Page 28 - Insurance Times February 2024

by third parties, and accepted that the detention by always involve smuggling, it was the ‘paradigm case’ of
Venezuelan authorities amounted to a constructive loss of customs infringement. Accordingly, the Court of Appeal
the vessel for the purposes of clause 3 of the policy. But the considered it most unlikely that an exclusion of cover for
insurers denied liability, relying on clause 4.1.5, because the customs infringement could not be relied upon in a smuggling
vessel had been detained by reason of infringement of case such as this. But in addition to a textual argument, the
customs regulations. Court of Appeal considered the issue through the prism of
causation. The loss in this case was caused by a combination
The owner claimed that he was not privy to the attempted of both the malicious act and the detention of the vessel,
drug smuggling, which was ostensibly carried out by persons and, on the application of orthodox insurance law, where
unconnected to the ship or the assureds, and the owner there are two proximate causes, one covered and the other
sought to rely on the terms of their war risks insurance excluded, liability will be excluded.
which covered losses arising from “any person acting
maliciously”. The Decision of the Supreme Court on May 22,2018, where
Quadrant Chambers’ Guy Blackwood QC represented the
The insurers denied cover and sought to rely on the successful insurers, was not only an important decision for
exclusion of losses arising from “detainment by reason of the marine insurance market but the insurance industry as
infringement of customs regulations”. The insurers argued a whole.
that confiscation arising from the lawful acts of a sovereign
government is not a peril that the war risks insurance was The ship owners appealed to the Supreme Court, seeking
intended to cover. to restore the decision of Flaux J. But in what must have
come as a surprise to the parties, the Supreme Court
Under the case named under Navigators Insurance Company decided that, before it reviewed the reasoning of the Court
Ltd and ors v/s Atlasnavios-Navegacao LDA, on December of Appeal, it needed to address a question the answer to
8, 2014 Mr Justice Flaux upheld the owner’s claim, who were which had been common ground between the parties
represented by Alistair Schaff QC and Alex MacDonald, for throughout. That issue was whether the smugglers who had
a constructive total loss and for sue and labour expense,
attached the cocaine to the vessel were ‘acting maliciously’
holding that the detention of the vessel was caused by the
for the purposes of clause 1.5. The parties and the Courts
‘malicious acts’ of the drugs smugglers who, in planting the
below had proceeded on the basis that they were.
drugs, acted recklessly as regards the likely detainment of
the vessel in the event that the drugs were discovered by But the Supreme Court was unconvinced, and, following
the Venezuelan authorities. He rejected insurers’ principal further submissions from the parties, Lord Mance (with
defence that the standard war risk exclusion for ‘detainment whom Lords Sumption, Hughes, Hodge, and Briggs agreed)
by reason of infringement of customs regulations’ applied held that the relevant part of the clause referred only to
to a situation where the ‘infringement’ relied on (the third parties acting in a manner aimed to cause loss or
attempted smuggling of drugs by their attachment to the damage to the vessel. The reference to ‘terrorist(s)’ and to
vessel’s hull) was no more than the very manifestation of
those acting ‘from a political motive’ was significant, since
the third parties’ insured malicious acts. Although the judge it suggested a purposive requirement of harm to the vessel.
rejected the owners’ factual arguments that the
In contrast, third parties acting for ulterior motives (such
detainment was wrong as a matter of Venezuelan law and/
as drug smuggling) were not ‘acting maliciously’ vis-à-vis the
or the result of improper political interference, yet the vessel’s owners, even though their actions were unlawful.
judgement agreed to the owners’ claim, which succeeded
Indeed, as Lord Mance observed, far from maliciously
in full to the tune of US$22m.
intending to cause loss or damage to the ship, the
On appeal, the Court of Appeal on August 1,2016, smugglers’ aim was presumably exactly the opposite: that
overturned Flaux J’s decision. Christopher Clarke LJ (with the vessel would reach Italy and deliver its clandestine cargo
whom Laws LJ and Sir Timothy Lloyd agreed) held that there of cocaine unharmed. The Supreme Court concluded that,
was no implied limit on the scope of clause 4.1.5 so that as the loss could not be attributed to the malicious acts of
insurers could rely upon it to deny cover. The Court of Appeal third parties, the ship owners were not entitled to cover
noted that the policy explicitly provided that the insured relying on clause 1.5 of the policy at all. Accordingly, the
perils were subject to the exclusions (not the other way Supreme Court upheld the result in the Court of Appeal, but
around), and that, while detention of a vessel would not on a significantly difference basis.

26 February 2024 The Insurance Times