Ship detentions arising from smuggling allegations is presently quite a topical area. In regard to detention insurance cover, looking at the Hellenic’s Rules, the owner of an entered ship is insured if the loss, damage or expense, as the case may be, is caused by, capture, seizure, arrest, restraint or detainment. The owner is also covered if the loss is caused by any person acting maliciously or from a political motive, as well as confiscation or expropriation. In order for a war risks policy to respond the insured has to come within one of the insurance perils mentioned above. A market policy from Lloyd’s would be on a very similar wording.
However, there are some exclusions to such claims. An Owner is not insured for any loss, damage, liability, cost or expense arising out of action taken by any State or public or local authority; under the criminal law of any State; on the grounds of any alleged contravention of the laws of any State; or if the loss is as a result of ordinary judicial process. If there is a breach of a state’s law or if there is due process then the war risks cover will not respond.
Venezuela is an Additional Premium Area and calls there must be declared. With the Hellenic calls to the Venezuelan coast are declarable but no premium is charged. However, if the ship visits Maracaibo or the Orinoco then a premium is charged.
Some of the aspects of Venezuelan Law relating to drug smuggling include:
- Long sentence for those found guilty;
- The ship may be held for 3 months until a preliminary hearing;
- If there is a full criminal trial, the ship can be held for a year or more;
- If the final judgement demands seizure, the property passes to the state;
- Local courts don’t normally allow release until final judgement (i.e. no release by the provision of security);
- Judges and prosecutors will be punished if they are in violation of the law.
Another type of smuggling case seen in Venezuela is allegations of oil smuggling. These cases arise because there is a huge difference between the internal Venezuelan price of oil and the international price which might tempt criminals to illegally export oil.
In the case of the B ATLANTIC, the ship was loading coal at Lake Maracaibo, in 2007, for Italy. Prior to sailing the Venezuelan Authorities conducted an underwater inspection and found 3 bags, strapped to the ship’s hull, containing cocaine. The ship was detained and the crew were arrested. Ultimately 2 crew members were convicted and given 9 years imprisonment. The Owners abandoned the ship after two years and the ship was ultimately confiscated pursuant to a court order. The ship was insured (not with the Hellenic) but on Institute War and Strike Clauses Hull-Time 1/10/83 as amended.
This crux of the case concerned the following question: Can an Owner claim a CTL in respect of detention by customs due to drug smuggling allegations? The Owners argued that the detention arose due to the malicious acts of the drug cartel in attaching drugs to the ship. The underwriters on the other hand denied liability. They argued that the proximate cause was infringement of customs regulations, which was excluded. At first instance the Commercial Court found in the Owners’ favour but on appeal the Court of Appeal reversed the decision. The case was appealed again to the Supreme Court which issued a decision that ‘Attempted smuggling is not a Malicious Act’. The smugglers did not intend any harm to the ship or the crew. The Supreme Court went on, obiter dicta, that even if it was a malicious act, the exclusion would apply in any event. The conclusion of the B ATLANTIC is that smuggling of drugs or contraband is not a war risk.
If there is no cover under the war risks policy where can an Owner look?
Generally, the International Group P&I Fines Rules provide compensation for the confiscation of a ship by any legally empowered court by reason of infringement of any customs law/regulations. However, there are some issues with the P&I cover:
- First it is discretionary cover, i.e. not as of right;
- Second, the Owner has to show that he took all reasonable steps to prevent the infringement; and
- Third, the recovery will not exceed the market value, and so there is likely to be a shortfall on the insured value.
What other covers are out there?
The Hellenic provides Contraband War Loss of Hire Insurance. This additional insurance:
- Has worldwide cover;
- The AP Areas are covered within Annual Premium;
- It covers delay by reason of detainment by Government, public or local authority or port or customs authority;
- As a result of contraband being found on board;
- The daily rate is agreed, say US5,000 or US$10,000;
- Normally for 90 days but the period can be extended.
This insurance is cheap as it is based on a multiple of the Annual Premium and so an Owner can take out such insurance for say US$200-300 per annum. However, note that the policy only covers the loss of hire. It doesn’t respond to the loss of ship.
If an Owner is looking to cover the loss of the ship itself then the answer is Shipseize cover. This insurance:
- Is available on the market;
- It indemnifies for loss of earnings and damage to/loss of ship, due to the discovery onboard of drugs or other illegal tender;
- The policy pays the difference between any P&I settlement and the insured value.
The Hellenic doesn’t provide such Shipseize cover but is presently looking in to it.
Loss Prevention measures
Avoiding smuggling allegations is all about being vigilant. The most important measures that shipowners and their crew can take are:
- Keep a good lookout;
- Keep the ship well lit on deck and over the ship’s side;
- Consider your own diving inspections prior to sailing;
- Conduct regular ship-board search inspections;
- Warn the crew of the risk;
- Limit access to the ship;
- Consider using third party security guards from an approved supplier;
- Record activities and discoveries.
In case drugs are found:
- Respond in accordance with the Ship’s Security Plan;
- Notify the Local Authorities;
- Do not touch the drugs;
- Photograph/video the area where the drugs were found;
- If possible, seal the area to prevent unauthorised access;
- Inform your P&I Club and/or local correspondent to mobilise local assistance.
The text above is an edited version of Rod Lingard’s presentation during the last SAFETY4SEA Conference in Athens. View his video presentation herebelow:
The views expressed in this article are solely those of the authors and do not necessarily represent those of SAFETY4SEA and are for information sharing and discussion purposes only.
Rod Lingard, Managing Director, Hellenic Mutual War Risks Association
Rod is a Master Mariner and has degrees in, Nautical Studies, Law and an MBA. After 11 years at sea, mainly on bulk carriers, Rod worked as a cargo superintendent for a short while before joining the Sunderland P&I Club in 1987 and then Thomas Miller/The UK P&I Club in 1991. Rod became a Syndicate Manager with Thomas Miller in 1995 and he managed several different Syndicates, including Thomas Miller (Hellas) Ltd from 2008 to 2014, providing claims handling and advisory services to UK P&I and UK Defence Club Members. Rod returned from Greece to London in 2014 to become the joint Managing Director of Thomas Miller War Risk Services Limited the consultants to the Managers of the Hellenic Mutual War Risks Association (Bermuda) Limited and in April 2016, in addition to keeping his war role, Rod moved to the Isle of Man and recently became Chairman of Thomas Miller (Isle of Man) Limited.