Download War Risks etc - AUEB e

War Risks etc.
Insurance
by Dr Nicholas G. Berketis
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Institute War and Strikes Clauses
1.10.83 - Perils
Subject always to the exclusions hereinafter referred to, this
insurance covers loss of or damage to the Vessel caused by;
1.1 war civil war revolution rebellion insurrection, or civil strife
arising therefrom, or any hostile act by or against a
belligerent power
1.2 capture seizure arrest restraint or detainment, and the
consequences thereof or any attempt thereat
1.3 derelict mines torpedoes bombs or other derelict weapons of
war
1.4 strikers, locked-out workmen, or persons taking part in labour
disturbances, riots or civil commotions
1.5 any terrorist or any person acting maliciously or from a
political motive
1.6 confiscation or expropriation.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils - “War“
In clause 1.1 for the first time, “war“ is stated as a
separate peril. Obviously the concept is an
extremely wide one and without any accompanying
definition, it would not be difficult to imagine a set
of facts which will still involve the tortuous process
of assessment of the purpose of a particular
vessel’s voyage at the time of loss or damage and
whether the peril found to be the proximate cause
of such loss and damage, was one strictly caused
by “war“ or “marine“ peril.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils - “Derelict“
In clause 1.3, there is introduced a reference to “derelict“ mines etc. It
is to be presumed that, on the assumption that there is no doubt that a
“war“ is in progress, a vessel damaged by a mine would be covered
under the war risk cover, but the stage when mines or other explosives
become “derelict“ may be a matter for political, military and legal
speculation in due course.
A relatively recent case faced by one war risks association concerned
the total loss of a general cargo vessel in the Red Sea. The vessel, in
perfect weather conditions with no other vessels in the vicinity, suffered
a massive explosion in way of the port bow resulting in a major ingress
of water into the forepeak tank and the Nos. 1 and 2 holds, which
shortly afterwards sunk the ship. A detailed investigation undertaken by
naval experts concluded that the almost certain cause of the loss was
contact with a “lone“ mine of unknown origin, and the conclusion was
reached that as such the claim fell within the Association’s cover which
was in respect of “mines … or other weapons of war (whether …
derelict or otherwise)“.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils - “Capture,
seizure“ etc.
With reference to clause 1.2 and the cover given for “capture, seizure,
arrest, restraint or detainment“, the qualification for, or aid to
construction in this regard is found in clause 4.1.6 wherein there is
excluded “the operation of ordinary judicial process“.
Whilst the “Free of Capture & Seizure“ clause itself did not include, in
respect of arrest, and restraints etc. the words “of Kings, Princes and
people“ (as found in the original policy wording to the 1906 Act), Rule
10 of the Rules of Construction to the Act state that “arrests etc.“ apply
only to “political or executive acts“ and do not include “a loss caused by
… ordinary judicial process“. Under English Law therefore it has always
been the case that where a vessel has been seized under proper
process of law in whatever jurisdiction it occurs, consequential loss or
damage is not a matter falling within the war risk cover in that it does
not fall within the “Free of Capture & Seizure“ provisions.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils - “Piracy“
It should also be noted that “piracy“,
previously deemed a marine risk by virtue of
its not inclusion in the “Free Capture &
Seizure“ Clause is now expressly included
(Clause 4.1.7) and specifically excluded
from the Institute Time Clauses – Hulls
(Clause 6.1.5).
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
“Piracy“ – more thoughts (1 / 3)
Pirates who prowl the world's busiest shipping channels are becoming increasingly
ruthless and using evermore sophisticated methods to extort ransom from shipping
companies. Attacks are becoming more frequent and almost any vessel can fall victim to
an unexpected attack. Many ship-owners may assume they are covered by their hull or
war policy should such an attack occur but is this really the case?
Between 2008 and 2011, the waters off the coast of Somalia were the most treacherous
shipping lanes in the world. More than 700 attacks on vessels took place in this period. In
early 2011, 758 seafarers were being held hostage by pirates. Hijackings cost the
shipping industry and governments as much as $7bn in 2012.
