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Supreme Court rejects War Risks cover for detained vessel

22 May 2018

Navigators Insurance Company Limited and Others v Atlasnavios-Navegacao LDA (formerly Bnavios-Navegacao LDA) (‘The B Atlantic’) [2018] UKSC 26

The Supreme Court has today handed down its judgment in the long running saga of ‘The B Atlantic’ and whether the vessel’s owners were entitled to cover from War Risks insurers following detention of the vessel by the Venezuelan authorities back in August 2007.

Background

In August 2007, ‘The B Atlantic’, owned by Atlasnavios-Navegacao LDA (the Appellants), was loaded with a cargo of coal in Lake Maracaibo, Venezuela for discharge in Italy. Unbeknown to the Appellants, third parties had engaged in an unsuccessful attempt to export cocaine from Venezuela using the vessel. The drugs were strapped to the bottom of the vessel underwater. The vessel was detained by the Venezuelan authorities following an underwater inspection. After a period of more than six months, the Appellant treated the vessel as a constructive total loss and claimed from its War Risk insurers.

War Risks insurers declined the claim on the basis that it was excluded under the terms of the policy.

Policy clauses

Cover was provided on the basis of the Institute War Strikes Clauses Hulls-Time 1/10/83 (the Institute Clauses). The key provisions were as follows:

"Clause 1: PERILS

Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage to the Vessel caused by…

1.2 capture seizure arrest restraint or detainment, and consequences thereof or any attempt thereat…

1.5 any terrorist or any person acting maliciously or from a political motive…

1.6 confiscation or expropriation.

Clause 3: DETAINMENT

In the event the Vessel shall have been the subject of capture seizure arrest detainment confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the Vessel for a continuous period of 6 months then for the purpose of ascertaining whether the Vessel is a constructive loss the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery.

Clause 4.1.5 EXCLUSIONS

This insurance excludes… arrest restraint detainment or expropriation… by reason of infringement of any customs or trading regulations…"

In the Commercial Court, Mr Justice Flaux held that the owners were entitled to recover under the War Risks insurance because Clause 4.1.5 did not apply to an infringement of customs regulations which occurred due to a malicious act of a third party falling within Clause 1.5, such as the attempted smuggler’s act in attaching the drugs to the hull of the vessel.

The Court of Appeal disagreed and held that, even if the owners claim fell within Clause 1.5, it was excluded by virtue of Clause 4.1.5.

Supreme Court judgment

The Supreme Court unanimously upheld the Court of Appeal’s decision and dismissed the Appellant’s claim.

Their Lordships held that the loss of the Vessel was not caused by "... any person acting maliciously... " within the meaning of Clause 1.5 of the Institute Clauses.

The smugglers were not ‘acting maliciously’, which required an element of spite, ill-will or the like (see The Mandarin Star [1968] 2 Lloyd’s Law Rep 47, and The Salem [1982] 1 QB 946). The attempted smuggling was not aimed at the detention of or any loss or damage to the Vessel or any property or person. Clause 1.5 must be read in its immediate context and also in the light of the recent marine insurance authorities which the draftsman of the Institute Clauses would have had in mind. The draftsman had in mind the actions of persons which were aimed at causing loss of or damage to the vessel or other property or persons, as a by-product of which the vessel is then lost or damaged. It was not the intention of the smugglers that the drugs should be discovered by the authorities, and the vessel detained, far from it.

Their Lordships went on to hold that even assuming that the loss was caused by a person ‘acting maliciously’, it would be excluded by Clause 4.1.5 as it arose from "… detainment… by reason of infringement of any customs or trading regulations… ".

Clause 4.1.5 was applicable to circumstances falling within Clause 1.5. The Appellants were relying on Clause 3 (‘Detainment’) to establish a constructive total loss, but that is precisely the subject-matter of Clause 4.1.5. Neither as a matter of causation nor as a matter of construction was it possible to treat Clause 4.1.5 as inapplicable. A distinction could not, and should not, be drawn between the ‘malicious act’ and the infringement of ‘customs regulations’ as the proximate or effective causes of the loss. What was required was the construction of the particular wording, giving effect to the natural meaning of the words in their context. While the aim was to identify a single real, effective or proximate cause of a loss, in some cases there may be two concurrent causes of the loss. It was settled law that where an insured loss arises from a combination of two causes – one insured, the other excluded – then the exclusion takes precedence and prevents recovery (see Wayne Tank and Pump Company Ltd v Employers Liability Assurance Corporation Ltd [1974] 1 QB 57). Here two potential causes could be identified, the supposedly malicious act and the subsequent detainment for infringement of customs regulations. The latter excluded cause was fatal to the Appellant’s claim.

Comment

The decision will be welcomed by War Risks insurers. It gives some further clarity to the scope of the phrase "… any person acting maliciously… " under Clause 1.5 of the Institute Clauses. It also helps explain the interaction between cover for the perils at Clause 1 and Clause 3 (Detainment) on the one hand, and the exclusion for arrest, restraint, detainment, confiscation or expropriation by reason of infringement of customs or trading regulations at Clause 4.1.5 on the other hand. Ultimately, taking a step back, it must be correct that detainment due to the (unknown) smuggling of drugs cannot be considered a war risk.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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