September 3, 2015

War Risk Insurance, War Risk Area Designation, and Additional War Covers

What is War Risk Insurance?

War Risk insurances are designed to provide cover against the malicious and intentional acts of third parties to cause damage or harm to a vessel. The specifics of each policy will differ but will generally include damage or loss suffered by a vessel as a result of war, civil war, revolution, rebellion, or any number of other named events relating to war and conflict. Some policies may extend cover as far as including acts of piracy while most include acts of sabotage. Cover is terminated in the event of entering a predefined area, usually referred to as a War breach zone. Entering such areas will nullify the existing War Risk insurance, placing the vessel off risk, until the vessel exits the breach area. Alternatively, Additional War Risk insurance can be purchased to “re-activate” the War policy.

The purpose of War Risk insurance (as opposed to Additional War Risk insurance) is to address the potential risk of a War event that may suddenly occur during a vessels usual trade operations. As such, War Risk insurance is designed to respond to a loss resulting from a covered event occurring (e.g. losses incurred resulting from the outbreak of war) but will not respond to losses incurred as a result of a named event that is already underway (e.g. losses incurred as a result of calling at a country known to be at war). The latter is covered by Additional War Risk insurance.

There are insurances available in the market that will respond to events that are known to be underway and these generally fall under the Additional War Risks insurances and Kidnap & Ransom (K&R) insurances. We find that more often than not a vessel owner will require a combination of tailored insurances (Additional War, K&R, Loss of Hire, etc) in order to cover their liabilities in the event of entering a breach area. This is where the use of brokers and credible insurers can be critical in protecting a vessel owner’s revenue, property, and crew against the occurrence of unforeseen circumstances.

Different policies will respond to different events.  In the majority of cases, cover can be purchased and tailored to the vessel owner’s specific needs and the vessels/fleets trading area. It is also possible to purchase additional covers either on a one-off or recurring basis for breach events.

Terms of cover and frequency of cover will vary depending on the vessels circumstances and your specific requirements should be discussed with your broker.

P&I War Risks Policies vs. H&M War Risks Policies

P&I War Risks are generally offered free of any additional premiums for a capped limit above and beyond the Hull War limit already in place. This is a rarely used portion of the insurance and hence the reason it is offered free of charge by many P&I insurers as an added benefit for the assured. It is important to note that this cover will not respond to the primary risk portion otherwise covered under a valid Hull War insurance policy but may respond, depending on the terms of the insurance, to the excess liabilities beyond the Hull value.

While it may be possible to negotiate the specific terms of a P&I War cover, the cover is generally offered independently from the Hull War cover and will respond only to those listed events and terms common between the two policies where the H&M War limit has been exhausted.

Vessel owners and operators should be aware that P&I War may be a requirement when entering certain jurisdictions, such as the United States, in order to satisfy local laws and regulations. Your brokers can advise you of these requirements as necessary in order to ensure that your insurance cover can respond adequately as and when required.

Who designates Breach/High Risk Areas?

The London Joint War Committee, comprising of the representatives of Lloyds underwriters and International Underwriting Association of London (IUA) underwriters, meet on a quarterly basis to review and assess relevant guidelines on designated areas and provide changes and updates as necessary. Insurance policies will refer to the latest guidelines within the policy (JWLA/021 at the time of writing this article) in order to automatically incorporate relevant changes as and when advised by the Joint War Committee. Specific insurers may add or exclude areas as they see fit, subject to their own insurance/reinsurance requirements.

Where are the currently designated Breach/High Risk Areas?

The latest breach areas can be found in the London Joint War Committee’s (JWC) report on listed areas which defines areas of interest relating to “Hull War, Piracy, Terrorism and Related Perils”. Your broker will be able to provide you with the latest information and updates as issued by the JWC.

Pacifics Intermediaries & Consultants

Tel: +44 (0) 20 73750002
contact@pacifics.co.uk

www.pacifics.co.uk

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