Marine insurers face 'total loss' claims for trapped ships in Ukraine

Marine markets face the prospect of a rush of “total loss” claims early next year for ships trapped in Ukraine following the shutdown of the country’s ports, attendees at a briefing in London organised by the Association of Average Adjusters and the International Underwriting Association were told.

The full value of vessels trapped is unclear, but it could be as much as $US800 million ($1.23 billion) to $US1 billion ($1.5 billion).

“This is a novel situation and there is therefore quite a lot of uncertainty,” Jonathan Bruce, Partner at HFW, a law firm, said.

“Unless things change quickly, it seems likely that there will be a lot of deemed total losses all in one ‘clump’ next February, and some quick decisions will need to be made.”

Ukrainian ports have been closed for vessel entry and exit since February 25 this year after Russia invaded the country, blocking as many as 100 ships from leaving.

While many of the vessels had war risks policies at the time of the invasion, insurers have exercised their right to impose extra premium to extend cover.

According to Mr Bruce, if trapped vessels were on charter, extra premium might have continued to be paid but over time that would presumably have stopped and most of the policies have lapsed or been cancelled.

In some cases, loss of hire has probably been paid by war risks insurers but such payments are subject to limits.

“It is understandable that war risks insurers are sensitive about situations where a total loss can be claimed even though the vessel is intact and in theory still a valuable asset,” Mr Bruce said.

Mr Bruce says that under the Institute War & Strikes Clauses (the IWSC) it was likely that the perils of war, hostile act, restraint, and detainment have all been triggered since the invasion and subsequent closure of ports.