Page 36 - The Insurance Times August 2024

‘marine insurance’ however it covers more than just the appearing to be unavoidable, or because it could not be
marine adventure. Section 2 of the act expressly remarks that preserved from actual total loss without an expenditure
the act also covers inland risks. Therefore marine insurance which would exceed its value when the expenditure had
covers onshore and offshore at the same time including hull been incurred."
and any casualty and liability of it.
On this basis, the cargo owners claimed in excess of US$ 7
Today, piracy is considered as an international crime. million from their cargo insurers. The cargo insurers refused
However, modern definition of piracy causes problems in to accept the notice of abandonment, maintaining the
terms of international law and also insurance policies. cargo was likely to be released when the hijacking was
Underwriters change their policy and premiums according resolved and thus no total loss had or would occur.
to international demand, sometimes wars and political
changes around world. They make specific policies for The vessel and its crew and cargo were released on 29th
specific routes. They separated war and strike risks and September, 2008, following the payment of a ransom of $2
divided piratical acts. million by the vessel’s owners. The primary issue for
determination was, whether when notice of abandonment
On 19th August 2008, the "Bunga Melati Dua", a Tuvalu flag was served, the claimant had been irretrievably deprived
chemical tanker vessel was on a voyage from Malaysia to of the cargo and thus it had been actually totally lost;
Rotterdam carrying a cargo of bio- diesel when it was regardless of the fact that it was restored at a later date
hijacked by pirates off the horn of Africa. The ship was following payment of a ransom by the shipowners.
taken, along with its crew and cargo to Somali waters. About
a month after the seizure, the pirates began negotiations The cargo owner argued that at the time the notice of
with the ship owners for a ransom to release the captured abandonment was given, cargo was an actual total loss (ATL)
ship, the crew and the cargo. due to capture by the pirates or alternatively it was a

constructive total loss (CTL). On this basis, they sought to
The cargo owners (Masefield AG) had arranged an insurance recover the difference between the insured value of the
covering, inter alia, loss arising from piracy and theft. On
cargo and its resale value. These arguments were rejected
18th September, 2008, they tendered a notice of in the English Commercial Court in 2010, and the cargo
abandonment to the cargo insurers (Amlin Corporate
owner appealed.
Member Ltd), the aim of which was to treat the cargo as
an actual total loss with cargo owners relinquishing all rights Before the English High Court, it was common ground that
to the cargo. The cargo owners maintained that the cargo the theft of the cargo and seizure by pirates were insured
had become an actual total loss (ATL) under section 57 (1)
risks. The primary issue though was whether the claimant
Marine Insurance Act 1906, arguing they were irretrievably had been irretrievably deprived of the cargo at the time
deprived of the cargo.
when the notice of abandonment had been served. The
claimants supported their case by reference to ‘Dean v
Section 57 (1) of the Act provides: Hornby’ (1854), concerning the capture by pirates who, by
“Where the subject-matter is destroyed, or so damaged as the nature of having seized property, exercised dominion
to cease to be a thing of the kind insured, or when the over a ship or cargo and, thus, that the property seized is
assured is irretrievably deprived thereof, there is an actual an actual total loss even though it is later recovered.
total loss"
In the case of the “Bunga Melati Dua”, ransom negotiations
As an alternative they argued that the cargo had become a were still ongoing. The claimants did not dispute that there
constructive total loss (CTL) under section 60(1) of the Act was a possibility, perhaps even a likelihood, that the ship and
because, inter alia, a total loss appeared to be unavoidable. cargo would be released following payment of a ransom.
However, whilst accepting that a ransom payment would
Section 60 (1) of the Act states provides: not be illegal, cargo owners argued that the court should

"Subject to any express provision in the policy, there is a not take the ransom negotiations into consideration because
constructive total loss where the subject-matter insured is payments to hijackers would encourage further acts of piracy
reasonably abandoned on account of its actual total loss and be contrary to public policy (in English law).

The Insurance Times August 2024 33