Pirate attacks in the Gulf of Aden and Indian Ocean have become a prevalent concern, the most recent attack occurring last month.  The geographical range of the pirates as well as the ransom demands and payments also appear to be growing.

"Given the size of the area concerned, it is not surprising that the naval ships are unable to prevent all attacks and their ability to respond is hampered further by their rules of engagement,” noted Ken Alston, managing director, Marsh Marine Practice.

The insurance market has responded with solutions to address ransom payments and loss of hire and detainment issues, including hull/war and kidnap and ransom (K&R) policies, but concerns remain.

"The marine market is paying claims for ransom payments and associated costs, in addition to paying loss-of-earnings claims where loss-of-hire cover is purchased,” said Alston.  “The K&R sector of the market is also paying these claims.  The co-existence of these two markets, with their differing approaches and policy wording, is causing confusion and concern over gaps or duplication in coverage.”

Further, legal issues surrounding the payment of ransoms and the various regional terrorism laws may delay resolution of claims.  Underwriters may not reimburse the assured, or authorities may block payment, if they determine the ransoms are associated with illegal activity.

Marsh’s Marine Practice recommends that a vigorous review is carried out to determine:

• who leads the hull/war policy and what do they believe they are covering;
• where the peril of piracy rests;
• what obligations under charter parties exist;
• whether loss-f-hire is purchased and when would payments commence;
• whether K&R is purchased and what are the terms of such cover;
• what limits are applied; and
• what (if any) claims procedure are agreed between the various underwriters and the insured.