A regular service between Pireaus and Durban is exposed to risk from pirate activity in the Gulf of

Aden; therefore general avarage should be reviewed along mitigation of, Salvage, and special risks.

The definition of piracy under is described extensively; it includes hijacking or detention for ransom.1

However in English Law, the purpose of the piracy has to be for private gain, this excludes political

gains as a piracy act, more precisely it is stated that “the piracy must take place when the ship is at

sea and that violence or threatening must have been present at the time of the initial attack”.2

The following piracy risks can be faced:

1. General Average (GA)

Under the York-Antwerp rules, common law GA requires four key elements, which are peril

extraordinary loss/expenditure, voluntary incurring of such loss/expenditure, common

benefit/common maritime adventure.3 According to the Marine Insurance Act 1906 (66.2)4 and

as a conclusion to UK case law; Peters (1840), Barnard (1850) and US case law; Boskalis

Westminster (1999) ship-owners can declare general average in response to the common

danger to the vessel and its cargo value for the purpose of recovering contributions towards

expenditure that will occur5.

Contributors under general average include those with a financial interest in the voyage,

typically the ship-owner, cargo owners and potential charterers. Insurance companies may

become liable to cover cargo contribution under general average where this is irrecoverable due

to a ship-owners breach of the contract of carriage, provided the breach does not also affect the

liability that the insurance company should cover.6 The items that can be claimed as general

average itself are cost of searching ship, ransom money (including cost of delivering the ransom

cash, and insurance premium on the ransom cash), fees and expenses of negotiating team,

associated lawyers cost, assosiated bank charges. But anyhow the detention expenses and loss

of hire are not recoverable.7

1 See article 101 of United Nations Convention of the Law of the Sea (UNCLOS) 1982

2 London Shipping Law Centre Maritime Business Forum Insurance, http://www.shippinglbc.com/

content/uploads/members documents/piracy_i.pdf(accessed June 8, 2014). 3 York-Antwerp Rules, Rule A.1

4 It is said that, “There is a general average act where any extraordinary sacrifice or expenditure is voluntarily

and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure.”

5 “Piracy can be viewed as general average acts, and ransom paid as a result would be covered as a general

average contribution (Barnard 1850). Courts have also held that cargo given as ransom would also be considered as a general average contribution (Royal Boskalis Westminster NV 1999). Even the U.S. Supreme Court has held that payment of ransom is a general average act: the ransom a necessary means of deliverance from a peril insured against, and acting directly upon the property (Peters 1840).” Quoted from The Law of General Average: Possible Consequences of A Resurgence Of Acts of Piracy.. (n.d.) >The Free Library. (2014). Available at http://www.thefreelibrary.com/The+law+of+general+average%3a+possible+ consequences+of+a+resurgence+of...-a0313160267 (accessed June 11, 2014).

6 IG updates Piracy FAQs - August 2013 - UK P&I, http://www.ukpandi.com/knowledge/article/ig-

updates-piracy-faqs-august-2013-38707/(accessed June 8, 2014). 7 Chiu, Benson. General Average & Insurance. 2014. Richards Hogg Lindley/Charles Taylor (Presentation).

Available at: http://www.nautinsthk.com/documents/PiracyHKG09/PRESENTATIONS/Benson%20Chiu/ index.html. (accessed June 11, 2014).

So the company may insure the vessels subject to Institute Time Clauses 1983 (ITC) and Institute

Cargo Clauses (A) 1982 (ICC A 1982). Both sets of clauses provide for the insurance being subject

to English law and cover for piracy as an insured peril and general average.

Also the ship owner should pay in response to save the vessel, cargos, and their crew, which is

known as ransom. Where ransom itself actually is not a peril that is explicitly covered by an

insurance company. Even though it is possible that ransom might be recoverable from the

insurance at the discretion of the board under sue and labour or omnibus provisions if it is not

recoverable under any other insurance and cannot be recovered from other sources.Because it

has been accepted that a ransom payment made to obtain the release of a hijacked vessel/cargo

is a general average expense for which ship-owners are entitled to recover contributions.

2. Hull and Machinery Coverage

Under ITC and International Hull Clauses 2003 (IHC) piracy definitely a peril under the Peril

Clause, thus make any damage on hull and machinery as the result of piracy attack can be cover

by the insurer.8

3. Cargo Insurance

Cargo insured under ICC A 1982 is covered against piracy unless the loss is one resulting from

riot9, if a cargo owner wants protection against piracy he will need to invest in ICC A 1982 cover,

and he will need to take out Strike Clause cover which protects against riot. Because there will

certainly be cases where the cargo is not insured against piracy or is only covered in the event of

12 or more pirates being involved (amounting to a riot).10

4. Economic losses

Normally the detention expenses and loss of hire are not recoverable, an owner who wants

protection against loss of hire during a piracy detention or loss of earnings when his charterer

tries to declare frustration, or a charterer who wants protection against the cost of continuing

payment of hire during a piracy detention will need special insurer company. There are special

insurer covering loss of earnings and similar risks from piracy/Kidnaping & Ransom situations,

but this is not standard in the public domain.

