U.S. Marine Insurers Respond to Post-9/11 World of Domestic Security Rules and Regulations

U.S. ocean marine insurers need to work in partnership with government and all components of the maritime trade in order to meet the challenges of operating in the post-9/11 environment, according to David French, chairman, American Institute of Marine Underwriters (AIMU).

Addressing the Maritime Law Association in Boca Raton, Fla., recently, French noted “On September 11, 2001, a catastrophic event profoundly changed the business and legal environment in which marine underwriters operate. The global effort to combat international terrorism has resulted in a myriad of significant international and U.S. codes, laws, rules and regulations that dwarf anything marine underwriters have seen in the past.”

The scope of this effort and the enormous stakes involved demand a vigorous and thorough response by government, business and every profession, he observed.

French cited National Cargo Security Council statistics that show some 95 percent of U.S. trade moves by water and that nearly 8 million loaded containers arrive and are offloaded at U.S. seaports each year – that’s 21,000 containers every day.

“The value of container trade moving through U.S. seaports is estimated at $737 billion annually. These are big numbers. Staggering sums. Here’s another number – a much smaller one – of equally staggering impact. Less than one percent of shipped cargo is screened worldwide,” he noted.

While designing an adequate response to the terrorism threat is complex and expensive, clearly any disruption to the national transportation infrastructure would reportedly have a long-lasting catastrophic effect on both the nation’s and the world’s economy.

French noted that the U.S. laws and regulations are addressing this issue in a number of ways. “They are part of a strategy that recognizes that the first line of defense against terrorism cannot begin at U.S. ports and borders and that the availability of insurance against terrorism is vital to the economy,” he said.

He went on to discuss some of the significant international and domestic measures enacted in the U.S. to enhance transportation security, including the Maritime Transportation Security Act of 2002, OFAC and the Patriot Act, the Terrorism Risk Insurance Act of 2002 (TRIA) and OPA ’90.

“It’s pretty clear that the first thing faced by marine underwriters is education and communications on these measures. They also need administrative support to help in compliance and they also need new underwriting tools – clauses and exclusions – so they can assume the risks that are truly insurable,” French said.

Probably the most significant impact that the effect of terrorism has had on the marine market is manifested in the development of new clauses and endorsements which clarify and sometimes restate coverage in light of the terrorist threat and reflect the new world of TRIA and OFAC, he said.

Through AIMU, the marine insurance industry has reportedly responded effectively to these challenges. For example, AIMU’s Forms and Clauses Committee developed an Extended Radioactive Contamination Exclusion Clause and a Chemical, Biological, Bio-Chemical and Electromagnetic Exclusion.

“While TRIA does not require coverage for NBC, as nuclear biological and chemical risks are known, we thought it best to make the exclusion absolutely clear,” French commented.

As the risk of terrorism in the Open Cargo Policy is addressed in the Strikes Riots and Civil Commotions (SR&CC) warranty, AIMU also reportedly felt it appropriate to take a fresh look at this coverage.

It developed a new SR&CC endorsement that restates and clarifies that the insured goods are covered while in the ordinary course of transit, but no longer than 60 days after completion of discharge from the vessel or 30 days from an aircraft. This limits the carrier’s exposure to loss while the insured cargo is sitting in a port facility.

In addition, AIMU has conducted educational seminars on terrorism and the impact of 9/11 on the transportation industry to create greater understanding among marine underwriters on the new environment in which they operate.

“All this work is done with a common objective in mind – to create an environment in which marine underwriters can grow and prosper while providing vital financial protection to ships and their cargos.

“The strengths and vulnerabilities of the worldwide system of maritime trade are under closer scrutiny than ever before. Protecting that system from the threat of terrorism requires a partnership of government with all components of maritime trade,” French added.