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Container ship at risk in war zone

Insuring Ships And Cargoes Against War Risks

Moving marine cargo around the oceans of the world is fraught with difficulty. One of the many hazards is sailing into a war zone or a part of the ocean where hostilities break out as a vessel navigates though it. Thankfully, conflicts today are usually of a limited nature, and not on the scale of a World War. However, piracy and terrorism are on the increase and today the insurance class of war risk also covers these. High risk areas today include the Malacca Straits, the coast of West Africa and the coast off the Horn of Africa.
Responsibility for insuring the ship and crew rests with the ship owner; whereas cargo owners are responsible for insuring cargo. Ship and cargo owners have a choice to make when their vessels or goods are being navigated through a war risk area. They can take out extra insurance cover to mitigate any risk, cover the risk through their own in-house insurance pool or take the risk themselves.
Areas of Risk
The London-based Joint War Committee, part of Lloyds of London Insurance Market Association, decide the areas where war risks are likely to be met. Areas are deemed to be:

(i) Conditional – standard war risk insurance will cover the insured parties without the need to pay extra premiums, subject to stipulated conditions; or

(ii) Excluded - standard war insurance cover will stop once the ship enters such an area unless the insured pays additional premiums based on agreement reached between them and the insurers. The above areas are subject to immediate change at any time, subject to the decisions of the Joint War Committee. Most of the market companies which are willing to offer war risk insurance operate from the London market. Often, the cover is provided by a different insurer to standard marine insurance, owing to it having wider scope and different terms.

Ship owners take out general hull insurance which does not cover war risk. Market insurers will offer standard war risk cover on payment of an additional premium. Although the exact nature and terms and conditions differ from one insurer to another, cover will usually be for the value of the ship, machinery and loss of hire. In addition, war risk liability insurance covering crew and passengers against injury, disability, death or kidnapping for ransom may be available. There is also some provision for cargo cover.
Insurance cover should be for the total loss of the ship as a result of the action of a foreign state power. It should also include provision for loss of time if the ship is seized by such a power, regardless of whether or not it is damaged. The ship would normally be covered for losses caused by a beacon light ship or other navigational system being inoperative or impaired owing to the conflict, or if the ship had to join a convoy to take a detour that increases risk when, under normal conditions, that would not have been necessary. Fire or accident caused by a belligerent power bringing a journey to an abrupt halt or bringing the vessel under their control at the time of an incident are also covered. War risk insurance does not usually cover loss as a result of discharge of a nuclear device, bio-chemical or electromagnetic weapon.
The Role of Protection and Indemnity (P&I) Clubs
The thirteen P&I clubs operating internationally offer separate war insurance in excess of that provided by market operators. If a claim exceeds the underlying market cover, P&I clubs will give additional cover, which in 2012 was limited to $500 million. However, like market cover, P&I clubs will only cover war risk in excluded areas when additional premiums are paid.
Whilst in certain circumstances some provision for cargo may be made in ship owners' insurance, insuring cargo is principally the responsibility of the cargo owner. There are international regulations in place relating to cargo being transported through war risk areas and cargo owners must ensure that their insurance provision meets these regulations. Insurance cover should be against loss or damage caused by any explosive projectile or other explosive device or through:
  • Capture, embargo or seizure by a hostile power;
  • Collision with a vehicle or aircraft of the hostile power;
  • A political act of a person engaged in a civil war, revolution or rebellion or a similar conflict; or
  • Detonation of an explosive device as a malicious act.
Period of Cover
War risk insurance supersedes standard marine insurance once the vessel enters the controlled area (or excluded area where this comes into force); insurers should be aware of this. War risk cover ends when the vessel is out of the war risk area so conceivably a ship may only need war cover for a relatively short period. Ship owners can cancel war risk cover fairly quickly and usually within 48 hours.
Ensuring that a ship, it's machinery, crew, passengers and cargo are properly insured against war risk is a complex business and one that ships and cargo owners can not take lightly. Whilst they need adequate cover against loss they should not pay additional premiums when they are unnecessary, or for periods when they are outside of the war risk areas, particularly restricted areas. Careful thought and professional advice are primary requisites in ensuring all assets engaged are covered.

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