Rush of ‘total loss’ Ukraine marine claims expected

Marine markets face a profusion of ‘total loss’ claims for trapped ships early in 2023, one year after the shut-down of Ukrainian ports, a London audience of practitioners has been alerted.

Ukrainian ports have been closed for vessel entry and exit since 5 February 2022, the day after the Russian invasion, and mines are reported to have been planted, effectively blocking as many as 100 vessels in ports and up rivers.

The full value of vessels trapped is unclear, but it could be as much as $800m to $1 billion.

At the time of the invasion many of the vessels had war risks policies, but on February 24 war risks insurers began to use their right to demand extra premium to extend the cover. 

A market briefing on 2 November, organised by the Association of Average Adjusters and the International Underwriting Association (IUA), highlighted the depth of the marine insurance issues involved.

Jonathan Bruce a partner at HFW LLP and deputy head of his firm’s global insurance and reinsurance group, commented: “This is a novel situation and there is therefore quite a lot of uncertainty.  

“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. 

”Most likely, disputes can be avoided through sensible discussion and creative solutions, but there is potential for flies in the ointment, for example if vessels get destroyed by missiles. There are likely to be disputes also with reinsurers about what is considered the number of occurrences.”

Aggregation potential

He said that 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 lapsed or been cancelled. 

In some cases, loss of hire has probably been paid by war risks insurers, but such payments were subject to limits. In many instances, crews will have been evacuated, leaving only a few members for maintenance.   

One Bangladeshi vessel had been hit by a missile, and there was a real possibility of others being hit. When ships sought to escape in due course, they could be damaged or sunk by mines. Some might also be taken over by Russian interests. 

Bruce continued: “What happens where a policy has been cancelled or has lapsed after the vessel became trapped; then before the 12 months it gets destroyed by a missile or by a mine? The position gets even more difficult if it turns out that other vessels are then able to escape unharmed from the same port before the 12 months, in other words but for the missile strike there would have been no potential loss.

“That is quite a difficult and interesting question and there is no English reported case which provides the answer on precisely those facts.”

As to aggregation of claims, “there is an issue as to whether losses will be aggregated as losses arising from one occurrence or event, and there could well be disputes about that, as well as to which reinsurance policy responds. That in turn depends on the date which you take as the date of loss.

“Aggregation is a big issue because if the losses are all lumped together there is only one excess which applies. That is usually a good thing for the insurer as against reinsurers unless the per-event limit is exceeded.”

Bruce noted that since August, three ports had reopened for grain exports, although agreement with Russia has been under threat.