[2011] EWCA Civ 24

Peter MacDonald Eggers and Sarah Cowey were involved in this decision – the first case involving a piracy claim under an insurance policy for more than 150 years – clarifies the law of marine insurance, piracy and total losses, and the treatment of ransom payments as a matter of English law and public policy.

The full judgment can be viewed here.

On 19 August 2008, Somali pirates hijacked the vessel Bunga Melati Dua in the Gulf of Aden and took her to Somali waters. On board the vessel were two cargoes of bio-diesel owned by the Claimant. The pirates demanded a ransom. A ransom was eventually agreed and paid by or on behalf of the shipowner. The vessel, cargo and crew were safely released on 29 September 2008, six weeks after the vessel had been seized.

The Claimant claimed an indemnity under its cargo policy issued by the Defendant for the actual or constructive total loss of the cargoes. The Claimant also argued that in determining whether there had been a total loss, the Court could not take into account the prospect of recovering the vessel and cargoes by reason of the payment of a ransom, because such a payment was contrary to English public policy.

At first instance, David Steel, J dismissed the Claimant’s claim and held that the cargoes were not totally lost, whether actually or constructively, and that the payment of a ransom to pirates was not contrary to English public policy.

On appeal, the Court of Appeal affirmed the decision of the trial judge, confirming that there could be no actual total loss where there was a strong likelihood of the insured cargoes being recovered.

As regards the payment of ransom, Rix, LJ said that “there is no universal morality against the payment of ransom, the act not of the aggressor but of the victim of piratical threats, performed in order to save property and the liberty or life of hostages … there is no universally recognised principle of morality, no clearly identified public policy, no substantially incontestable public interest, which could lead the courts, as matters stand at present, to state that the payment of ransom should be regarded as a matter which stands beyond the pale, without any legitimate recognition. There are only elements of conflicting public interests, which push and pull in different directions, and have yet to be resolved in any legal enactments or international consensus as to a solution …”.