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
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.