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Piracy Update, 2009 - Lyons & Flood

Piracy Update, 2009 - Lyons & Flood

Piracy Update, 2009 - Lyons &

DEALING WITH THE COSTS OF PIRACY Executive Summary PIRACY UPDATE INSURANCE COSTS H&M coverage does not cover piracy losses where there is no hull damage and P&I coverage will not cover ransom payments. Although war-risk insurers will cover ransom payments and the costs of arranging for the successful delivery of the ransom (which can range anywhere from $75,000 for an air drop to $1 million or more for delivery by sea), they do not cover the costs of negotiating the ransom which often equals or exceeds the ransom itself. Nor do war-risk insurers typically cover the loss of business caused by the incident or the costs of security consultants, which frequently need to be retained to advise on the negotiating process and interact with the various Government and law enforcement agencies involved in the incident. Only kidnap and ransom insurance (“K&R”) covers all of these costs, including coverage if the ransom money is lost or seized en route to delivery. APPORTIONING THE RISK OF LOSS BETWEEN SHIPPERS AND CARRIERS Since COGSA and Hague-Visby do not address piracy or terrorism, carriers often have no legal leverage to force cargo interests to contribute to costs incurred by piracy incidents. Many shippers are resistant to paying surcharges for piracy. Thus, carriers must either protect themselves by modifying contracts of carriage to cover piracy or by attempting to declare general average in the aftermath of a hijacking. At present it is unclear whether courts will accept pirate attacks as general average incidents but the theory is being currently tested by several carriers. LYONS & FLOOD, LLP 65 West 36 th Street, 7 th Floor New York, NY 10018 Phone (212) 594-2400 Fax (212) 594-4589 LYONS & FLOOD, LLP 65 West 36 th Street, 7 th Floor New York, NY 10018 Phone (212) 594-2400 Fax (212) 594-4589

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