Involnert Management Inc v Aprilgrange Limited & Others [2015] EWHC 2225 (Comm)

This case in the Commercial court concerned whether an innocent over-valuation of a super-yacht, the ‘Galatea’, enabled insurers to avoid the policy on grounds of a material non-disclosure. Leggatt LJ found in favour of the insurers but criticised the ability to avoid a policy where there has not been a deliberate or reckless non-disclosure, a current ‘blot’ on English insurance law.

The facts

The Galatea was damaged by fire while at her mooring in the Athens Marina. The damage caused by the fire was such that the yacht was a constructive total loss. The yacht was insured under the policy for €13m. The policy was in two sections: (A) Hull & Marine cover for €9.75m and (B) Increased Value of Hull and Machinery for €3.25m. Before the cover was placed the yacht had been professionally valued at around €7m and was at the time of the loss advertised for sale at €8m. Insurers denied liability under the policy.

The claim

Action was taken by the claimants against the insurers. Liability was disputed by insurers on the following grounds:

  1. insurers were entitled to avoid the policy on account of the insured’s failure to disclose that that they had knowledge that the yacht was worth significantly less than the sum insured;
  2. insurers were entitled to avoid the policy on the grounds of a misrepresentation in the proposal form as to the value of the yacht;
  3. the claimant lost any right to claim against the insurers since it had failed to comply with policy conditions; and
  4. the claimant in any event could not recover for a total loss because it had failed to give a valid notice of abandonment and would only be able to recover a partial loss of the value of €9.75m.

Judgment

In response to the above claims, Leggatt LJ found that:

  1. the failure to inform the insurers that the yacht had been professionally valued at €7m and was on the market for €8m at the time of the loss was a material non-disclosure. Although frequently super yachts are valued at their purchase price for a number of years after purchase, the fact that the insured had received a more recent valuation was material and would be something an underwriter would want to know; on the basis of evidence given at trial established that underwriters had been induced into the contract by the non-disclosure.
  2. The claimants had not made a misrepresentation in the proposal form as to the value of the yacht. A statement honestly believed at the time it is expressed cannot amount to a misrepresentation. The management company with responsibility for completing the form on behalf of the claimant honestly believed the value of the yacht to be the amount stated.
  3. The claimant had failed to provide sworn proof of loss within 90 days as required under the conditions of the policy. The claimant’s argument that they were not required to provide sworn proof of loss as the insurers’ agents attended the scene following the fire soon after it occurred - Leggatt LJ stated - was unanswerable. The failure to provide the proof of loss had the result of barring the claimant from bringing proceedings for the recovery of its claim.
  4. Furthermore, the court found that the insured had failed to provide notice of abandonment on the basis of total constructive loss. This failure had the effect of preventing the claimants from recovery under the section A (Hull and Machinery) cover. However, the failure to provide a notice of abandonment did not impact the section B (Increased Value) cover as the insurers had agreed to waive interest in recovery of the vessel.  

In addition to the above the claimant joined brokers to the proceedings on the basis that they had been negligent in their duties in arranging the cover. London market brokers were found to owe no duty of care to the insured as the placing brokers had no contact with the claimant or its manager and dealt exclusively with the Greek brokers. Accordingly there was no assumption of responsibility by the London broker towards the claimants. In contrast, the producing brokers in Greece were found to have been negligent in the performance of their duties towards the claimant and were liable to pay damages of €2m, being 25 per cent of the hull cover.

Comment

The Galatea provides an interesting review of the law on over-valuation, particularly as it is likely to be one of the last cases on non-disclosure before the Insurance Act 2015 comes into force next year.

Atlasnavios - Navegação, LDA v Navigators Insurance Co Ltd and others [2014] EWHC 4133 (Comm)

In the case of Atlasnavios - Navegação, LDA v Navigators Insurance Co Ltd and others [2014] EWHC 4133 (COMM), Flaux J was required to determine whether the owners of the vessel ‘B Atlantic’ (the Vessel) could claim against the defendant war risks insurers (the Insurers) for the constructive total loss (CTL) of the Vessel by reason of her detention in Venezuela for more than six months, following the discovery by the authorities of bags of cocaine attached to her hull.

