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Ukrainian coast guard patrols the "grain corridor" in the Black Sea. REUTERS/Thomas Peter

Cargo ships are seen from a patrol boat of Ukraine’s coast guard as they sail in the Black Sea, amid Russia’s attack on Ukraine, February 7, 2024. REUTERS/Thomas Peter

War Risk Insurance Challenges in the Wake of Russia-Ukraine War

Mike Schuler
Total Views: 869
May 29, 2024

The Chairman of the Association of Average Adjusters, Burkhard Fischer, highlighted the on-going complexities faced by the maritime industry during the association’s recent annual conference in London. His presentation, titled “When War Risk becomes War Reality,” focused on the aftermath of the Russia-Ukraine war and its implications for vessels trapped in Ukrainian ports.

Fischer emphasized that the conflict had caught the maritime industry and war risk underwriters by surprise. Traditionally, war risk insurance, usually procured at a low premium, was designed to provide coverage against the remnants of war during times of peace. However, the active conflict situation in Ukraine presented a unique scenario. Many vessels entered Ukrainian waters covered by basic war risk insurance, avoiding the need to reinstate their policies at a higher premium.

This led to a precarious situation in 2022, where about 70 foreign-flagged vessels were detained, triggering potential claims for constructive total loss (CTL) without any additional premiums. This unexpected development sparked a debate on the need to review the current low level of basic war premiums.

Fischer also discussed the challenges faced by shipowners and charterers. With charters being cancelled due to the conflict, shipowners were left with a tough decision. They had to either avoid paying additional premiums, risking the non-reinstatement of their war risk cover, or attempt to negotiate lower premiums by reducing the vessel’s insured sum.

A key case from history, Scott v Copenhagen Reinsurance Co (2003), was brought up for discussion. The case, involving a British Airways aircraft stranded and later destroyed during the Gulf war, led to a court ruling that the commencement of hostilities was the triggering event for the loss, not the cancellation of the war risk policy. This ruling prompted questions about whether similar coverage could be argued for vessels stranded in Ukraine.

Fischer concluded his address by emphasizing the unique circumstances of each case. He reminded the audience that while the situation in Ukraine has led to industry-wide discussions, each stranded vessel has its own unique story. The maritime industry and its insurance sector continue to navigate these unprecedented challenges, with no straightforward solutions in sight.

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