Somali Piracy: The Effect Of Ship Hijacking On Marine Insurance Policies

The judgment of Mr Justice Steel, delivered in the English Commercial Court on 18 February 2010 in Masefield AG v. Amlin Corporate Member Ltd, [2010] EWHC 280 (Comm), resolved an issue between the parties as to whether or not the hijacking of the tanker Bunga Melati Dua by Somali pirates justified a claim under an open cover marine insurance policy for the total loss of cargo, alternatively its constructive total loss, notwithstanding that the cargo was eventually recovered. In the course of his judgment the learned judge made a number of observations that will be of interest to anyone having to deal with legal or insurance issues arising from a ship hijacking.

The Hijacking

The chemical/palm oil tanker Bunga Melati Dua was hijacked in the Gulf of Aden on 19 August 2008, while on passage from Sumatra to Rotterdam. During the attack one of the 39-member crew (29 Malaysians and 10 Filipinos) was killed. The owners negotiated a ransom payment and the vessel, the remaining crew, and the cargo were released on 29 September, six weeks after capture.

The Claim

The claimants were the owners of two parcels of bio-diesel, with a declared value of over US$13 million, which had been shipped onboard the vessel. The defendants were their insurers. Masefield's primary claim was for an actual total loss ("ATL") in the sum of US$7 million, representing their net loss after giving credit for the proceeds from the disposal of the recovered cargo at Rotterdam. The claimants asserted that an ATL occurred when the vessel was hijacked because, in terms of s57(1) of the Marine Insurance Act 1906, they had been "irretrievably deprived" of the cargo, notwithstanding its ultimate recovery. In the alternative, Masefield claimed on the basis of a constructive total loss ("CTL") within the terms of s60(1) of the 1906 Act, contending that the cargo had been reasonably abandoned because its actual loss appeared to be unavoidable.

Insurance Cover and Exclusions

The all risks insurance policy contained a war risks exclusion for "loss, damage or expense caused by ... capture, seizure, arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat." A further clause avoided cover for a CTL except where "the subject-matter insured is reasonably abandoned either on account of its actual loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter to the destination to which it is...

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