The Court was required to consider and rule on some fundamental questions about proximate cause, the meaning of ‘acting maliciously’ and ‘from a political motive’ in the context of a war risks policy, and whether the ‘infringement of customs regulations’ exclusion was subject to any implied restrictions.

Flaux J held that the CTL claim succeeded on the basis that there was cover under the policy for malicious acts and that, as a matter of construction, the infringement of customs regulation exclusion relied on by insurers was subject to an implied limitation in respect of infringements brought about by malicious acts of third parties, and therefore did not apply to the claim in question.

Facts

The Vessel, which at the time of the incident was chartered to Bulk Trading SA, was one of a number of bulk carriers managed by Bulker Chartering and Management SA (BCM) in Lugano, Switzerland.

On August 13, 2007, upon completion of loading a cargo of coal at Lake Maracaibo, Venezuela, for carriage to Italy, the Vessel was subject to an underwater inspection by divers who discovered three bags of cocaine strapped to her hull below the waterline.

The identity of the individuals who attached the drugs (in an attempt to smuggle them to Europe) has never been discovered, but it was common ground that the Vessel’s owner did not know anything about the drugs and had no involvement in any attempted drug trafficking.

The Vessel was detained and the crew arrested for drug trafficking offences. The Vessel remained in detention until, following a jury trial, the Vessel’s Master and Second Officer were convicted in August 2010, and the court ordered the final confiscation of the Vessel.

 

The parties’ cases

The claimants’ primary argument was that the proximate cause of the detention of the Vessel was the malicious act of the drug smugglers who attached the cocaine to the hull, with reckless disregard as to whether the vessel would be detained as a consequence and that, either:

  1. upon the true construction of the policy of insurance, those circumstances did not amount to an ‘infringement of the customs regulations’ within the meaning of the exclusion; or
  2. that, as a matter of causation, it was the malicious act and not any ‘infringement’ which was the proximate cause of the continued detention and hence of the CTL of the Vessel;
    or, in the alternative,
  3. that the proximate cause of the detention of the Vessel after October 31, 2007 was the decision of Judge Villalobos to detain the Vessel, which decision the claimants contended was perverse and wrong or one which was obtained by unwarranted political interference by the Venezuelan executive, in which case the claim would be covered under clause 1.5 which provided cover in respect of loss caused by ‘any person acting … from a political motive’.
    The Insurers denied that the Vessel’s loss was caused by a peril insured against, relying principally on the ‘infringement of customs regulations’ exclusion contained in clause 4.1.5 of the Institute War and Strikes Clauses. In the alternative, they argued that the proximate cause of the loss was the owner’s failure to put up security for the Vessel’s release.

In response to the Insurers' reliance on the exclusion for loss arising from failure to provide security, owners argued that they could only be required to provide reasonable security and that they made efforts to provide security, but through no fault of their own, either it was not possible to do so or such security as might have been acceptable to the Venezuelan authorities was simply not reasonable.

There was also a question about the point at which the owners cease to be entitled to claim sue and labour expenses, in circumstances where notice of abandonment had been served and declined but ‘writ clause’ agreed (the effect of which was to put the owners in the same position as if proceedings had been issued on that date).

Judgment on coverage for malicious acts of third parties

Definition of ‘malice’ or ‘malicious’

The policy provided express cover for loss of or damage to the Vessel caused by ‘capture seizure arrest restraint or detainment…’, by ‘…any person acting maliciously or from a political motive’ and by ‘confiscation or expropriation’.  However, there was also an express exclusion for ‘loss damage liability or expense arising from…arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations’.

