigating limits which were contained in the
Hull and Machinery Policy. In the SP-23 underwriters are required to include navigating
limits if they deem them to be of underwriting importance." Vogel, supra, p.112.
27. ¶ 3 (emphasis added).
29. SP-38, lines 15-16 (emphasis added). Where under a statutory duty to repatriate crew as
the result of a loss of a vessel due to collision, an owner might attempt to recover repatriation
expenses under SP-38, lines 17-18. "Loss of, or damage to, or expense in connection with
any fixed or movable object or property of whatever nature." (Emphasis added.)
30. SP-23, ¶ 2. Note also that SP-23 includes cover for the net loss of a deviation due to the
necessity of landing a sick or injured seaman. This coverage extends to the extra expenses
of the deviation, including insurance. SP-23, ¶ 12. SP-38 does not expressly address this
element of coverage, but the argument could be made under the "other expenses" provision
of the general hospitalization grant.
31. SP-38, lines 15-16.
32. SP-23, ¶ 1.
33. SP-38, lines 44-45.
34. SP-38, lines 38-39. See also the SP-38 exclusions for damages arising as a result of, inter
alia, civil strife, war or detention. Lines 49-59. SP-23 is in agreement. See General
35. SP-23, ¶ 11.
36. See SP-23, General Conditions; SP-38, lines 89-91.
37. SP-23, General Conditions.
38. SP-23, ¶ 7 and SP-38, lines 46-48.
39. SP-23, General Conditions.
40. Both SP-23 and SP-38 have specific, similar grants of coverage for personal injuries. See
SP-23 ¶¶ 1-2; SP-38 lines 14-16.
41. SP-38's grant of coverage includes "[l]oss of, or damage to, or expense in connection with
any fixed or movable object or property of whatever nature." Lines 17-18.
42. SP-38, lines 17-18. "[L]iability for loss of, or damage to, any other vessel or craft, or to
the freight thereof, or property on such other vessel or craft caused by collision with the
vessel named herein..." not covered by the vessel's hull policy. ¶ 4.
43. "[L]iability for loss of or damage to any other vessel or craft, or to property on such other
vessel or craft, not caused by collision...." ¶ 5.
44. "[L]iability for damage to any dock, pier, harbor, bridge, jetty, buoy, lighthouse,
breakwater, structure, beacon, cable, or to any fixed or movable object or property
whatever...." ¶ 6.
45. Parks, The Law and Practice of Marine Insurance and Average, p. 1034-35 n. 823 (West,
2d ed. 1994).
46. Complying with the rule of Robbins Dry Dock that purely economic losses, with certain
limited exceptions, are not recoverable in maritime law. Robbins Drydock Co. v. Flint, 275
U.S. 303 (1927).
47. Parks, supra, p. 1034-35 n. 823, citing Port of Portland v. WQIS, 549 F.Supp. 233 (D.Or.
1984). SP-38 would be somewhat more vulnerable to this interpretation since it adds
"objects or property of whatever nature." Line 18.
48. SP-23, ¶ 9; SP-23, lines 23-27.
50. "[T]his Company will not pay for...[a]ny loss, damage, expense or claim with respect to
any vessel or craft in tow of the vessel named herein and/or cargo thereon; provided this
exclusion shall not apply to salvage services rendered in an emergency to a ship.. in distress,
nor to loss of life and/or injury to, or illness of any person." SP-38, lines 40-42.
51. SP-23 provides coverage for "[l]iability for loss of, or damage to, any other vessel or craft,
or to the freight thereof, or property on such other vessel or craft, caused by collision with
the vessel named herein, insofar as such liability would not be covered by full insurance
under the [hull policy] (including the four-fourths running-down clause)...." ¶ 4.
However, under the General Conditions, it eliminates coverage "[f]or loss, damage, expense
or claim arising out of or having relation to the towage of any other vessel or craft...unless
such towage was to assist such other vessel or craft in distress to a port or place of safety,
provided, however, that this clause shall not apply to claims under this policy for loss of life
or personal injury to passengers and/or members of the crew of the vessel named herein as
a result of towing." Again, Vogel, supra, at 116 indicates this may be available by
52. See SP-23, ¶ 7 and SP-38, lines 19-21.
53. See SP-23, General Conditions.
54. SP-38, lines 79-82.
55. Note, however, that the more recent AIMU policy does exclude punitive damages.
56. Taylor v. Lloyd's Underwriters, 972 F.2d 666 (5th Cir. 1992)(since no federal rule, state
law on whether punitives are implied to apply). For a full discussion of this issue, see
Dimitry & Spagnoletti, "Coverage of Liability for Punitive Damages" Marine P&I Policy
Annotations, p.39 (1st Addenda, 1985).
57. SP-38, lines 28-30.
58. SP-23, General Conditions.
59. SP-23, General Conditions.