UK: Piracy Whose Risk Is It Anyway?

London Insurers Should Rethink Piracy Policies
Last Updated: 12 March 2009
Article by Jonathan Bruce

THE problem of piracy has recently hit new heights in Somalia with the hijacking of Faina and Sirius Star. With the latter, we are talking of insured values of up $100m for the cargo and up to $150m for the hull, at a time when insurers are already under pressure. This is and always has been a problem for London, given that, ultimately, a large proportion of the assets at risk are likely to be insured or reinsured in London.

Since Hicks v Palington in 1590, it has been assumed that ransom payments are a subject for general average contribution. That seems fair, although the contributing parties should perhaps logically include P&I insurers, which will have a strong interest in releasing the crew and in preventing any major pollution incidents, and sue and labour expenses could well be covered in the relevant P&I rules/cover in any event. The clubs' worst case scenario might

include a deliberate pollution incident by 'suicide' pirates just off the beautiful beaches of the Seychelles, for example. Alternatively, it is not difficult to foresee the taking of a cruiseship where the lives of more than 1,000 people could be at risk. So far the legal liability of P&I interests to contribute to ransom payments by way of general average has not been tested in the English Courts, but such a dispute cannot be far off, particularly where, for example,

the insurer is not from the international group and the liability is potentially huge. So much for P&I, but there are plenty of other insurers that might be liable in a piracy, including cargo insurers, loss of hire insurers, and, for the vessel, hull or war risks insurers.

It is clear that the ICC(A) cargo clauses cover piracy, and that the (B) and (C) clauses do not (unless additional cover is purchased). The position there is very clear. The same, however, cannot be said in relation to coverage of ransom in respect of the vessel itself, even though ITCH 1983 or 1995 expressly covers 'piracy'.

Assuming that these attacks are covered as 'piracy', then ransom payments (arguably along with all the other expenses involved in dropping off the ransom and recovering the vessel) should be recoverable as a sue and labour expense (to avoid a total loss caused by piracy).

The issue is whether on certain facts this will be excluded from the hull insurance but instead falls on war risks. The issue might be fairly irrelevant in cases such as Sirius Star where it is understood that the hull and war risks underwriters are the same.

However, it is easy to imagine future cases where high-value vessels such as this have the hull and war risks placed with separate underwriters. Further, it is common for there to be no deductible for war risks (compared with a hefty deductible for hull), and likewise there might be separate warranties, such as a warranty not to sail within, say, 250 miles of the Somalian coast, which may only be incorporated in one or other cover.

The ITCH clauses clearly cover 'piracy', but exclude loss or expense "caused by... any terrorist or any person acting from a political motive" (the 'Strikes' exclusion). Likewise they exclude loss or expense "caused by any weapon of war and caused by any person acting maliciously or from a political motive" (the 'Malicious Acts' exclusion).

It is also stated in ITCH that these exclusions "shall be paramount and shall override anything contained in this insurance inconsistent therewith". There is then an express buy back for these exclusions in the institute war and strikes clauses. The purpose of the drafters is clearly that piracy falls on the hull rather than the war risks underwriters, but it could be that this is not the case on certain facts. The Joint Hull and War Committees' 2005 wordings, which are rarely used, place piracy risks squarely on the war risks cover, so the concern relates to the traditionally used 1983 and 1995 wordings, where it could be argued that the position is less clear.

What exactly is piracy? The classic definition of a pirate is in Republic of Bolivia v Indemnity Mutual Mar Ass Co Ltd (1909), which is "a man who is plundering indiscriminately for his own ends, and not a man who is simply operating against the property of a particular state for a public end, the end of establishing a government, although that act may be illegal and even

criminal, and although he may not be acting on behalf of a society which is politically organised."

It should be borne in mind, however, that this was an old case, on the f.c&s. (free of capture and seizure) clauses, and modern day pirates are different, especially in the context of Somalia.

It seems that no one has produced any evidence that the acts of piracy that have taken place to date out of Somalia have been carried out for political purposes, but there is a fine line between these latest acts and acts of terrorism, which as above fall clearly on the war risks cover. At the very least, the problem might arise where the motives are a mixture of financial and political. With the sums at stake, one assumes that it is only a matter of time before evidence of political motives surfaces, no matter how dangerous it is to obtain that evidence.

In circumstances where warlords are raising huge sums of money, in a country where there has been no organised government for many years, it is not difficult to imagine ransom monies being channeled into weaponry purchased with the specific aim of gaining political control in

Somal ia, for example. Evidence of that would be very likely to trigger the 'Strikes' (or terrorism) exclusion in ITCH 83 or 95, passing the whole problem onto war risks.

Further, other difficulties could arise such as the ransom payment being illegal under English law under the Proceeds of Crime Act if, at the time the ransom was paid, the paying parties had reasonable belief that the organisation being paid was a terrorist one.

It is also conceivable that a hull insurer could seek to rely on the malicious acts exclusion, which would also put this risk, unwittingly perhaps, onto war risks. It is not difficult to articulate the behaviour of the Somalian warlords who are behind these attacks as malicious in the extreme, and clearly they are using weapons that can be described as weapons of war. This

point also seems to have been untested in the English Courts.

Against this backdrop of uncertainty, where delays and wranglings with insurers can literally mean the difference between life and death, it is not difficult to see why a proliferation of bespoke kidnap and ransom covers are suddenly being offered to shipowners, although many will have thought they already had this cover through their hull insurance.

Buying a specialised additional cover is one solution for the shipowner, but the likely long-term solution for the London market and its customers is to end the debate by making all forms of piracy, politically motivated or otherwise, a clear subject of the war risks cover, thus joining forces with the approach taken by most of the wordings drafted by London's competing markets. Until then, the ticking time bombs out there might not only be those in the hands of Somalian pirates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions