The implications of piracy on marine insurance: some considerations for the shipowner

A prominent feature of modern day piracy is the ransom that is demanded for the safe release of the ship, cargo and crew. The recent upsurge of this type of piracy, in areas of the world that are of strategic importance to the shipping industry, has created many challenges for shipowners, underwriters and the law relating to marine insurance. The aim of this paper is to examine how the marine insurance market is being affected by the threat of modern day piracy, and seeks to identify the options that are available for the recovery of a ransom payment by the shipowner. Moreover, this study aims to identify the legal issues that might prevent a shipowner from recovering a ransom payment under an insurance policy or from the other interests in a common adventure. The study establishes that a reasonably made ransom payment by the shipowner will amount to an extraordinary expense that is taken to minimise or avert a loss. Such an act can generally be recovered under the insurance policy as a sue and labour expense or from other interests in the common adventure as a general average expense. However, illegality, unseaworthiness and exemption clauses in a marine policy are identified as being legal issues that may prevent a shipowner from recovering the ransom payment. Some of these problems may be overcome if clauses are carefully drafted to specifically cater for modern day piracy in a marine insurance policy. Several inconsistencies may also be resolved by transferring the piracy peril to war risks cover. The shipowner’s duty is to respond to the changing circumstances, by ensuring that his vessel is sufficiently equipped and the crew is properly trained to resist a hijacking.