In ruling on the owners’ claim for a CTL by reason of loss of the Vessel as a result of malicious acts of third parties, Flaux J determined that the correct test for what constitutes ‘malice’ is the criminal law definition, as confirmed by Colman J in Strive Shipping Corporation v Hellenic Mutual War Risks Association (Bermuda) Ltd (‘The Grecia Express’) [2002] EWHC 203 (Comm):

‘There is no reason why the meaning of ‘person acting maliciously’ should be more narrowly confined than the meaning which would be given to the word ‘maliciously’ under the Malicious Damage Act 1861. Provided that the evidence establishes that the vessel was lost or damaged due to the conduct of someone who was intending to cause it to be lost or damaged or was reckless as to whether such loss or damage would be caused, that is enough to engage the liability of war risks underwriters. The words therefore cover casual or random vandalism and do not require proof that the person concerned had the purpose of injuring the assured or even knew the identity of the assured.’

In The Grecia Express, Colman J also held that the scope of the phrase ‘persons acting maliciously’ had to be construed as excluding the conduct of the master and the crew amounting to barratry, since barratry was not a peril insured under the war risks policy in that case.

In the course of proceedings the Insurers accepted that the exclusion for infringement of customs regulations would not apply to so-called ‘put-up job’ scenarios where the authorities deliberately plant the drugs (or presumably engage a third party to plant the drugs) so as to detain the Vessel.  

Flaux J considered that acceptance amounted to a recognition that there is an implied limitation on the scope of what constitutes an ‘infringement of custom regulations’ within the meaning of the exclusion. He saw no distinction between the hypothetical ‘put-up job’ and the present case of the drug smugglers whose deliberate and malicious act in planting the drugs leads to the vessel being detained.

Flaux J held that the owner’s claim for a CTL succeeded on the basis that the ‘infringement’ was no more than the manifestation of the malicious acts of third parties in attaching drugs to the hull, and that the exclusion for infringement of customs regulations does not, as a matter of construction, apply to exclude cover in these circumstances. It was necessary to read the malicious acts cover and the customs exclusion together to determine the true ambit.

In considering his judgment, Flaux J cited Toulson J in Handelsbanken v Dandridge (‘The Aliza Glacial’) and, in some detail, Lord Denning MR in Panamanian Oriental Steamship v Wright (‘The Anita’) [1970] 2 Lloyd's Rep 365 (Mocatta J). Both citations supported his reasoning that a limitation on an exclusion wording should be implied where necessary to ensure the spirit of the policy is adhered to.

Judgment on the infringement of customs regulations and political interference

More than half of what is an extremely long judgment by Flaux J is taken up with a detailed examination and analysis of the events leading up to - and contents of - the various hearings and judgments in Venezuela. However, given Flaux J’s ultimate conclusion that the claim was covered under the malicious acts provisions, his conclusions on the political interference aspect of the claim, while interesting in terms of discussions of proximate cause, are obiter.

Flaux J held that, if he had not already found that there was cover under the malicious acts of third parties provision, and that the exclusion for infringement of customs regulations did not, as a matter of construction, operate to exclude cover in those circumstances, then he would have found on the facts that the exclusion for infringement of customs regulations would have applied, because there was no break in the chain of causation between the infringement and the detainment of the Vessel. The decisions of the Venezuelan courts ordering such detainment were not perverse or wrong and were not procured by unwarranted political interference.

He applied the test established by Lord Denning MR in The Anita, namely that the critical question in any given case was not whether or not there had been political interference (including negative or indirect interference), but rather, whether the decision of the judge was justified or not as a matter of law, despite the alleged interference. If it was justified, then any political interference would not break the chain of causation.

 

Judgment for alleged failure to provide security

Flaux J held that the exclusion for failure to put up security did not apply. This was not a case where the owner was unwilling or unable to provide security, and indeed had taken reasonable steps towards the provision of security. Flaux J considered that it was an unrealistic assumption that reasonable security could and would have been agreed with the Venezuelan authorities.

 

Judgment for sue and labour costs

The Judge held that the owners were entitled to recover sue and labour expenses, including after the notice of abandonment and agreement of the writ clause on June 18, 2008. The Judge rejected the Insurers’ submissions that sue and labour expenditure was not recoverable beyond the date of notice of abandonment. Although he accepted that sue and labour costs could not be recovered after proceedings had been issued, he did not accept submissions by the Insurers that the agreement of the writ clause, for these purposes, meant that the duty to sue and labour or the right to recover sue and labour costs came to an end at that point.

