U.S. NAVY
Ransom money is dropped in the vicinity of MV Faina in the Indian Ocean Feb 14. The Belize-flagged cargo ship, operated by Kaalbye Shipping Ukraine and carrying a cargo of Ukrainian T-72 tanks and related equipment, was attacked
Sept. 25, 2008, by pirates and forced to proceed to anchorage off the Somali coast.
panies to private insurance providers, according to
William Storz, MSC’s associate counsel.
“Our expectation, when we charter a ship, is that it
will continue to have the customary insurance on the
vessel, and what we’re talking about is the hull insurance, liability coverage or P&I [protections and
indemnity] coverage,” said Storz.
“The concept is that in our judgment — the judgment of DoD — the commercial terms and conditions
have become unreasonable,” he said. “Unreasonable in
the sense that the premiums have become too high in
light of what we believe the risks are to the ship, so
there is a judgment call that has to be made.
“But if a situation arises that we believe commercial
terms and conditions are unreasonable, we can direct the
shipowner to suspend commercial or risk coverage while
it is in that particular listed area, and we can substitute the
MARAD coverage, and we don’t pay a premium for that.”
“It’s a little complex, but both the commercial war
risk insurance and our war risk insurance are usually
in effect on the same voyage,” Fitzgerald said.
He said where MARAD’s program would come in —
instead of paying the additional premium to go into
that excluded zone — MSC would ask MARAD to
write the risk while the vessel is in the excluded zone.
Therefore, when the vessel enters the excluded
zone, the commercial war risk insurance would go off
and MARAD’s would go into effect. When the vessel
leaves the excluded zone, the MARAD coverage would
go off and the commercial war risk coverage would go
back on, Fitzgerald said.
He said that in using the program, DoD assumes the
risk of any losses, and indemnifies MARAD while the
Title XII coverage is in effect, which would mean DoD
would take any loss that occurred during that time.
The savings to shipowners can be significant.
“Since Desert Shield/Desert Storm, MSC’s use of
MARAD’s war risk program has saved MSC and DoD
money,” Fitzgerald said. “We know exactly how much for
Desert Shield/Desert Storm because MSC hired a contractor to do a detailed analysis after the conflict to determine
those savings — the answer was $435 million. This is the
amount they would have paid commercial underwriters
in additional war risk premiums had they not used us.
“Since 9/11, we’ve insured almost 130 vessels for
MSC, basically in the Persian Gulf,” said Fitzgerald,
comparing those figures with the 388 vessels MARAD
insured for Desert Shield and Desert Storm, where the
total insured value for those vessels was $20 billion.
“For the vessels that we’ve insured since 9/11, the total
insured value on all the vessels is $10 billion.”
Generally, there are two major types of insurance coverage nearly all ships and fleets purchase: marine risk
and war risk. Marine risk insurance has two subgroups:
marine hull insurance, which covers the physical vessel
against acts of God and nature, fire, collision, storms,
grounding and similar natural events; and, marine P&I
insurance that covers an array of additional liabilities,
such as oil pollution, damage to cargo, seamen’s claims
and to protect the shipping company if, for example, it is
publicly owned and a suit has been filed against it.
Within war risk insurance, there are two subgroups: a
war risk hull policy that would cover damage or loss of
the vessel due to mines, bombs, torpedoes or the hostile
taking of it by enemies, pirates and other similar crimes;
and war risk P&I, which covers special liabilities.
