Information regarding the KnR insurance
S4S: Is K&R cover necessary from an insurance point of view?
GT : Some believe that the payment of ransom is covered by their H&M or War Risk Insurances depending on which includes the piracy clause. The piracy clause covers damages caused to the Hull as a result of a piracy incident but not the ransom claimed for the vessel’s release. Some say that their Hull and War Risk Underwriters have privately reassured them that they will pay the ransom, despite this not being explicitly provided for in their terms of cover. As those Underwriters put it, recovery is discretionary. Would you feel comfortable placing the lives of your crew upon some Underwriter’s discretion? Personally, I would not. But it’s not only the ransom itself. It is the loss of ransom in transit, the fees and expenses of Underwriters’ Advisers, these people are very expensive. Additional expenses include the negotiator fees that are equally expensive. Crew salaries during and sometimes after the event, extra office costs arising from the incident, the cost of fuel oil used by the vessel during the capture and until she reaches the rescue port as well as the relevant port dues. Then there may be legal liability costs or Personal Accident costs for death or injury of the crew during the event.. Given all of the above I think we can safely conclude that KnR insurance is indeed necessary.
S4S: What about the cost of K&R?
GT : Once established that K&R insurance is necessary, one has to prepare contractually so that it is clear who between the Owner and Charterer will bear the cost of this insurance. Cost of K&R insurances is determined by many factors. The first questions you are going to be asked in order to receive a quote is speed and free board. Do not limit your answer to those two. Whether using convoy or tug escort services, armed guards or unarmed guards, razor wire protection or citadel, all these are factors that will very much come into play when the Underwriter releases terms. Limits play a big part and it is useful to have a realistic approach. Another way to obtain best possible terms, is to establish an open cover which will allow many breaches/transits within a specified period of time at terms pre-agreed with the Underwriter. The volume of transits reduces the premium and offers certainty, as no matter the market trend, your terms are agreed.
S4S: Pls provide us more information, regarding K&R insurance
GT : K&R contracts or policies if you wish, are pretty much standard with just very few differences in respect of the limits allowed and covers afforded by each Underwriter.There are two things to do and two things to remember: Firstly, There is one very important clause that your broker must make sure is included in your policy and that is the Waiver Subrogation Clause vis a vis your marine and war risks policies. In practical terms, under this clause the K&R insurer gives up his subrogation rights for claims and/or actions you may have against your P&I, Hull or War Risks Underwriters due to the piracy incident. This clause is in effect the green light for your War Risks Underwriters to offer a substantial discount in their additional premium, as they are certain that your K&R Underwriter will not go against them for the Ransom payment. And secondly, opt for port to port covers instead of covers afforded only during the vessel’s trading in the risk area.Also, One very important thing that one has to remember about K&R contracts is that these are “pay to be paid” policies. The Underwriter will not pay directly the pirates, but will reimburse you for the ransom paid to them. The cash flow problem that this may create is resolved by a special short term loan arranged through some Lloyd’s agents, under the directions and approval of your K&R Underwriter. Last but not least K&R contracts are for obvious reasons highly confidential. Your K&R Underwriters must be consulted and offer their approval, before you disclose the contract’s existence to your War Risks Underwriters in order to gain the above mentioned discount in the additional premium.
S4S: Which are the current trends in Anti-piracy Insurance?
GT : Equally important to the K&R insurance are the insurances of K&R Loss of Hire and Shipowners’ Legal Expenses Cover for the Carriage of Armed Guards.Depending on the contractual arrangements you may have with your Charterer, the K&R Loss of Hire may prove extremely useful, especially since the Underwriters are prepared to name the Charterer as co-assured. It is also to be noted that contrary to the regular Loss of Hire insurance, the K&R one has a deductible of not more than 24 hours. Finally, you can even take out K&R Loss of Hire cover just for the vessel’s daily running costs, that is if she is transiting the risk area in ballast.With the latest trend of using armed guards along came the Shipowners’ Legal Expenses Cover, which is there to pay the costs of defending claims brought by the crew caught up in the middle of firing or even by some activist lawyer representing a dead or injured Somali pirate. Both these situations are not covered by the normal FD&D.
George Theodosakis is co-founder of Faros Marine Services.
Above interview is adapted from George’s presentation at 2nd Safety4Sea Forum.
You can view George’s presentation video during 2nd Safety4Sea Forum