Insurance Law News: Payment of Ransom Not Contrary to Public Policy

The ruling of Masefield AG v. Amlin Corp. Member Ltd., 2010, EWHC 280 (Comm) by Mr. Justice Steel, delivered in the English Commercial Court on February 18, 2010, addressed the issue of whether the hijacking of the tanker Bunga Melati Dua by Somali pirates justified a claim under an open cover marine insurance policy for the actual total loss (ATL) of cargo, or alternatively its constructive total loss (CTL), notwithstanding that the cargo was eventually recovered. This matter arose out of the hijacking of the tanker in the Gulf of Aden on August 19, 2008 while on route from Sumatra to Rotterdam. The owners negotiated a ransom payment and the vessel, with surviving crew members and cargo, were released on September 29, 2008. Steel held that there had not been a CTL, as the cargo had not been abandoned within the meaning of the Marine Insurance Act of 1906 because “the shipowners and the cargo owners had every intention of recovery their property…” and, in light of the history of Somali hijackings, the ship owners had good reason to believe they would be successful in achieving recovery, precluding a finding that an ATL was unavoidable.

Steel further rejected claimant’s argument that the recovery of the ship, by way of payment of ransom, should be ignored because the payment of ransom, while not illegal under British law, is contrary to public policy. Steel expressed that payment of ransom was an appropriate action for the ship owners as there was no other feasible method available to rescue the surviving crew members. Refusing to categorically rule ransom payment as being against public policy, Steel reflected that such a qualification would have a catastrophic effect upon the kidnap and ransom insurance market.