The payment of ransom to pirates is not illegal under U.K. law. Bryant's Marine Consulting reports that the U.K. Court of Appeal has ruled that the owner of cargo on a vessel hijacked by Somali pirates did not have a claim against its insurer for actual total loss (ATL) of the cargo where the vessel was released by the pirates when the vessel owner paid a $2 million ransom approximately two months after the hijacking.
In his ever interesting newsletter, Denis Bryant writes:
The primary issue before the court involved the interplay between the UK Marine Insurance Act 1906 and definition of ATL. More interesting, at least to me, was the extended discussion of the legality of payment of ransom to the pirates and the ability of the owner, depending on the insurance coverage, of obtaining reimbursement from the insurer. The court conceded that payment of ransom is, in the abstract, undesirable, but that in the circumstances currently existing in waters off Somalia it is the lesser of the various unsatisfactory alternatives.
You can access the ruling -- The Bunga Melati Dua, UK Court of Appeal (Civil Division),  EWCA Civ 24 (1/26/11) -- by downloading it from Bryant's Marine Consulting HERE
February 1, 2011