 

Appeal

The matter is listed for appeal before the Court of Appeal in the second half of this year. Those interested should watch this space.

Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2013] EWHC 1666 (Comm)

The defendants were hull and machinery insurers under a time policy which included the Institute Time Clauses – Hulls 1/10/83 (ITC) and the Institute Additional Perils Clauses (APC). The policy covered perils of the seas, and it also covered loss or damage caused by the negligence of masters officers crew or pilots provided the loss or damage has not resulted from want of due diligence by the assured, owners or managers.

The engine was damaged by an ingress of water and had to be replaced.

Popplewell J held as follows:

  1. The cause of ingress of water into the engine room was that water had remained in the emergency fire pump. The water froze and expanded, causing a crack in the pump and also distorting the bar restraining the lid on the filter so that it no longer formed a seal. Water entered through the crack in the fire pump and reached the duct keel tunnel.
  2. The evidence showed that the crew had negligently failed to drain the pump, which was what allowed the water to freeze in the system. Further, the vessel’s engine room pumping system was defective: the crew became aware of the ingress in the engine room at a sufficiently early stage for the pumping system to be deployed, but the system was not capable of coping with the rate of ingress of water.
  3. There was a loss by perils of the seas. There had to be a peril in the sense of a fortuity, and the peril had to be of the seas. Here, there was a fortuitous entry of sea water during the voyage, having been caused by crew negligence. A proximate cause of the loss and damage was the ingress of seawater, and the ingress was fortuitous, having been caused by crew negligence at the loading port. An ingress of seawater caused by crew negligence was a fortuitous accident which constituted a peril of the seas. It was irrelevant that the crew negligence could as easily have happened on land, in that it was not necessary to establish that the fortuity which gave rise to the ingress of seawater was itself “of the seas”, or an insured peril in its own right: the peril was not the fortuity which gave rise to the ingress, it was the fortuitous ingress itself.
  4. If that was wrong, there was a loss by crew negligence and there was no want of due diligence by the owners or managers.
  5. The loss was not caused by the unseaworthiness of the vessel to which the owners were privy within section 39(5) of the Marine Insurance Act 1906. No one had been aware of the fact that the ballast pump had not been connected to the bilge system so that it was unable to control the rate of ingress.
  6. The amount of the loss was €3,241,310.60, including the cost of replacing the vessel's main engine, which was damaged beyond repair, with a new engine, as opposed to a reconditioned engine. Under section 69(1) of the Marine Insurance Act 1906 the assured was entitled to “the reasonable cost of the repairs, less the customary deductions, but not exceeding the sum insured in respect of any one casualty”. Clause 14 of the Institute Time Clauses – Hulls 1/10/83, which provided that “claims payable without deduction new for old” did not mean that the owners were entitled to the reasonable cost of replacing the old engine with a new one. The purpose of the clause was to provide that there was to be no deduction for betterment if a repair involved replacing an old part with a new one. It remained to determine whether it was reasonable to repair the replacement of the damaged part by a new part. On the facts the cost of installing a new engine was reasonable.
  7. There had been a fraudulent claim in that the manager had falsely stated that he had been told by the master and crew that the bilge alarm had gone off but had been ignored because it was attributed to the rolling of the vessel in heavy weather, the purpose being to remove any suggestion that the owners had failed to act with due diligence. That was a "fraudulent device".

For further information: Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2013] EWHC 1666 (Comm)

European Group Ltd v Chartis Insurance UK Ltd [2013] EWCA Civ 224

Lakeside took delivery of sixteen economiser blocks for use in two boilers. The blocks consisted of a series of tubes, and were sent from Romania to England by road and sea.  

After delivery the tubes were found to be damaged by cracking. Lakeside had two policies: a marine policy which covered damage in transit, excluding inherent vice; and an Erection All Risks (EAR) policy which covered damage on site. It was common ground that the cause of the cracking was vibration, but each of the insurers argued that the loss was caused by the period covered by the other: the marine insurers said that the damage had been caused by wind on site, whereas the EAR insurers said that the loss was the result of vibration on the voyage.  

