Literal Interpretation – Not Always Black And White?

In Atlasnavios-v-Navigators Insurance, the Court of Appeal (the highest court within the Senior Courts of England and Wales) found that Insurers were entitled to rely on a literal interpretation of a standard war risks exclusion to deny coverage for the detainment of a vessel, despite the fact that the detainment was caused by a "malicious act," which was itself a covered peril.

In August 2007 a routine underwater inspection by divers discovered 132 kg of cocaine strapped to the hull of the vessel "B Atlantic" in Venezuela. The vessel was detained by the Venezuelan authorities, and ultimately abandoned to the Court.

The ship owners presented a claim to their Insurers for the total constructive loss of the vessel on the basis that the detainment constituted a malicious act. Insurers declined cover, relying on the standard war risk exclusion in the ship owner's policy to exclude losses from "arrest restraint detainment confiscation...by reason of infringement of any customs or trading regulations."

The Court at first instance found in favour of the ship owners. Insurers appealed.

The Court of Appeal overturned the lower Court's decision, holding that the loss suffered by the ship owners was caused by a combination of two separate proximate causes, one that was covered (the concealment of drugs on the vessel by a third party) and one that was...