1. Introduction (1)

Fortunately, acts of terrorism are infrequent. However, they are not easy to predict and much information on them is not in the public domain. This complicates business for insurers, who need large numbers to determine probabilities, identify risk and, thus, price their premiums. Without a way to estimate probabilities, insurers feel reluctant to cover risk.

However, coverage is desirable here, if you consider the stakes. Damage from terrorism may ripple across countries and the threat of weapons of mass destruction cannot be ignored. The use of maritime vessels to transport said weapons, or the weaponisation of the vessels themselves, has been pondered. The role of the Internet of Things in maritime transport tends to expand and that will drive up cyber-attack attempts.

Globalization will permit strikes in any sea or ocean, but certain areas of the globe present a higher threat profile than others. Navigation Limits clauses in insurance contracts are more easily applicable with existing means of locating vessels and shipping containers.

2. The importance of defining terrorism

Definitions of terrorism have evolved², but it is acknowledged to form an entity separate from piracy and robbery. Terrorists have goals in mind that transcend personal motivation.

It may not be easy to distinguish an act of terrorism from an act of war. Discussion on the meaning of the word “war” has long occupied discourse in insurance laws and there are clauses excluding coverage for acts of war, but not acts of terrorism.

It is the applicable definition of terrorism that will establish the bounds of coverage. If laws pertinent to insurance contract contain their own definition, conflict may arise between the two.

Cyber-terrorism may be considered a form of terrorism. Someone has already defined it as a form of terrorism that weaponises the Internet to attack computer systems. Yet something like an infected thumb drive could prove sufficient.

3. Tides come and go, risk shifts and changes

The economic importance of maritime transportation makes it a desirable target. Long logistics chains can hardly avoid weak links. A terrorist strike on one of them can damage a large amount of commodities and cause injury or loss to several subjects.

Causal nexuses are not always clear. An injured party will expectedly seek to establish causal connections between a strike and highly remote consequences, but insurers may want to stagger nexuses across several years so they may apply exclusion clauses.

Many can be demanded. Namely in case of a successful cyber-attack. It might prove more difficult to obtain compensation from terrorists or their organizations.

Conflict between security culture and compliance culture will bring consequences when litigation plays out. Anticipating and planning are the keywords that will lead insurers to ask numerous questions after an attack.

4. Sometimes there's coverage, sometimes there isn’t

The 9/11 strike on the Twin Towers ushered in a different read on the risk of terrorism and how insurance policies should cover it. From that point on, exclusions became the rule and some feared the market would collapse³. Several attempts were made to get the market to work again, with countries following different paths. See TRIA in the US or GAREAT in France.

Institute Cargo Clauses (A) excludes coverage of losses, damage or expenses caused by any act of terrorism or the act of any persons acting on political motives. However, Institute Strikes Clauses (Cargo) 2009 cover “loss or damage” caused by any act of terrorism (Clause 1.2) and any act by persons acting on political, ideological, or religious motives, although subject to the limitations of the Transit Clause (Clause 5). Rarely do we seem to find coverage for NCBR (Nuclear, Chemical, Biological and Radiological) attacks.

Cyber-attacks go without coverage as well if one incorporates the Cyber Exclusion and Write-Back Clause (CL437). Two Lloyd’s Market Association clauses matter as well: LMA 5402 Marine Cyber Exclusion and LMA 5403 Marine Cyber Endorsement.

5. In Conclusion.

The lack of coverage on offer from insurers can be tackled in a number of ways (statutory imposition, state incentives for coverage, tax incentives, insurer-backed and/or publicly funded trusts, disaster warranties, co-insurance, or a combination of any number of these). But government intervention will motivate the industry not to find alternatives.

With coverage in place, the conversation will have to move on to other issues (premium ceilings, exclusions, insurers’ claim to partial reimbursements...). Mandatory insurance on shippers could prove a viable alternative.

The most efficient solution might be to for insurer and reinsurer pools, ultimately including other stakeholders and governments as well, to stimulate availability of coverage. Payments to insurers would be made after attacks, following objective criteria.

The biggest hurdle resides in the habitually transnational nature of terrorism attacks on maritime transport. National solutions alone can’t solve everything. We ought to develop an international convention establishing a fund of last resort when insurance fails to provide coverage that would also reimburse insurers that cover the pertinent risk. But our current juncture doesn’t favour

¹ This text is related to the presentation we delivered at the conference Novos Riscos, Novos Desafios [“New Risks, New Challenges”] (AIDA Portugal, 14-15.11.2024). It is furthermore a condensation of what I exponded on the essay “Transporte marítimo, terrorismo e seguro” [“Maritime transportation, terrorism, and insurance”] in Maria João Antunes/Alexandre de Soveral Martins (coord.), Comemorando os 100 Anos das Regras de Haia, vol. 1, Instituto Jurídico/Faculdade de Direito/University of Coimbra, Coimbra, 2022, pp. 85-97.

² One of the most important template clauses for maritime commodity freight, Termination of Transit Clause (Terrorism) 2009 by the Joint Cargo Committee of Lloyd’s Market Association, provides a definition of terrorism encompassing the acts of “lone wolves.”

³ As expressed by Phillip Hesswege/Guido Rossi, “Maritime Risk Management: Marine Insurance, General Average, Sea Loan”, in Phillip Hesswege/Guido Rossi (ed.), Maritime Risk Management, Duncker & Humblot, Berlin, 2021, pp. 9-15, p. 11.