Popplewell J held that the marine insurers were liable.

  1. In the present case vibration damage by wind could be dismissed as a serious possibility, and that meant that vibration on the journey was the only cause for which there was any evidence in the form of the condition of the road surfaces and the lack of adequate packing. Transit vibration had been shown to be the proximate cause of the loss on the balance of probabilities. 
  2. The exclusion for inherent vice did not apply. There was no inherent vice at all: the condition of the blocks when they left the factory was such that they could reasonably be expected to survive without cracking. That aside, once it had been established that the loss was proximately caused by insured peril and was fortuitous, there was no room for inherent vice to operate and it could not be treated as another proximate cause.  

The marine insurers’ appeal was dismissed by the Court of Appeal. The judge had applied the correct test on proof of loss, and had reached a conclusion open to him on the evidence. Looking at the evidence it was indeed more likely than not that the damage occurred during transportation.

For further information: European Group Ltd v Chartis Insurance UK Ltd [2013] EWCA Civ 224

Elafonissos Fishing and Shipping Company v Aigaion Insurance Company SA [2012] EWHC 1512 (Comm)

The assured’s fishing vessel, Agios Spyridon, was insured by the insurers under a time policy for a year from 11 August 2007, on the terms of the Institute Fishing Vessel Clauses 1987. The policy contained a warranty as follows: "Warranted laid up from 1/11/06 until 28/2/07 … in port of Mahajanga …". On Christmas Day 2006, a cyclone struck the port of Mahajanga. This caused the vessel to break free and to collide with the port, damaging the vessel.  The insurers put the assured to proof of loss, both in respect of damage to the vessel and also in respect to a claim made against the assured by the owners of the vessel Saint Raphael for salvage in that it towed the Agios Spyridon. They also argued that the assured was in breach of warranty. Blair J held as follows:

  1. As to the damage, Blair J was satisfied by the evidence that on the balance of probabilities extensive damage had been caused by repeated contact with the quay and had not come from any other (uninsured) source.
  2. The salvage claim would be disallowed, as there was no evidence of any agreement being reached with the Saint Raphael for salvage services.
  3. If, as contended by the insurers, the warranty was to be construed as requiring the assured to comply with the regulations of the Port of Mahajanga, which required the vessel to have four crew members on board and to have operational engines, the vessel was crewed and the insurers had not proved that the engines were inoperative. However, that construction of the warranty would be rejected: because of the potentially draconian effects of the breach of promissory warranties, they were to be construed narrowly, and if insurers had wanted the protection they claimed then they should have stipulated for it in clear terms.

For further information: Elafonissos Fishing and Shipping Company v Aigaion Insurance Company SA [2012] EWHC 1512 (Comm)


Masefield AG v Amlin Corporate Member Ltd [2011] EWCA Civ 24

A cargo consisting of two parcels of bio-diesel, shipped on board the oil tanker Bunga Melati Dua, was insured by the defendant insurers under an open cover. The policy covered piracy, and excluded constructive total loss “unless the subject-matter insured is reasonably abandoned either on account of its actual loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter to the destination to which it is insured would exceed its value on arrival”.
 
The vessel, while en route from Malaysia to Rotterdam, was seized by Somali pirates on 19 August 2008. A notice of abandonment in respect of the cargo was served, but rejected on 18 September 2008. A ransom was paid and the vessel was released about 11 days after the service of the notice of abandonment. The cargo was taken to Rotterdam but was sold for about half of its insured value. The insurers denied liability for the difference.

David Steel J held that the insurers were not liable: there was no actual total loss under section 57 of the Marine Insurance Act 1906 because the claimants had not been irretrievably deprived of the cargo; there was no constructive total loss under section 60 of the Marine Insurance Act 1906. It could not be said that the subject matter had been reasonably abandoned because an actual total loss appeared unavoidable; and the ransom was not to be disregarded in determining whether there was an actual or constructive total loss because payment of a ransom was not illegal or contrary to public policy.  

The assured appealed against the finding that there was no actual total loss. The Court of Appeal dismissed the appeal.

