Welcome to W E Cox Claims Group

W E Cox Claims Group represent Insurance Companies on a global basis providing a professional worldwide Marine Claims Settling, Survey and security provision service for and on behalf of our clients.

From our head office in the UK and our regional offices in Hong Kong and Singapore, together with our network of Survey Agents, W E Cox Claims Group are able to provide a 24 hour / 7 days a week service to our clients and their Insured and can respond immediately to any problem that may arise anywhere in the world.

 We provide expertise to Marine Insurers in the following fields;

• Worldwide Claims Settling & Survey Service
• Centralised Claims Handling Service
• Risk Assessment / Loss Prevention
• The Provision of General Average Salvage and Collision Security

W.E. Cox Claims Group present a PIRACY UPDATE

As the situation in the Gulf of Aden continues with new piracy cases being reported on a regular basis, despite the efforts of Navies to protect commercial shipping, a recent case heard in the English High Court has provided clarification for Insurers of Cargo and Hull, when considering the legality of ransom payments and the effect this may have on policy coverage.

The case in question, one with which W.E. Cox Claims Group was involved, is that of the BUNGA MELATI DUA, a chemical tanker that was hijacked in the Gulf of Aden on 19th August 2008. The vessel was held by Somali pirates, until such time as a ransom was paid some 41 days later. Following release of the vessel she sailed to Rotterdam, her original destination, arriving on 26th October 2008.

The case was brought by owners of two cargo interests against their insurer, under a policy covering piracy, claiming that the cargo became an actual total loss once the vessel was seized by the pirates and taken to Somali waters. The argument they made was that they were irretrievably deprived of the cargo under section 57(1) of the Marine Insurance Act 1906. The alternative argument was that the cargo had become a constructive total loss by virtue of section 60(1) of the Act, in that the cargo had been reasonably abandoned on account of its actual total loss appearing to be unavoidable.

Mr Justice Steel found in favour of the insurers, on the grounds that the cargo could not be deemed an actual or constructive total loss. Previous experience with similar cases had given clear indication that the motivation of the pirates was financial gain. There was nothing to suggest that upon payment of ransom the Ship, Crew and Cargo would not be released. This being borne out by the subsequent events.

However, whilst the High Court decision is of interest in itself, it was the argument put forward by the Claimant and the ruling of Mr Justice Steel that offer insurers an insight for the future consideration of piracy cases.

The argument was that the payment of ransom was contrary to public policy and should not be considered when assessing whether a vessel and cargo were irretrievable. The Claimant accepted that the payment of ransom was not illegal under English law. Mr Justice Steel was “wholly unpersuaded” by this argument. He noted that the payment of a ransom is not illegal under current English law and whilst accepting that ransom payments may encourage future hijackings, there appears little alternative in order to protect the safety of crew who fall victim to hijackings.

Furthermore, Mr Justice Steel confirmed that ransom payments are recoverable as sue and labour expenses and that to have decided the case otherwise, would have rendered kidnap and ransom policies unenforceable. The judgement also provides clarification concerning the classification of a ransom payment as a legitimate General Average Act, albeit the assessment of the extent GA expenditure will still be the subject of intense investigation and enquiries into the circumstances surrounding the hijacking may still offer insurers possible defences to the payment of GA contributions.

We have experienced instances where insurers have questioned whether the payment of a ransom can be classed as a GA act under Rule A of the York-Antwerp Rules. Specifically, some insurers have questioned whether hijacking represents no more than a delay to the completion of the joint adventure, challenging whether payment of a ransom constitutes an act preserving the property from peril.

Mr Justice Steel examined the alternatives to a ransom when deliberating whether such a payment is contrary to public policy. Foremost in the deliberations was the inescapable fact that other available options which could be employed to end the hijacking posed significantly greater risks to life and property.

A Diplomatic resolution is not anticipated. The pirates do not appear to have any agenda, apart from financial gain and the political consensus between governments is that there can be no dialogue with a view to making concessions with criminals.

Military presence/intervention cannot be relied upon to adequately protect the safety of vessels and crew. Modern pirates are armed with sophisticated weaponry and satellite tracking/navigation equipment (in all likelihood paid for courtesy of ransom payments). Nevertheless, any attempt to recapture a vessel by force would result in the devastating escalation of an already precarious situation.

The ever-present threat of the employment of violence is, therefore, reasonably averted by the payment of a ransom. It is not surprising that Mr Justice Steel was “wholly unpersuaded” by the argument that the payment of a ransom was contrary to public policy to the extent of being “substantially incontestable”.

Considering the economic and humanitarian realities when engaged upon a cost-benefit analysis of potential solutions in a crisis, it can be conceded that the options available are far from satisfactory. Notwithstanding this, the danger to human life which pirates pose cannot be ignored. Piracy is a big, profit-yielding business with a similar distorting effect to the local economy as the poppy fields in Afghanistan – not a trite comparison when considering the steps being contemplated by NATO Joint operations in paying tribal leaders previously loyal to the Taliban in exchange for the safety and security of troops on the ground.

The English courts have upheld the rights of the interested parties involved to act pragmatically in order to secure the safety of life and property. It will take legislation to move the matter in the opposite direction.

If we may offer further guidance in respect of the case in question or with regard to any aspect relating to the piracy issue, please do not hesitate to contact Anthony Carter or Paul Friett.