Steamship Mutual April 2010 Chris Adams Steamship Mutual Piracy from the P&I Perspective San Francisco 6 th May 2010 Chris Adams Director Steamship Insurance Management Services Limited

Steamship Mutual April 2010 Chris Adams Somalia and the Gulf of Aden - Piracy incident reports involving Somali pirates 109 vessels fired upon 40 attempts at boarding 47 vessels hijacked 867 crew taken hostage 4 fatalities and 2 injuries attacks and 15 vessels hijacked to date (26 th April) Attack range increased from 165nm in 2005 to over 1,000nm in 2009/10 Lulls in activity during SW Monsoon weather June - September

Steamship Mutual April 2010 Chris Adams Piracy Attacks

Steamship Mutual April 2010 Chris Adams Piracy Attacks

Steamship Mutual April 2010 Chris Adams Piracy – Gulf of Aden Group Transit Scheme Eastbound and Westbound transit corridors established (IRTC). Patrolled by warships of EU NAVFOR ATALANTA. Coordination centre – Maritime Security Centre – Horn of Africa (MSCHOA) MSCHOA coordinates military support and protection of shipping. Group Transits – transit most vulnerable area at night, group all vessels together at daybreak. Relies upon registration – facility to register information securely and receive advice.

Steamship Mutual April 2010 Chris Adams East of Somalia Attacks have occurred a considerable distance to the east of Somalia. Vessels hijacked in positions closer to India than Africa. No IRTC, no Group Transit System, nor the same level of naval presence exists in this area as in the Gulf of Aden. Self-protection therefore assumes greater prominence in order to ensure vessel security. MSCHOA and International Chamber of Shipping recommend staying 600 miles from coast of Somalia and when routing North or South. Masters should consider keeping east of longitude 60° East from or until east of the Seychelles. Reasonable to conclude that any vessel in the northern sector of Indian Ocean and Arabian Sea may be vulnerable to attack

Steamship Mutual April 2010 Chris Adams Practical Guidelines

Steamship Mutual April 2010 Chris Adams P&I Club Cover and Piracy PiracyA marine peril Within the scope of Club cover. Illegal acts of violence or detention committed on the high seas for private gain. TerrorismA war risk Largely outside scope of Club cover. Attacks are politically or ideologically motivated. The incidents off Somalia have all been treated as piracy For Club cover to be involved, the act of piracy must result in a liability on the shipowner that falls within the scope of Club cover. Many of the liabilities typically covered by P&I could arise from piracy – e.g. crew death or injury, pollution, cargo loss or damage, collision, wreck removal.

Steamship Mutual April 2010 Chris Adams P&I Cover and Ransom No provision in the Club’s Rules that expressly provides cover for ransom. Kidnap and Ransom cover can be purchased in the commercial market. Covers not only the ransom but associated costs which can represent a significant proportion of the ransom itself. The majority of ransom payments made to date have been made by property underwriters – i.e. hull and machinery and cargo underwriters. Ransom payments are being treated as a general average expense. The P&I Club covers cargo’s proportion of general average that is unrecoverable because of a breach of the contract of carriage – i.e. causative unseaworthiness. Reimbursement of ransom as a sue and labour expense – would involve the exercise of discretion by a Club’s Board of Directors

Steamship Mutual April 2010 Chris Adams Club Cover for Sue and Labour Expense “Extraordinary costs and expenses reasonably incurred upon or after any casualty, occurrence or event which is likely to give rise to a claim covered by the Club, solely for the purpose of avoiding or minimising any liability or expenditure arising from such claim; Provided always that: There shall be no recovery under this Rule… in respect of any costs or expenses save to the extent that (i)The same shall have been incurred with the consent in writing of the Managers, or (ii) The Directors in their absolute discretion shall otherwise determine.

Steamship Mutual April 2010 Chris Adams US Executive Order on Somali Transactions Continuing instability in Somalia and off its coast constitutes a threat to the national security and foreign policy of the United States. National emergency declared to deal with that threat. Executive Order issued 13 th April Blocks the property of persons contributing to the instability in Somalia. Acts of piracy or armed robbery at sea off Somalia specifically identified as threats to stability. Order applies to U.S. persons. Prohibits any contribution to, or provision of funds for the benefit of any person whose property is blocked. Implications on negotiations to release hijacked vessels? Implications on contributions to ransom by U.S. cargo interests, and insurers? Increase in risk for crews of hijacked vessels?

Steamship Mutual April 2010 Chris Adams Typical Issues – contractual obligations Safe port issues. Reasonable dispatch/ customary route. Precautionary measures – who bears the cost? Implications of piracy in relation to seaworthiness. Is a hijacked vessel off-hire? Will a hijack result in contractual frustration? Specific charterparty clauses – BIMCO, Intertanko

Steamship Mutual April 2010 Chris Adams Typical Issues - Security Guards Unarmed Guards Armed Guards AdvantagesDisadvantages Greater security experience than crewCost Enhance crew numbers, aiding watch-keeping vigilance Logistical burdens of embarking and disembarking guards Builds crew confidence and resiliencePossible uncovered contractual liabilities AdvantagesDisadvantages Armed response to attack might be an effective deterrent Legal and logistical burdens of embarking and disembarking guards and their arms Determining terms of engagement Enhanced risk to crew if guards exchange fire and pirates seize the ship Enhanced risk of liabilities on shipowner through risk to third parties

Steamship Mutual April 2010 Chris Adams

Steamship Mutual April 2010 Chris Adams