The pirate seizure of the United States cargo vessel Maersk Alabama off the coast of Somalia in April 2009 and Captain Richard Phillips’ dramatic rescue three days later resembled the storyline of a thriller drama. Indeed, Phillips later wrote a book of the ordeal, adapted as the acclaimed 2013 film Captain Phillips starring Tom Hanks.
While the attack on the Maersk Alabama took place more than 10 years ago, it was no isolated incident and is indicative of the scourge of piracy – over the past few years, there have been hundreds of pirate attacks on ships, putting trade routes at risk, and causing losses for cargo owners, ships, traders and crew.
At a time when international trade has been battered by disruptions, delays and supply chain issues in the wake of the COVID-19 pandemic and the ongoing war in Ukraine, piracy on the high seas remains a costly headache.
Statistics vary, but it has been said that maritime piracy costs around $16 billion a year in economic losses due to theft, ransoms, transport delays, increased insurance costs and anti-piracy protection.
When taking out marine insurance, exporters, importers and ship owners must consider all possible risks – from cargo being stolen and delays and threats to supply chain arrangements, to possible ransom costs and cargo deteriorating while the ship is held by pirates.
In its latest global piracy report, the International Chamber of Commerce’s International Maritime Bureau observed a reduction in incidents from the same period last year. Specifically, there has been a big improvement in the area off the coast of Somalia, attributable to effective counter-piracy operations. The International Chamber of Shipping (CCS) announced that the industry would remove the “Indian Ocean High-Risk Area” for piracy on 1 January 2023.
Pirate tactics
Piracy is an age-old problem, and marine insurance is regarded as the oldest form of insurance.
Hotspots include the Gulf of Guinea, the Singapore Straits and the Indonesian coast. According to data from the CCS Live Piracy & Armed Robbery Report 2022, there were eight attacks at sea, mostly in the Singapore Straits, in July this year alone, and one attack each in Bangladesh, the Philippines and Indonesia. These were mostly lower-level opportunistic crimes.
Closer to home, the Mozambique channel is an important tanker shipping route, and South Africa has patrolled it since 2011 to help protect trade vessels from being targeted. In April, President Cyril Ramaphosa stated that the South African mission to help combat piracy in the Indian Ocean has been extended until 31 March 2023, with 200 defence force members deployed at a cost of R154 million.
There have also been reports of attacks in Angola’s anchorage waters and, on 24 August, two armed pirates boarded an anchored container ship at the Soyo anchorage, Angola. They fled after the alarm was raised – but not before forcing open a container and stealing some of the cargo contents.
The case for marine insurance
Pirates usually demand a ransom for the safe release of the ship, cargo and crew. A marine cargo policy typically covers loss or damage to the cargo on board the ship, while the marine hull policy covers the physical risk to the ship.
Protection and indemnity (P&I) liability insurance covers liability involving crew, but shipowners usually purchase kidnap and ransom insurance for crew members.
While ship, cargo and crew are held by pirates, they are usually not damaged or harmed and are most likely released once the ransom is paid. There is therefore no trigger for physical loss or damage under the marine policy.
If, however, a ship or cargo did sustain physical loss or damage, the marine cargo policy would be triggered if written on an “all-risks” basis, as would the hull policy.
The big question is: is a ransom amount itself recoverable under a marine policy?
A ransom payment constitutes an extraordinary expense incurred to minimise or avert a loss and therefore might be viewed as a valid “sue and labour” expense, recoverable under a marine insurance contract.
Additionally, the shipowner could recover it from other interests in the common adventure (a situation where the insurable property is exposed to maritime perils) as a general average expense that is also recoverable under a marine policy, provided there are no legal issues (such as illegality or unseaworthiness) preventing the shipowner from doing so.
It is therefore crucial to invest in marine insurance to mitigate these risks.
Experienced marine brokers know the ropes and can help you batten down the hatches the next time pirates rock the boat.
