Piracy - how covered are you?

March 2007

Piracy has moved on from its swashbuckling days.  Where once pirates boarded ships armed with knives and stole cash to fund their livelihoods, nowadays they are more likely to arrive by speedboat armed with automatic weapons, lock up the crew and hold them and their ship to ransom. 

If the vessel is lost or damaged whilst in the hands of ‘pirates’, then the assured can make a claim to cover their loss. However, the motivations of modern day ‘pirates’ can be unclear, particularly if they are not made explicitly, and it is only by proving their motivations that the assured can be certain of seeing their claim settled.

The reason for this is that currently, “piracy” is included in the Institute Time Clauses – Hulls (1.10.83).  On the other hand, “any terrorist or any person acting maliciously or from a political motive” is addressed by the Institute War and Strikes Clauses.  These policies will usually be underwritten by different insurers.

The line between pirates, terrorists, and those acting maliciously or from a political motive sometimes blurs, so knowing which policy to claim under is becoming increasingly difficult.

Keith Michel, Solicitor at Holman Fenwick and Willan, writes: “The difficulty is the … ability to assess whether an attack leading to damage or the taking of hostages by assailants armed with modern weapons is an act of ‘pirates’ seeking ‘personal gain’ or ‘terrorists’ seeking a political or religious end.  Who is to say that the demand for a cash ransom to be paid to release a ship and her crew is made by a local warlord, a criminal syndicate or the local cell of a terrorist organisation?”*

In not knowing the motive, or being unable to provide sufficient proof, the assured could be caught between policies. Whilst it is unfair for the shipowner to be penalised for their lack of proof, it is impossible for the courts to force underwriters to settle a claim without sufficient evidence.

FP Marine Risks believes that the perils should all be included as part of the War and Strikes Clauses.  The change to the nature of piracy should be better reflected in the cover that is offered to shipowners even though this is unlikely to result in lower premiums. 

However, this would ensure shipowners benefited from clarity of cover – the assured would not need to distinguish between piracy, terrorism, and acts of malicious or political intent when making a claim for loss or damage caused by the actions of so called ‘pirates’.

Whilst wordings have been published by the Joint Hull and War Committees of the London Market as a response to recent events, the market needs to move faster in making them commonplace if we are to provide fairer protection for shipowners. 

*Keith Michel, War, Piracy and Terror: the High Seas in the 21st Century, The Journal of International Maritime Law, Lawtext Publishing Limited, 2006.