  1. In marine insurance the test of “actual total loss” was applied rigorously.
  2. There was no rule of law that capture or seizure was automatically an actual total loss.
  3. There was on the facts no actual total loss by reason of piracy.
  4. There was no actual total loss by reason of theft. Even though section 6 of the Theft Act 1968 provided that there was theft if a person appropriated property belonging to another without intending to permanently deprive that other of it, it could only be an actual total loss if there was irretrievable deprivation.
  5. It was common ground that paying a ransom was not illegal and not contrary to public policy and the law did not require the possibility that a ransom would be paid to be disregarded.

For further information: Masefield AG v Amlin Corporate Member Ltd [2011] EWCA Civ 24.

Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corporation [2011] EWCA Civ 773

The claimants insured a floating dock for a voyage from Vladivostok, Russia to Vung Tau, Vietnam, with the defendant insurers under a voyage policy dated 12 June 2006, the sum insured being $8,388,600. The dock was powerless, and was, under a towage contract to be towed by two tugs. In April 2006 the assured engaged a shipping company to supervise the preparation of the dock and workshop for towage, and a substantial repair programme took place. On 23 June 2006 the dock commenced the voyage. On 9 July 2006 the dock encountered a force six typhoon which caused a swell of up to six metres, but was able to continue after repairs to the lashings which tied the pontoon to the deck. On 13 July 2006, the dock encountered a tropical storm, Bilas, which the dock had tried to avoid but which had – contrary to weather forecasts – changed course. The dock was caught by a near direct hit. The swell was initially six metres but by the following day the swell had reached ten metres. The lashings were unable to withstand the weather, and the dock was seriously damaged when the pontoon broke loose. The assured served a notice of abandonment on the insurers. On 17 April 2007 the insurers purported to avoid the insurance for alleged material non-disclosure, and they also asserted that the assured was in breach of the implied warranty of seaworthiness in section 39 of the Marine Insurance Act 1906.

Both defences were dismissed by Christopher Clarke J.

1. The insurers’ allegation that the assured had failed to disclose a material document forming part of the towage plan which showed the maximum wave height that the dock could withstand was rejected on the facts. However, even if it had not been disclosed, the insurers could not avoid the policy because:

- they had waived disclosure by agreeing to insure without seeing the towage plan as long as it was approved by a Classification Society;

- earlier drafts of the policy had contained a towage plan warranty, and although it was by oversight omitted from the final version of the policy, it could not be said that disclosure was rendered unnecessary by section 18(3)(d) of the Marine Insurance Act 1906, the fact that there had been a draft warranty rendered disclosure superfluous, given the very short time between the deletion of the warranty and the issue of the policy; and

- the insurers were not induced by any failure to disclose because the evidence was that they would have insured on the terms which were actually agreed.

2. The voyage was in two stages: from leaving berth to the commencement of ocean towage; and then the ocean towage itself. The fact that the towage contract specified only one stage was irrelevant to determining how many stages there actually were. The most significant allegation was the deficiency of the pontoon securing arrangements, but the court held that the insurers had not established by the factual and expert evidence that the dock was unseaworthy at the commencement of any part of the voyage.

The Court of Appeal dismissed the insurers’ appeal.

  1. There was no basis for departing from the judge’s findings of fact on the question of whether there had been disclosure.
  2. The judge’s statement of the principles relating to seaworthiness was correct. The adventure insured was one where it was contemplated by the parties that there would be a maximum wave height of 3.5 metres, so that the dock had to be fit in all respects to encounter the ordinary perils of the seas for that adventure. The judge had been correct to conclude that the vessel was capable of achieving an even keel departure draft of 2.8 metres, and that the draught had later been increased to 4.4 metres. That increased draught made the dock more seaworthy. The judge had been entitled to reach his findings of fact on seaworthiness and the doctrine of stages.

For further information: Garnat Trading & Shipping (Singapore) Pte Ltd & Anor v Baominh Insurance Corp [2011] EWCA Civ 773 (06 July 2011).

