The Sri Lankan government’s decision to mandate the use of offshore armouries could potentially invalidate UK Private Maritime Security Companies (PMSC) insurance and affect their ability to win or retain security contracts from shipowners.

According to Marsh, those most likely to be affected are UK PMSCs that breach the UK Government’s Export Control Order of 2008 (ECO), which controls the trade and export licensing of military and dual-use goods and regulates the use of third party floating armouries.

Sri Lanka is one of the key strategic points for armed transit in the Indian Ocean, with many PMSCs commencing and completing transits at Galle. However, third party floating armouries are currently not approved under the terms of the ECO, meaning that UK PMSCs using the facilities are likely to be acting unlawfully. In the absence of careful reworking of insurance clauses, some UK PMSCs may find their insurance for transits invalidated where an unapproved armoury is used, either before or after a transit commences.

Nick Roscoe, a managing director in Marsh’s marine practice, explained: “Many PMSCs are caught in a perfect storm with statutory, contractual and common law factors potentially invalidating their insurance cover. We doubt that any insurer would underwrite business they may feel unable to honour in the event of a claim. However, the terms of their reinsurance programme may mean that they are unable to make what would be, in effect, an ex gratia payment.

“If unresolved, this situation could drive PMSC work out of Britain. This would be a serious blow to a fledgling UK industry, which has worked very hard to carve out an elite reputation within the global maritime community.”

Marsh has recently made amendments to its SAMI insurance facility, stating that its PMSC clients remain covered for losses that occur in their business operations and that do not arise directly from the unlawful use of a third party armoury.

Share Story: