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CHAPTER 20 The “Pay to be Paid” Rule

P. &. I Clubs Law and Practice

Page 335


The “Pay to be Paid” Rule


20.1 The insurance cover provided by P&I Clubs, although often loosely described as “liability insurance”, has in fact traditionally been “indemnity insurance”. A liability insurer provides insurance against liabilities; whereas an indemnity insurer is required to indemnify the assured in respect of the discharge of those liabilities. The distinction between indemnity and liability policies is that payment by the assured is necessary under an indemnity insurance before the insurer is involved, whereas this is not required under liability insurance.1 This central feature, that the member should have discharged his liabilities prior to seeking reimbursement from the club, is usually expressed in Club Rules as being a condition precedent to a member’s right to recover from the club.

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