Global Process Systems Inc v Berhad, The Cendor MOPU [2011] UKSC 5

An oil rig, the Cendor MOPU, was being towed on a barge from Texas to Malaysia. Its legs were in place and elevated some 300 feet in the air above the deck. On the evening of 4 November 2005 a leg was lost at sea, and the remaining two legs fell off the following evening. The loss occurred because of fatigue cracking caused by the repeated bending of the legs due to the motion of the barge. The rig was insured under Institute Cargo Clauses A against all risks, but there was an exclusion for inherent vice. The insurers asserted that the cause of the loss was either inherent vice or the inevitable consequence of the inability of the oil rig to undertake the voyage. At first instance Blair J held that there was no inevitability but there was inherent vice. There was no appeal by the insurers against the inevitability ruling, and the Court of Appeal reversed Blair J on the question of inherent vice.

The insurers appealed to the Supreme Court. The Court of Appeal’s decision was upheld.

  1. The definition of “perils of the sea”, namely loss other than by “the ordinary action of the wind and the waves” was satisfied if there was a fortuity. The word “ordinary” referred to “action” and not to “the wind and the waves”, so there could be a loss by perils of the sea even though the weather was not exceptional or bad and even though the weather conditions were foreseeable. The issue was not the intensity of the weather but rather whether there had been an unusual and fortuitous event as a result of the action of the wind and the waves. That was the case here.
  2. The test for inherent vice was not whether the cargo was able to survive the reasonably foreseeable weather and sea conditions which it might encounter, but whether there was some reason internal to the cargo which had caused the loss – if there was an external cause of loss, there was no inherent vice. Were it otherwise, there would be a condition of “cargoworthiness”, but that was inconsistent with the absence of any warranty of seaworthiness by reason of section 40 of the Marine Insurance Act 1906.
  3. Where an unseaworthy vessel was lost by reason of perils of the sea, there were not concurrent causes – the loss was caused by perils of the sea and not by unseaworthiness.

For further information: Global Process Systems Inc v Berhad, The Cendor MOPU [2011] UKSC 5.

Melinda Holdings SA v Hellenic Mutual War Risks Association (Bermuda) Ltd [2011] EWHC 181 (Comm)

The assured’s vessel was insured by the defendant in respect of war risks. The policy excluded loss arising out of: ordinary judicial process; action taken for the purpose of enforcing or securing payment of a claim; or any financial cause of any nature. The suing and labouring clause provided that it was the duty of the owner and his agents to take reasonable steps to avert or minimise a loss, failing which the insurers could reject any claim. The vessel was arrested by the Egyptian authorities to secure “court dues” payable in addition to a judgment against the owners of another vessel which had been involved in a pollution incident. There was no connection between the two owners. The assured appealed against the arrest. However, after two years the vessel remained in the custody of the Egyptian authorities. It was common ground that there was a constructive total loss, but the insurers denied liability on the strength of the above contract provisions.

Burton J held that the insurers were liable.

  1. The imposition of “court dues” did not constitute an “ordinary judicial process”. The latter required “the employment of Courts of law in civil proceedings”, but in the present case what had occurred amounted to extortion from an owner who had nothing to do with the original claim.
  2. This was not “action taken for the purpose of enforcing or securing payment of a claim”, because there was no bona fide claim involved.
  3. The exclusion for “any financial cause of any nature” did not apply – the term was to be construed in its context and it had to affect the vessel itself.
  4. There was no breach of the suing and labouring clause: Melinda’s Egyptian lawyers had acted with the appropriate diligence, in that an ordinarily competent Egyptian lawyer would not have acted differently. It was unnecessary to decide: (a) whether lawyers fell within the term “agent” in the clause; and (b) whether the insurers would have had a defence to a claim even though the loss was not proximately caused by a breach of the clause.

For further information: Melinda Holdings SA v Hellenic Mutual War Risks Association (Bermuda) Ltd [2011] EWHC 181 (Comm) (18 February 2011).

