Assignment Of Insurances: The Secured Lender's Obligation To Obtain Proper Recovery

• Published date: 12 January 2021
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Reed Smith (Worldwide)
• Author: Vassilis Mavrakis

In a late 2020 judgment ( Aegean Baltic Bank SA v Renzlor Shipping Ltd and Ors [2020] EWHC 2851 (Comm)), the High Court provided important guidance on the position of a bank under security documents relating to a loan agreement, and its obligations when exercising its rights as assignee to the insurance policies over a vessel. The case also highlights the intricacies of disputes involving multiple applicable laws, and the difficulties faced by a party in breach of its disclosure obligations and subject to an order pursuant to which they are not entitled to adduce or rely upon any factual or expert evidence.

The Facts

Aegean Baltic Bank ("Bank") had entered into a shipping loan facility agreement ("Loan Agreement") with the owners of the M/T "Starlet" ("Owners" and "Vessel", respectively) as borrowers. The Loan Agreement was governed by English law.

In return the Bank had received a security package, which included:

1. An assignment of the Vessel's insurances, which was governed by English law ("Assignment") As is common in such agreements, the Assignment included a power of attorney in favour of the Bank, allowing the latter to collect recover, compromise, and give a good discharge for all claims arising under those insurances;
2. A corporate guarantee from the managers of the Vessel ("Managers"), which was governed by Greek law; and
3. A personal guarantee from the managing director of the Managers ("Personal Guarantor" and, together with the Owners and the Managers the "Defendants"), which was...