Court Construes Meaning Of A War Risks Marine Policy (Including The Term 'Malicious')/Whether A Perverse Foreign Judgment Breaks The Chain Of Causation/Sue And Labour Provisions

When the claimant's vessel was being loaded in Venezuela, an underwater inspection revealed that bags of cocaine had been strapped to its hull. The drugs had been affixed by persons unknown (presumably a drug cartel). The vessel was detained and the crew arrested. The vessel was abandoned by the owners 2 years later and eventually confiscated by the Venezuelan authorities following a court order. The claimant owners claimed under their war risks insurance policy. It was accepted that the vessel was a constructive total loss.

The policy provided cover for "malicious damage" and "malicious mischief" and "loss of the vessel ... caused by ... any person acting maliciously". It was common ground between the parties that what constituted "malice" was the criminal law definition, which includes recklessness. The decision of Colman J's decision in "The Grecia Express" (2002) was cited: "...the words therefore cover casual or random vandalism and do not require proof that the person concerned had the purpose of injuring the assured".

However, the insurers sought to rely on two exclusions in the policy:

(1) Loss arising from "detainment, confiscation ... by reason of infringement of any customs ... regulations". Insurers made an important concession: namely, that the deliberate acts of the Venezuelan authorities (in placing drugs on the hull in order to facilitate the confiscation of the vessel) would not have triggered the exclusion. Flaux J held that this indicated that the insurers accepted that there was an implied limitation to the scope of the exclusion. The judge saw no reason to distinguish between that scenario and the present case where the malicious (albeit there was recklessness here, rather than actual malice) acts of a drug smuggler had led to the vessel being detained. To conclude that the exclusion applied to this case would, he said, "not accord with the spirit of the policy". He concluded that "as a matter of construction of the policy in this case, the exclusion does not apply where the infringement is brought about by the malicious act of a third party".

(2) Loss arising from "the operation of ordinary judicial process, failure to provide security ...". The insurers' argument here failed because the claimant had taken reasonable steps to provide security (and it was likely that the Venezuelan authorities would have insisted on security for the full value of the vessel, and that is unlikely to have been acceptable to either the...