May 22
During an underwater inspection while in port in Venezuela, divers discovered three bags of cocaine weighing 132 kg strapped to the vessel’s hull ten metres below the waterline. The Venezuelan authorities detained the vessel, arrested the crew, and charged the master and second officer with complicity in drug smuggling, of which they were later convicted. After the vessel had been detained for over six months the owners abandoned it and claimed indemnity for its constructive total loss under a standard war risks insurance policy on the Institute War and Strikes Clauses 1/10/83 with additional perils cover which included, under clause 1.5, “loss or damage to the vessel caused by ... any person acting maliciously”. It was accepted that unknown third parties, presumed to be a drug cartel smuggling drugs from South America to Europe, had been responsible for the concealment of the drugs on the vessel’s hull and that neither the owners nor their crew were implicated in any way. The insurers sought to avoid liability, relying on the exclusion in clause 4.1.5 for a detainment “by reason of infringement of any customs ... regulations”. The judge held that the exclusion in clause 4.1.5 was not engaged since, reading the malicious acts cover and exclusions together, the infringement of customs regulations referred to in the exclusion did not include an infringement which was only the manifestation of an act of third parties acting maliciously. The Court of Appeal allowed the insurers’ appeal, hold that no basis existed for such an implied limitation and that clause 4.1.5 operated to exclude liability.
On the owners’ appeal—
Held, dismissing the appeal, (1) that in its immediate context the concept of “any person acting maliciously” in clause 1.5 related to situations where a person had acted in a way which involved an element of spite, ill-will or the like in relation to the property insured or at least to other property or a person, resulting in loss of, or damage to, the insured vessel or cargo; that the concept did not cater for situations where the state of mind of spite, ill-will or the like was absent, but was not limited to conduct directed towards the insured interest, so that an act directed with the relevant mental element toward causing the loss of or damage to other property or towards a person could lead to consequential loss of or damage to an insured interest within clause 1.5, whether the actor was a terrorist, a person acting maliciously or a person acting from a political motive; that the attempted smuggling could not be regarded as having been aimed at the detention or constructive total loss of or any loss or damage to the vessel or any property or person; that, although under Venezuelan law the smuggling was itself a wrongful act done intentionally without just cause or excuse, since the smugglers had not intended that any act of theirs should cause the vessel’s detention or cause it any loss or damage at all they had not been “acting maliciously” within the meaning of clause 1.5; and that, accordingly, clause 1.5 was not apt to cover the circumstances of the present case (paras 22, 28–30, 55).
(2) That, although the general aim in insurance law was to identify a single real, effective or proximate cause of any loss, loss could be caused by two concurrent causes, so that a loss caused by a person acting maliciously within clause 1.5 could at the same time arise from detainment by infringement of customs regulations within clause 4.1.5; that the scheme of the clauses directed attention first to whether there was prima facie loss by a specified peril and then to whether the same loss arose from an excepted peril; that if the attempted smuggling had constituted a malicious act within clause 1.5 it would at best have been only one element in the causative events leading to the loss which were relevant under the policy, and the seizure and detainment of the vessel for a continuous period of at least six months were equally essential contributing causes of the loss; that the smuggling would not have caused the loss without the seizure and detainment, which had arisen from the excluded peril of infringement of customs regulations under clause 4.1.5; that a considerable risk of detainment and constructive loss existed whoever was responsible for the smuggling and there was nothing to indicate that clause 4.1.5 was limited to smuggling to which either the owners or the crew were privy, or that insurers were willing to accept the risks of smuggling by third parties; and that, accordingly, even if the loss had been caused by the malicious acts of a third party, it would still have been excluded by clause 4.1.5 as arising, at least concurrently, from detainment by reason of infringement of customs regulations (paras 31–33, 39–51, 55).
Alistair Schaff QC and Alexander MacDonald (instructed by W Legal Ltd) for the owners.
Colin Edelman QC and Guy Blackwood QC (instructed by Stephenson Harwood llp) for the insurers.