8 But in the other hand there are exclusions which may affect the coverage for piracy under ITC and IHC.

First, The Strikes Exclusion Clause (new in 1983) excludes loss caused by persons taking part in riots, so if pirates can be said to have been taking part in a riot (but not otherwise), piracy will be covered by the war risks policy instead of the marine risks policy. Secondly, Malicious Acts Exclusion, which wrote that “In no case shall this insurance cover loss damage liability or expense arising from the detonation of an explosive, any weapon of war, and caused by any person acting maliciously or from a political motive.” Since malice simply refers to the conduct of someone who is intending to cause loss or damage, in whice pirates are likely to be acting maliciously. However those issues can be resolved by using the Violent Theft, Piracy and Barratry Exclusion Clauses and corresponding endorsement to the War and Strikes Clauses introduced by the Joint Hulls Committee and Joint War Committee in 2005. Which will puts piracy firmly back in place as a war risk. Anyhow, there will be a potential downside for the ship-owner or companies which have interest to the vessel or its cargoes, because it will be benefit for war risk underwriters to impose geographical and other restrictions to enhanced risk and impose additional premiums. See in London Shipping Law Centre Maritime Business Forum Insurance, p.2, available at http://www.shippinglbc.com/content/uploads/members_documents/piracy_i.pdf (accessed June 8, 2014).

9

10 Ibid. p. 4.

5. Salvage

Piracy can be said “threatens a vessel or cargo owner’s possession just as much as a peril at sea

caused by the elements of nature.”11 Furthermore, interpretations of marine insurance already

define piracy to be one of the perils of the sea. Even though it is commonly use that piracy

covered under a separate insurance policy. In practice, salvage to counter piracy and antipiracy

mostly worked by government navy, because they have greater experience to deal with such

treats.12 But in the other hand private salvors can also enabled to perform salvage for providing

voluntary maritime rescue.13

Generally, cargo owners are not required to cover salvage costs paid for cargo other than their

own, but vessel owners, as well as cargo interests, may be obliged to contribute to a salvage

award, and in the common venture they must pay its proportionate in the share.14 However a

vessel owner is entitled to insurance coverage for any salvage award he or she is forced to pay.

6. Vessel Detachment

Whether or not to engage a private maritime security company is an operational decision for

ship-owners, which should be based on a voyage-specific risk assessment. Ship-owners are

legally responsible for guards (especially armed guards) on their vessels even if the ship guards

are provided by the charterer.15

Furthermore, it is recommended that it should have definite recognition of the steps being taken

by the private maritime security company to secure compliance with the new International

11

Rapp, Geoffrey Christopher. "Salvage Awards on the Somali Coast: Who Pays for Public and Private Rescue Efforts in Piracy Crises?" American University Law Review 59, no. 5 (June 2010): p. 1409.

12 Based on London Salvage Convention 1989 article 1, salvage is an act or activity undertaken to assist a

vessel or any other property in danger in navigable waters and piracy is a peril which can trigger salvage action.

13 Nowadays, this kind of actions become more considerable important because the high value of freight

vessels (and their cargoes) which is seized by the pirates, and thus may entice private actors to enter the business of antipiracy (see Carolyn Liss, Private Security Companies in the Fight Against Piracy in Asia, in Piracy, Terrorism And Securing The Malacca Straits 103, 111 (Graham Gerard Ong-Webb ed., 2006)). Furthermore based on UNCLOS article 107, a seizure on account of piracy may be carried out only by warships or military aircraft, or other ships or aircraft clearly marked and identifiable as being on government service and authorized to that effect. Thus will be mean that private actors who perform salvage against piracy could violate UNCLOS regulation and expose the salvor to prosecution as pirates (see Eugene Kontorovich to Opinio Juris, http://opiniojuris.org/2009/07/01/a-pirate-hunting-vacation/(accessed June 11, 2014)). However, private actors might not need to concern themselves with being labeled pirates according to the UNCLOS definition of piracy, as an example ships held by pirates in Somali ports, would fall under the jurisdiction of Somalia, so seizing such ships would arguably violate Somali criminal law rather than the international law of the sea. Moreover, rescue efforts launched by private actors would not be directed against a ship but rather for the sake of the wrongfully detained ship and because private salvors are not acting against the ship, they would not be considered pirates under the definition set forth by UNCLOS (see Rapp, Geoffrey Christopher. Salvage Awards on the Somali Coast: Who Pays for Public and Private Rescue Efforts in Piracy Crises? American University Law Review 59, no.5 (June 2010): 1415).

14 Robert Force, Federal Judicial Center, Admiralty and Maritime Law 155 (2004), available at

http://www.fjc.gov/public/pdf.nsf/lookup/admiralt.pdf/$file/admiralt.pdf. 15

London Shipping Law Centre Maritime Business Forum Insurance, http://www.shippinglbc.com/ content/uploads/members_documents/piracy_i.pdf(accessed June 8, 2014).

Standard for private maritime security companies, ISO/PAS 28007 and that the Interim Guidance

to Private Maritime Security Companies providing Privately Contracted Armed Security

Personnel on board ships in the High Risk Area.16 The placement of additional security personnel

or armed guards cannot breach the SOLAS safety equipment and certificate requirements.

Sailing under a Dutch flag limits this option since that private armed security forces are

prohibited and only Dutch Marines are allowed. They are part of the vessel protection

detachments (VPD), however only a very limited number of detachments are available per year

and the application procedure is lengthy17.

7. Additional Premium Cost for Piracy War Risk

Most charter party has piracy clauses explicitly provide for charterers to pay additional

insurances (amongst other expenses) resulting from charterers directing the vessel to proceed to

an area of piracy risk, though the obligation to pay for additional insurance does not derogate

from contractual rights.18

16

Interim Guidance to Private Maritime Security Companies, http://www.imo.org/OurWork/Security/ SecDocs/Documents/Piracy/MSC.1-Circ.1443.pdf(accessed June 8, 2014).

17 FORUM #22/01.12.11 http://www.vno-ncw.nl/SiteCollectionDocuments/Forumartikelen/Forum_2211_

piraten_16798.pdf (accesed 12 June, 2014) 18

See note 14.