Court of Appeal Rules in Somali Piracy Case

Masefield AG v. Amlin Corporate Member Ltd [2011] Court of Appeal 26 January 20111

Under the provisions of the Marine Insurance Act 1906, a total loss of the insured subject matter may be actual or constructive; a marine policy will cover both, unless it expressly provides otherwise. An actual total loss calls for the subject matter to be destroyed or for the assured to be "irretrievably deprived thereof". A constructive total loss (CTL), exists where the subject matter is "reasonably abandoned on account of its actual total loss appearing to be unavoidable". This will be so where the assured be presently "deprived" of the subject matter and that either (a) it is unlikely that he can recover it, or (b) the cost of doing so would exceed the value once recovered.2

Where a CTL exists, the assured may either treat the loss as a partial loss, or he may elect to treat it as if it were an actual total loss, by giving notice of abandonment to the insurer.3 In many cases, the insurer will decline the notice of abandonment, often disputing that circumstances exist amounting to a CTL, but typically the parties will agree that proceedings are deemed to have been commenced as at the date of the relevant notice. Consequently, the question of whether a CTL existed, or not, is measured against the circumstances present at the date of the notice, rather than by reference to what happened subsequently.

The present case concerned an insured cargo of bio-diesel on board a tanker bound from Malaysia to Rotterdam, seized by pirates in the Gulf of Aden.

The pirates took the vessel to Somali waters, but negotiations soon ensued with the owners of the vessel, with a view to the release of the vessel, cargo and crew. While those negotiations were still ongoing, notice of abandonment was served on the insurers, who refused to accept it, but agreed to the date of notice as the deemed date of proceedings.

The negotiations with the pirates were ultimately successful. Some 10 days after the date of the notice, shipowners paid an agreed ransom to the pirates and the vessel was released. She proceeded to Rotterdam where the cargo was safely discharged. The insured cargo owners nevertheless pursued their total loss claim on the policy, in preference to taking delivery of the cargo. The court was therefore required to decide whether the seizure by the Somali pirates amounted to a total loss, notwithstanding the subsequent recovery of the cargo.

Commercial Court

The matter...