Total Loss Claims on Piratical Capture

Abstract

Maritime piracy is a real contemporary peril. Somali piracy alone costs the shipping industry between 7-11bn dollars annually. Between 2007 and 2011, average ransoms paid to Somali pirates rose from 600,000 dollars to 4.7m dollars per vessel. Ransoms paid in 2011 to Somali pirates totalled 135m dollars. Piracy is not confined to the Gulf of Aden, but has recently proliferated throughout Indonesia, is increasing off the coasts of Guinea and Nigeria, and isolated incidents occur worldwide. An extensive, growing literature on the international criminal law of piracy questions where pirates might be prosecuted. Contrastingly, the insurance law concerning piracy attracts little academic attention.

A 2011 English Court of Appeal judgment (‘Masefield’) found that an insured could not recover for a total loss under its policy immediately following a capture. It was deemed not to have lost its property while it remained probable that the pirates intended to seek and accept a ransom payment, then release the property. Ship and cargo owners received little comfort, for the judgment effectively requires them to wait an uncertain time after capture before they might recover under a policy, and meanwhile support ransom negotiations. Insurers might welcome the relief from making prompt payments, and from having to deal themselves with the consequences of a capture.

This judgment was not a foregone conclusion; English law historically allowed the insured to abandon instantly and recover for a total loss, despite a hope of recovery. This thesis outlines how English insurance law concerning capture developed, from the earliest reported authorities to Masefield. It questions whether Masefield followed established authorities, and argues that a presumption of total loss arises on a capture.