Ebola, Cyber Security, Terrorism and Piracy: Ince & Co London seminar delivers update on insurance risks, By James Brewer
Ship operators, charterers and insurers are increasingly negotiating clauses related to the Ebola virus into contracts, Stephen Askins, shipping partner at Ince & Co, told an audience at the law firm’s autumn briefing in London. Many insurance companies are writing Ebola exclusions into their policies, and ship owners might want to prevent their ship being ordered to call at ports in affected countries.
Mr Askins said that ship owners were using industry radioactive or piracy clauses and seeking to transpose them into an Ebola type regime. The danger of these clauses was that it put the decision of whether a port was safe into the hands of the master, and the shipping industry needed to strike a careful balance. Mr Askins spoke of this dilemma in relation to ships trading to West African ports. “We cannot have masters making decisions whether to go to these ports, because the World Food Programme is responsible for feeding 1.5m people. If we impose restrictions on shipping, we are going to compound the position by not being able to feed these people.”
The danger of not allowing ships to call in the effected countries could mean that food aid and other vital supplies are not delivered. Another course was to introduce trading limits into agreements.
Deaths from Ebola have been reported at more than 6, 900 worldwide. To indicate the geographical spread of the problem, Mr Askins cited figures compiled by the World Health Organization up to October 5 2014, when a total of 3, 865 deaths had been reported in West Africa: 2, 210 in Liberia, 879 in Sierra Leone, 768 in Guinea and eight in Nigeria, the last named country having been declared free of virus transmission by the WHO on October 20.
He said that in the three main countries affected, there have been a far greater number of deaths from malaria, and from car accidents in the first six months of the year, than from Ebola in the last six months. Extrapolating the Ebola statistics forward, however, one can see how devastating the outbreak is, with Ebola accelerating past malaria as the greatest threat , said Mr Askins.
Of the relevant International Health Regulations, Mr Askins said that unlike most international treaties, you had to opt out, rather than in. The regulations included powers over inspection and detention, a legal duty to report sick crew, reporting stowaways and ‘stowaway’ animals such as monkeys, and legal duties on masters regarding port calls.
There was industry advice that masters must be aware of and understand the risk, that the International Ship and Port Facility Security Code should be robustly enforced, crew changes in West Africa avoided, shore leave reviewed, and crew monitored on departing ports in the affected countries.
The insurance market was looking at products with terms such as a tightening of ship entry procedures as had occurred in the US, and a thorough analysis of crew medical records.
It was reported in mid-October that insurance brokers Miller Insurance Services and William Gallagher Associates have launched what they call Pandemic Disease Business Interruption Insurance, backed by the Ark Syndicate at Lloyd’s. Coverage responds to loss of income arising directly out of shutdowns of healthcare facilities and diminished revenues in the aftermath of quarantine.
As there had not yet been any country closing its ports, which remain open for business.
Mr Askins posed the question of what would happen if pilots refused to go on board a ship. There had not been an incident yet of a crew member contracting Ebola, although a large Carnival Cruise Line ship returned to Texas without being allowed to dock in Belize or Mexico because a passenger described as ‘low-risk’ was self-monitoring. “Goodness knows how they would ever clean a ship of this type if need be, ” said Mr Askins.
Even the stigma of Ebola could attach following a visit by a ship and prevent it effectively trading.
The International Maritime Organization recommends that there should be no general ban on international travel or trade resulting from the Ebola virus.
In August, Mr Askins wrote in an Ince & Co circular that the outbreak had created an atmosphere of fear, with some crews refusing to enter ports in countries where the disease was reported. He said that ship owners and ports had grappled with this sort of health issue for centuries.
Under a time charter, a ship’s master would generally be obliged to follow charterers’ orders without undue question, subject to his responsibility for the safety of the vessel. Most time charters contain express or implied safe port warranties, whereby charterers promise to send the vessel only to ports that are safe.
Cargoes handled at West African ports such as Conakry, Freetown and Monrovia, are predominantly break bulk and stevedores come on board the vessel. There is very little control that the master can exert over what labour is used, Mr Askins noted.
On maritime piracy, Mr Askins said that we were beginning to see pirates to the east of Singapore copying what was going on off West Africa. Cargo was being stolen along those lines. “Where these people begin to get a toe-hold we must move very quickly to deal with it, otherwise it will escalate, ” he warned.
In regard to Somalia, with the presence of navies and the coalition forces, which did not get nearly as much credit as they deserved, armed guards and the shipping industry’s Best Management Practices for Protection against Somalia-Based Piracy, a level had been reached where it was too risky to become a pirate. Sources in Mogadishu, capital of Somalia, said that the pirates were still there, but were doing other business. “At sea, there are the occasional probes by gangs probably engaged in other criminal activity. I suspect that if anyone shows that they are half asleep, there could be another hijacking, ” said Mr Askins.
There had been piracy activity off Ghana for the first time, but hijacking for the theft of cargoes has been in decline since it peaked in 2011.Problems in West Africa included prohibition of armed guards in territorial waters, and a requirement for private maritime security companies to buy patrol vessels and lease them to the Nigerian Navy.
Many security companies had turned their attention to cyber risk. A risk had been recently highlighted by the fact that the Automatic Identification System which tracks ships was unprotected and open to abuse. People who remembered the Y2K scare, when it was rumoured that the date change to 2000 would play havoc with computer systems, would be a little wary of the strength of current cyber risk, but criminals had already been turning their attention to port-based container systems. The AIS system needed to look to its IT security. Hackers could ‘move’ the position of a ship and manipulate its systems. The shipping industry is waking up and is putting in place some policies for their ships. Consultants in this area are suggesting that the pace of change will mean that some owners will be unprotected.
Ince & Co partner Simon Cooper reviewed a High Court clash between London underwriters Amlin leading other reinsurers, and Oriental Assurance Corp of the Philippines. Oriental insured the cargo on the 23, 800 gt ferry Princess of the Stars, which in June 2008 sailed into Typhoon Frank and was lost, with some 800 people perishing.
The Commercial Court found in favour of the reinsurers who insisted they were not liable, because a warranty not to sail when there was a typhoon or storm warning, or to route into the possible path of such conditions, had been ignored. On appeal, Oriental contended that the way warranties would be construed in the Philippines had not been taken into account. The ship was not prohibited from sailing because the path of the wind, its strength and speed were not forecast; and the master had an alternative path meant to avoid the typhoon.
The Court of Appeal upheld the Commercial Court decision, however, and determined that the warranty was very clear: the ship should not sail if there is a storm warning.
Mr Cooper said that the UK government is in the process of changing the law, with a Bill to be passed before the 2015 General Election, on the way that warranties work. This will say that if you are in breach of a warranty, cover will be suspended until the breach is removed. “If the new law had been in place, in my view the result [in the Amlin vs Oriental Assurance Corp case] would have been the same, ” said Mr Cooper. “By setting sail, the ship had committed a breach of warranty which had not been remedied at the time of the loss if, indeed , it was capable of remedy at all.” Under the revised English law, warranties would offer protection to insurers where clearly drafted and circumstances supported them.
In a third presentation, Chris Jefferis and Jennifer Kleiser offered advice for minimising risk and cost for insurers and reinsurers in dispute resolution. They referred to recent English court decisions on sanctions for non-compliance with court rules and outlined pitfalls in multi-jurisdictional litigation.