Pt Buana Samudra Pratama v Marine Mutual Insurance Association (NZ) Ltd [2011] EWHC 2413 (Comm)

The claimant’s tug was insured by three insurers: AXA (the leading underwriter); the Marine Mutual Insurance Association (MMI) and Aegis. The policy incorporated the wording of the Institute Time Clauses – Hulls. There was a warranty in clause 1.1 stating that “the Vessel shall not … undertake towage or salvage services under a contract previously arranged by the Assured” and clause 3 stated “Held covered in case of any breach of warranty as to … towage … provided notice be given to the Underwriters immediately after receipt of advices and any amended terms of cover and any additional premium required by them be agreed.” The wording also included a “follow AXA” clause: “It is agreed to follow AXA HK in respect of all decisions, surveys and settlements regarding claims within the terms of the policy, unless these settlements are to be made on an ex gratia or without prejudice basis.”

The tug was engaged to provide towing services to a tanker that had run aground, and itself ran aground en route to the tanker. AXA paid its share of the claim, but MMI reserved its position on the basis of breach of warranty. Thereafter Aegis paid. The claimant sought summary judgment. MMI argued that:

  1. the “follow AXA” clause did not apply where there had been a breach of warranty;
  2. on the facts there had been a breach of warranty;
  3. the held covered clause did not give relief; and
  4. the claimant had made a fraudulent claim in that it had used fraudulent means or devices after the loss by asserting that the tug was not intended to be involved in the towage of the tanker.

It was held as follows:

  1. The “follow AXA” clause was not limited to the quantum of claims but also covered the question of whether the loss was within the policy. It was irrelevant that the warranty had allegedly been broken before AXA’s settlement – the fact that MMI might have been automatically discharged from liability did not affect the scope of the “follow AXA” clause.
  2. There was no breach of warranty involved in merely agreeing to undertake towage operations. It was a matter for trial to determine whether towage had actually commenced at the time of the loss, although MMI had a real prospect of success at trial.
  3. The question whether notice had been given to the underwriters under the held covered clause immediately after knowledge of breach of warranty was one to be resolved at trial.
  4. MMI had a real prospect of establishing at trial that if statements had been made after the settlement by AXA to the effect that the tug had not been intended for use in the towage of the vessel, and those statements were fraudulent, MMI had a defence based on the use of fraudulent means or devices. It was immaterial that the alleged statements were made after AXA had settled.

For further information: PT BUANA SAMUDRA PRATAMA v Marine Mutual Insurance Association (NZ) Ltd [2011] EWHC 2413 (Comm) (29 September 2011)

Sealion Shipping Ltd v Valiant Insurance Company [2012] EWHC 50 (Comm)

The defendant insurer issued a Loss of Hire marine policy to the claimants on the vessel Toisa Pisces, for the year commencing 20 May 2008. The daily sum insured was US$70,000, limited to 30 days, and the excess clause stated “14 days any one occurrence, 21 days in respect of Machinery claims”. The policy incorporated the terms of the Institute Time Clauses – Hulls 1983, covering loss or damage caused by negligence of master, officers, crew, pilots, repairers or charterers “Provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers”. The assured suffered a propulsion breakdown on 25 February 2009, and claimed for US$2,100,000, the equivalent of 30 days' offhire. The insurers were held liable to make payment.

  1. The policy could not be avoided for non-disclosure or misrepresentation.
    1. The statements that there had been one hull claim when there had been two, and that the vessel had not been offhire when it had been offhire for 10 days in 2004, were not material.
    2. The statement by the broker that there had been “no major business interruption” was true, and the statement that there had been an “excellent hull record” was a statement of the brokers' opinion under s 20(5) of the Marine Insurance Act 1906 and it was made in good faith.
    3. The allegation that the claimants had failed to disclose design defects would be rejected on the ground that the claimants were unaware of them.
  2. There was no want of due diligence by the claimants. The test for due diligence was reasonableness, but the inspection of the vessel carried out in 2006 by experts had not been negligent and the claimants were in any event entitled to rely upon what they had been told by the experts.
  3. There was only one occurrence and only one deductible. Although there had been three breakdowns, in February, March and April, these were not three separate occurrences for the purposes of the deductible because one thing had led to another.

For further information: Sealion Shipping Ltd & Anor v Valiant Insurance Company [2012] EWHC 50 (Comm) (20 January 2012)