How events in the red sea affect the marine insurance sector in Türkiye

Tilegal’s Savaş İnandıoğlu and Nil Tütüncüoğlu outline the general legal overview of cargo insurance in light of the incidents occurring in the Red Sea.

Are war and strike risks generally covered in marine insurance policies in Türkiye?

Savaş: Under the Turkish legal industry, generally marine insurance policies include Institute Cargo Clause (A) (ICC (A)) 1.1.82, which does not cover war and strike risks as per 6. War Exclusion Clause and 7. Strike Exclusion Clause.

Nil: Such exclusions are very strict. The insurance will not cover loss, damage, or expense caused by:

  1. war, civil war, revolution, rebellion insurrection, or civil strife arising therefrom;
  2. any hostile act by or against a belligerent power;
  3. capture, seizure, arrest, restraint, or detainment (piracy excepted), and the consequences thereof or any attempt thereat;
  4. derelict mines, torpedoes, bombs, or other derelict weapons of war, caused by strikers, locked-out workmen, or persons taking part in labour disturbances; or
  5. riots or civil commotions, resulting from strikes, lock-outs, labour disturbances, riots or civil commotions, caused by any terrorist or any person acting from a political motive.

However, insurers are generally given Institute War and Strike Clauses by requesting extra premium. Nevertheless, even though War and Strike Clauses are provided with the policy, some risky areas are not covered and clearly defined under each policy such as Russia, Ukraine, Iran and other sanction related countries. The Suez Canal, Red Sea, Yemen Sea, Gulf of Aden, Persian Gulf, Strait of Hormuz and the Sea of Oman have also been added to this exclusion list pursuant to current developments.

Are the incidents in the Red Sea considered in the scope of war and strike risk exclusions?

Savaş: Actually, such classification is more related to the law of nations rather than insurance law. Considering Houthis are not a country and have declared war even though they said they will attack ships connected with Israel or heading to or from there, many of the vessels have no connection with Israel. Accordingly, it is not easy to define such acts as war, but such acts can be counted as caused by any terrorist or any person acting from a political motive.

Nil: So even though there are different views as such, incidents can be counted in war exclusions. The general overview is that exclusion in the scope of Strike Clauses shall be more reasonable. Additionally, it is worth determining the approximate cause of any damage depending on each incident’s particulars.

Under Turkish law, how are the War and Strike Risk Clauses implemented?

Nil: There is a seven days notice period regulation for application of War and Strike Clauses in some policies which gives an option to the insurer to cancel the coverage. The aim of such a clause is to protect insurers from increased risk due to alteration of balance between the premium and the risk to the detriment of the insurer. Namely, as per article 1444 of the Turkish Commercial Code, the insured bears the responsibility not to increase the risk against the insurer.

What are the options for insurers to protect themselves against the incidents in the Red Sea as risk increases?

Nil: We can briefly mention articles 1415 and 1445 of the Turkish Commercial Code. Article 1415 named ‘Partial Termination or Partial Avoidance of the Contract’ stipulates that the insurer is entitled to terminate or avoid the insurance contract partially for a good reason. It is determined with regard to the circumstances that the insurer would not have concluded the contract based on the remaining terms, it shall be entitled to terminate or avoid the contract entirely. If the insurer terminated or avoided the contract partially, the policyholder shall have the right to terminate or avoid the contract entirely.

Article 1445 demonstrates that during the contract period, the insurer may terminate the contract or request additional premium within one month from the date it became aware of the facts, increasing the probability of materialisation of the risk or aggravating the current after status, or of the events designated by the parties at the conclusion of the contract as aggravation of the risk. In case the request for additional premium has not been accepted within ten days, the contract shall be deemed as having been terminated. To sum up, insurers cannot be forced to be bound to policies of which conditions shall become aggravated.

Are cargo insurers using such options after the incidents in the Red Sea?

Savaş: We have been informed that many cargo insurers have sent the insured a warning letter in which they implemented the rule of cancellation of a seven day period in terms of War and Strike Risk Clauses for the regions of the Suez Canal, the Red Sea, Yemen, Gulf of Aden, Arabian Gulf, Strait of Hormuz and the Arabian Sea for effective policies. Needless to say that War and Strike Risk Clauses seems to be not included under any policies for the voyage of the aforementioned areas until the risks shall be removed.

What are the consequences of hijacked vessels for the marine insurance sector?

Nil: There was a debate regarding what will be the consequences of the declaration of a general average in case of saving the vessel and the cargo by paying a ransom. Considering both ICC (A) 1.1.82 and the War and Strike Clauses cover general average claims, the discussion whether ransom fees should be paid by cargo insurers (as per Turkish law) has been made. Namely, there was an explicit article under the former Turkish Commercial Code stipulating that ransom payments in order to save the vessel and goods are counted as a general average. The current Turkish Commercial Code does not have any specific regulation. Considering the anti-terror law, it is not legal to support terrorism directly or indirectly, and accordingly in the case that such a ransom fee can be deemed as contribution to terrorism, taking into account the legal status of Houthis, such payments can be considered illegal and cannot be evaluated as a general average as per Turkish law. Still, if there is a piracy event, since the exception of war and strike risks are also subject to the exception of piracy, ransom payment to pirates can be deemed as a general average and covered under policies including ICC (A).