Piracy itself is an age old problem; however, the headline grabbing activity witnessed by
the marine world in recent months is unprecedented in modern times. Previously pirates
would gain access to vessels with a view to stealing any cash or valuables on board.
Now the attacks are increasingly violent, highly organised and are undertaken with
hostages and their subsequent ransom in mind.
Navigational 'choke' points for vessels, including the Gulf of Aden and the open waters off
Somalia and Nigeria, are proving a worthwhile hunting ground for criminals. Although
authorities are working towards bringing in measures that may allow countries to chase
and seize pirates when they flee into territorial waters, the presence of coalition military
vessels has so far not been an effective deterrent. Ship-owners and managers are
having to take hurried preventative measures to avoid attack.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
“Piracy“ – more thoughts (2 / 3)
Clearly the most pressing problem for shipowners is the
danger to their crew and cargo. Damage to the vessel may
be covered by a war or hull policy, depending on an
owner's arrangement, but is the ship-owner covered for the
finer details necessary to deal with extortion and hefty
ransom demands?
The upsurge in attacks has been reflected in the insurance
market. Shipowners are recognizing this is a serious
problem and the London market is able to provide cover for
the financial consequences and services for specialist
incident taskforces. The increased interest in coverage for
piracy incidents means that although premiums are rising,
the market is still able to offer policies which represent a
cost effective way for ship-owners to mitigate their risk.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
“Piracy“ – more thoughts (3 / 3)
So what can a specialised kidnap and ransom (K&R) policy offer a
shipowner? There are many hidden costs and expenses that
shipowners may not have considered which a K&R policy can cover:
l 
l 
l 
l 
l 
l 
Hire of a vessel and crew to deliver the ransom;
Hire of security team to protect the ransom money, drop vessel
and cargo;
Hire of medics with full medical kit to attend hostages once
released should medical assistance be required;
Cost of transferring ransom monies from bank to drop vessel;
Cost of insuring the theft in transit of ransom monies;
Cost of insuring the drop team.
In many cases the ransom only accounts for as little as 25% of the
overall cost to the shipowner and a typical marine war risks policy may
not cover any of the expenses mentioned above.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils “Terrorism, malicious acts“
It will be noted that there is also introduced, as a reflection
of contemporary threats, in Clause 1.5 cover in respect of
loss or damage caused by “any terrorist or any person
acting maliciously or from a political motive“. This wording
is obviously very wide. Again, there may well be
circumstances and facts such as occurred in the The
Andreas Lemos where the Courts were asked to assess
difficult questions as to whether a case falls within clause
1.5 of the Institute War and Strikes Clauses etc. form – as
an act of terrorism or whether it might constitute an act of
“piracy“, now as we have seen covered as a positive peril
under the Institute Time Clauses – Hulls form (Clause
6.1.5) or possibly “violent theft by persons from outside the
vessel“ covered by Clause 6.1.3 of the Institute Time
Clauses – Hulls form.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils - “Capture
and Seizure“
As to “Capture and Seizure“ it was pointed out by
Lord Fitzgerald in Cory v. Burr (1883, 8 App. Cas.
393) that capture and seizure do not mean the
same thing. “Capture would seem properly to
include every act of seizure or taking by an enemy
or belligerent. Seizure refers to a larger term than
capture and goes beyond it and may reasonably
be interpreted to embrace every act of taking
forcible possession either by a lawful authority or
by overpowering force“.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Comments on the Perils
-“Restraint“
Turning to the great “restraint“ cases, it is clear from decisions such as Pesquerias
Y Secaderas de Bacalao de Espana SA v. Beer (1946, 79 LLP 417) which arose
during the Spanish Civil War, that for there to be a “restraint of princes“ there must
be an executive act of the ruling power. The famous United States case of Baker
Caster Oil Co. v. Ins. Co. of North America (1944, 78 LLR 240), records that to
sustain the peril of restraint of princes, there must be involved an act of sovereign
power by a government. Here, cross-reference could be made to the distinction
between sovereign and commercial acts of a government in its capacity as
shipowner which have been considered in the various Sovereign Immunity cases
(e.g. I Congreso del Partido (1981, 3 WLR 328 (HL)).
