Court of Appeal dismisses insurance claim arising from Somali piracy

28/01/11

The Court of Appeal has upheld David Steel J's dismissal of a claim by a cargo owner against its insurer arising out of the detention of a vessel by pirates off the coast of Somalia.  The vessel, cargo and crew were seized by pirates in August 2008 and held for several weeks until the vessel owner paid a ransom for their release.

The cargo owner, Masefield, argued that a total loss, under a policy expressly covering piracy, occurred on seizure by pirates and removal of the vessel to Somali waters.  It contended that the prospect of the vessel, cargo and crew being released on payment of ransom should be disregarded for these purposes since (a) no insured could reasonably be required (and hence have a duty) to submit to extortion by paying a ransom, and (b) it was contrary to public policy for an insured to be expected or required to pay a ransom, or to await such payment by a third party, before becoming entitled to claim total loss.

The Court of Appeal affirmed the decision of the judge below that the test of total loss under the Marine Insurance Act 1906 was a purely factual one, and so long as it was possible by any lawful means to procure the release of the cargo, there was no total loss.

The judgment is here.