Cyber hacking has evolved significantly since the London Market introduced marine cargo cyber wordings in 2018/2019. The increasing frequency and sophistication of cyber events have placed greater scrutiny on cargo and stock throughput policy wordings, particularly the LMAA 5403 Marine Cyber Endorsement. This clause excludes losses “directly or indirectly caused by” a cyber event, raising concerns that theft utilising cyber-attacks could fall outside cover, despite theft traditionally being considered an insured peril under all risks policies.
The modus operandi of organised criminal gangs has evolved considerably to include non-physical entities. In many cases, theft has the potential for increased subtlety, evading detection for prolonged periods of time. Under the original endorsement, any cyber involvement (even if followed by physical theft) could trigger the exclusion. Wording only required that the cyber event formed part of the chain of causation, and courts have consistently emphasised that clear contractual language supersedes underwriters’ intentions, increasing potential for denied claims.
The cargo market was drawn into a pro-active response; the Marine Cargo Theft Confirmation Cyber Endorsement ‘carves back’ cover for cyber-human adjacent thefts. Clause 4 states that if a computer is used to facilitate access, but physical removal of goods is required to complete the theft, the exclusion will not apply. This approach aligns with the Theft Act 1968 definition and avoids imposing onerous evidential burdens on insureds. Despite the complexities of drafting, the new wording aims to ensure theft remains recoverable even when cyber elements are involved.
The market considered further drafts, focusing on certain types of theft to be brought back into scope of cover and evidential burdens. However, rightly in our view, such attempts for change were dismissed. Undue considerations would only prolong further iterations of debate. Additionally, cargo underwriters are seemingly prepared to accept the current status quo. Given the complexity of the problem, the solution is imperfect. However, it represents a positive step towards a resolution for this unholy alliance.
The LMAA 5403 saw no judicial scrutiny. So, it remains to be seen whether the revised wording will be successful. It seems from our side that this wording does go some way to reflecting the marine cargo market’s perceptions.
As technology advances, the cargo market must adapt rapidly to meet insureds’ needs. Stakeholders should remain informed and collaborate closely with insurance partners to navigate this evolving landscape confidently.
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