In the Anita Mr. Justice Mocatta held that a shipowner insured, had on the facts
established a “restraint“ when his vessel was detained. The proximate cause of the
vessel’s detention was found to be seizure by the customs authorities for a
smuggling offence (liability for which was excluded under the policy), but in
subsequent legal proceedings those authorities obtained an order for the vessel’s
confiscation which was itself held to be the actual reason for the continued
detention. The Judge held that such proceedings of a special court were not
“ordinary judicial process“ and therefore did not exclude the cover for “restraint“.
This case however was won by Underwriters in the Court of Appeal which held that
it was sufficient for Underwriters to prove the initial breach of customs regulations in
order to be entitled to rely on the exception.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 1 / 7 )
Ø 
Ø 
The above is a named exclusion under the Institute War & Strikes
Clauses (Cl.281 1/11/95), i.e. under section 5 EXCLUSIONS:
l  5.1.2 requisition, either for title or use, or pre-emption
The text of the above exclusion as shown in the 1/10/83 version of
these Clauses was as under:
l  4.1.3 requisition or pre-emption
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 2 / 7 )
Whilst hostilities were in progress, practically all the vessels of the
British Mercantile Marine were requisitioned by the Government on the
terms of a charter-party known as T. 99, by which, broadly stated, the
Crown was to bear the risks of war, and the marine risks were to
continue to be borne by the owners. This resulted in all requisitioned
vessels being insured under marine policies which contained the Free
of Capture, Seizure, Arrest, Restraint or Detainment Clause, and
although it was admitted on behalf of the Government that the war risk
assumed under the charter-party referred to were these excluded from
the ordinary form of marine policy by the above clause, it was none the
less inevitable that considerable litigation should arise in consequence
of the “marine” and “war” risks being borne by different parties.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 3 / 7 )
Vessels so requisitioned were employed either for duties in conjunction
with the fighting forces, or as ordinary merchantmen navigating under
special conditions necessitated by the war: and whether vessels
respectively so employed were, or were not, engaged on war-like
operations next calls for brief considerations.
As examples coming within the first category may be instanced a
requisitioned vessel engaged in carrying ambulance wagons from one
war-base to another: and a vessel taken over by the Admiralty, acting
as what was known as an ambulance transport and carrying wounded
soldiers. And losses sustained by merchantmen pursuing peaceful
voyages arising through collisions with requisitioned vessels so
engaged, were held to be the result of war-like operations, when there
had been no negligence on the part of the "peaceful" merchantmen.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 4 / 7 )
The question as to whether, when a loss had been occasioned through the negligent navigation
of a vessel on a war-like operation, such negligence was to be regarded as a new and
intervening cause thereby converting the loss from a war-like into a marine risk, was decided in
the case of the "WARILDA" (Adelaide Steamship Co. v. Attorney General, on behalf of the King
(appellant) (1923) A.C. 292). That steamer had originally been taken over by the Admiralty as a
hospital ship, but she was subsequently removed from that category and fitted out as an
ambulance transport – painted grey with dazzle markings, flying no Red Cross flag, and
provided with a twelve-pounder and naval gunners to use it if necessary. Whilst in that capacity
she was carrying wounded soldiers, proceeding at full speed without lights, and came into
collision with a merchantman, the "PETINGAUDET", which had no masthead lights and
dimmed side lights. The collision had been held to have been solely due to negligence in the
navigation of the "WARILDA", and the point was whether the owners of the "WARILDA" were
entitled to recover from the Crown as a war-risk, under the terms of the charter-party known as
T. 99, the loss they had sustained by reason of the damage suffered by their vessel. The
House of Lords decided, affirming the decision of the Court of Appeal, that the loss was a
consequence of a war-like operation, and that as by the terms of the charter-party the Crown
was liable for all such consequences, and nothing was said as to those operations being
skilfully conducted, the fact of the "WARILDA" having been negligently navigated was
immaterial.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 5 / 7 )
Where, however, in cases similar to those above referred to, the collision with a vessel on
a war-like operation has been brought about by reason of negligence on the part of the
merchantmen, then the loss would apparently be a marine risk: the collision would not be
the result of the other vessel’s war-like operation.
The next subject for consideration is in connection with the mercantile marine in the
ordinary sense of the term – merchantmen engaged in performing peaceful voyages –
navigating under the altered conditions necessitated by a state of war, e.g. steaming at
night with lights obscured (or dimmed) in compliance with Admiralty orders, or proceeding
in convoy, with other merchantmen, under the protection of armed escort. The fact of
merchantmen steaming at night without lights does not of itself constitute a war-like
operation. They are merely pursuing their peaceful errand as merchantmen: the incident
of steaming with lights obscured is with a view to evading enemy warships or
submarines. It therefore follows that a collision occurring between merchantmen
consequent on their being navigated under these conditions is a marine risk and not a
war-risk: it is merely a consequence of a peaceful voyage having to be performed under
conditions rendered necessary for safety by the existence of a state of war.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 6 / 7 )
Merchantmen on peaceful voyages whilst in convoy under armed escort are
still continuing the performance of their peaceful errands, but of necessity
under altered conditions: the escorting vessels of the convoy are engaged in a
war-like operation, but the escorted merchantmen are not. In the case of the
"MATIANA" (British India Steam Navigation Co. v. Green (1919)) that vessel
was on a peaceful voyage carrying a cargo of cotton from Egypt, and whilst in
convoy with other vessels under naval escort, by mischance struck an
unlighted reef in the Mediterranean and became a total loss, she having been
ordered by the naval officer in command of the convoy to take an unusual
course for the purpose of avoiding enemy submarines. The House of Lords, by
a majority, affirmed the decision of the Court of Appeal that sailing in convoy is
not of itself a war-like operation, that the stranding was not a consequence of
hostilities or war-like operations, and that the loss was one for which the marine
risks underwriters were liable. The striking of the reef was not the inevitable or
even probable consequence of the order of the commander of the convoy, but
was purely an accidental occurrence.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Requisition ( 7 / 7 )
Speaking generally, collisions occurring between merchantmen whilst in convoy would be a
marine risk – navigation under altered conditions imposed by a state of war. There may,
however, be circumstances giving rise to the collision which would convert the loss so arising
into a war risk. Where, for example, an armed trawler which was leading a convoy was blown
up either by a mine or by a torpedo fired by an enemy submarine, and great confusion among
the convoyed vessels ensued. The masters of the convoyed vessels, fearing enemy attack,
began to scatter, the confusion and apprehension being increased by explosions due to the
subsequent release of depth-charges by some of the escorting vessels. Under those conditions
the "CAROLINE" ("CAROLINE" v. War Risk Underwriters (1921), 7 L.L. Rep. 56), one of the
convoyed vessels, in avoiding the wreckage of the armed trawler and the members of the crew
which were then in the water, came into collision with another of the convoyed merchantmen
and sank. It was held that the explosion which caused the armed trawler to sink was the real
and natural cause of the loss of the "CAROLINE", and that the loss was therefore recoverable
as a war risk.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management
Sources
1. 
2. 
3. 
4. 
Reference Book of Marine Insurance Clauses,
54th Edition, Witherby Publishing 1982.
Reference Book of Marine Insurance Clauses,
72nd Edition, Witherby Publishing 2000-2001.
Templeman, Frederick and Greenacre, C. T.
(1948), "Marine Insurance. Its Principles and
Practice", Macdonald & Evans, pp. 124-134.
The Economist, (2017), “Why Somali Piracy is
Staging a Comeback”, 27 April.
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS,
MSc in International Shipping, Finance and Management