The following area has been added
• Syria

The following areas have been deleted
• Qatar
• Ivory Coast
• Mindanao, between the Ports of Polloc Harbour And General Santos inclusive

The Committee can designate specific ports, offshore facilities or countries depending on activity within the region, but normally it includes all waters within 12 nautical miles of the named location, unless specifically varied.

If you have any questions or concerns then please do not hesitate to contact FP Marine Risks.

The maritime news continues to be filled with articles about pirate attacks in the Gulf of Aden, while piracy also continues less reported in several other key areas such as Nigeria, the Philippines and Brazil. There has been some discussion, and perhaps confusion, about what support is available to shipowners in the event of a pirate attack.

To mitigate the risk, some shipowners are avoiding the area but at substantial additional expense, and others are using organised convoys or employing security staff for the vessel.

Marine Kidnap and Ransom insurance can play a key part in any shipowner’s risk management strategy because it covers the specific costs associated with piracy attacks, however there has been some misunderstanding regarding the detail of the cover.

Andrew Brooker, director at marine insurance brokers FP Marine Risks, says: “We are often asked what insurance protection is available to shipowners in light of the increased risk of piracy. Marine Kidnap and Ransom needs to be seen as a service that shipowners can draw upon that isn’t catered for by traditional hull insurance.”

Traditional hull insurance only protects the shipowner from loss or damage to the vessel as a result of piracy and is only designed to work in a reactive manner once the claim is made after the event.

In the absence of physical loss or damage, the ransom and associated costs would be considered a General Average expense and settled by all parties against their respective values. However, the legitimacy of these costs being claimed in GA has never been tested and could be disputed by the cargo parties’ insurers.

Given the amount of shipping traffic that transits areas such as the Gulf of Aden, statistically the risk of a pirate attack is quite low. However, when it does happen, shipowners are faced with a challenging range of issues they are unlikely to have encountered before.

Brooker explains: “Shipowners suddenly find themselves with a host of questions about how to move forward – how do they find the necessary help from specialist negotiators; how do they enter into effective communications with hijackers; how do they deal with threats to their crew, vessel and cargo; how do they raise and deliver the ransom?”

Marine Kidnap and Ransom insurance is designed to specifically meet the needs of shipowners in dealing with these issues. It also provides the security of having an insurance in place that ensures the shipowner receives priority treatment from kidnap negotiators and other personnel involved. It covers all the necessary related costs that are needed to secure the safe and quick release of the vessel, crew and cargo, including the ransom and its delivery.

Furthermore, if a shipowner were to declare General Average in an attempt to raise the ransom, it could jeopardise their commercial relationships.

Brooker says: “There is generally no deductible with Kidnap and Ransom insurance, so owners are not exposed to additional costs after the premium and our cover ensures the Kidnap and Ransom insurers do not seek to recover any aspect of the costs from cargo or charterer interests, thereby preserving those commercial relationships. It also has the effect of protecting the owner’s existing Hull & Machinery or War cover from a loss which exposes them to an increase in rating for the following year – in effect, Kidnap and Ransom insurance has no memory and will not seek to recover claims through increases in premium.”

As we wrote in our opinion piece Piracy – How Covered are You?, the methods and style of piracy have moved on from its “traditional” routes where pirates would board ships and steal cash and equipment. This didn’t present any particular problems for insurers. The new method sees Somali pirates only interested in the ransom, demands for which have run into the millions of dollars, and it is the settlement of these ransoms that are likely to push premiums higher.

There are further fears that the Somali methods of hijacking will spread to other regions, including South East Asia and Latin America. Whilst this is possible, current circumstances suggest the need for a specific set of geo-political characteristics to make this work, i.e. a sea lane near land in calm waters without any issues as to sovereignty, a passive government or legislature, a lack of concern of that government of outside pressure to take action, and an inability of external governments to take action.

However, if other hot spots were to occur, then we would likely see a quicker shift of Piracy from the Hull to the War policies. Whilst there is the increase in premium to contend with, there is also the question as to who is going to pay for it.

It means owners and charterers should be paying increased attention to their War clauses and obligations under the charterparty, and account for the increases accordingly, irrespective of the anticipated trading pattern.

International security efforts have increased, but their presence is having minimal impact on what is unquestionably a lucrative crime.

Somali pirates are making ransom demands of up to USD10million, threatening the crew and warning the shipowners that they will ground the ship if their demands are not met.

Understandably, the safety of the crew and the release of the vessel take priority. However, whilst the affected shipowner does what is necessary to secure the release of the crew and vessel, cargo owners can be significantly affected.

The cargo is often more valuable than the vessel itself, yet in the event of a hijacking, cargo owners may not be alerted to the situation and are unlikely to be involved in the subsequent negotiations and ransom payment.

Recent hijackings have lasted between seven and 100 days; 58 days is the average duration of a hijack in Somali waters. Cargo owners can see disastrous delays particularly affecting any seasonal or other time-critical cargo, and in the worst case, deterioration or material damage to the cargo itself.

We are also witnessing an increasing number of shipowners attempting (some successfully) to recoup a share of the paid ransom from cargo interests in General Average.

Given the cargo is more often of significantly greater value than the vessel it is being carried on, ship owners will seek to recover the significant majority of the ransom payment and any other general average charges from them.

Irrespective of the ultimate position, shipowners are likely to have a prima facie right to demand general average security and we would expect owners to exercise their lien over the cargo in order to obtain that security where they consider it necessary to do so. Unsurprisingly, we are also aware that cargo interests are attempting to resist the claim in General Average.

What action can Cargo Interests take to protect themselves?

It would appear critical to establish a protocol for communications with shipowners in the event of an incident.

In addition, we suggest cargo interest obtain confirmation from shipowners regarding adequate Hull and Machinery, P&I, and War Risks insurance for the voyage in question.

There is specialist Marine Kidnap and Ransom Insurance available which provides not only cover for the ransom payment but, arguably more importantly, access to specialist security consultants who will assist in negotiations for any ransom payment. We recommend that cargo interests check with the shipowners to see if they have purchased this cover.

We are also witnessing collaboration between the parties involved in the voyage (charterers, owners and cargo interests) to purchase this cover for all interests.

Please see our separate news article on Marine Kidnap and Ransom Insurance for details or contact us to discuss your requirements further.

To keep up to date with reported piracy incidents and to learn more about prone areas, please visit http://www.icc-ccs.org/prc/piracyreport.php

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.