Navigators Insurance Company Ltd And Ors v Atlasnavios-Navegacao LDA [2018] UKSC 26: Malicious Acts And Exclusion Of Cover In Standard War Risk Insurance

In Navigators Insurance Company Ltd and ors v Atlasnavios-Navegacao LDA (formerly Bnavios-Navagecao LDA), the Supreme Court has dismissed an appeal by the insured shipowners challenging the decision by insurers to decline cover to a vessel held by customs authorities in Venezuela due to the discovery of a substantial quantity of cocaine. In doing so, the Supreme Court upheld the result at the Court of Appeal, although it reached a decision which not only departed from the Court of Appeal's reasoning, but also from the common ground between the parties as to the malicious nature of the acts in question.

The Supreme Court's decision is considered by Mark Cannon QC and Anthony Jones of 4 New Square.

BACKGROUND

The case related to a vessel, the 'B Atlantic,' which was insured under a standard policy - the Institute War and Strikes Clauses 1/10/83 with additional perils. Among the named perils to which the policy would respond, clause 1.5 provided that 'this insurance covers loss of or damage to the vessel caused by ... any terrorist or any person acting maliciously or from a political motive'. As to 'loss of' the vessel, clause 3 (as amended by agreement) provided that a detention of the vessel for a period of more than 6 months would constitute constructive loss. But the policy was subject to various exclusions, including exclusion of cover 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' (clause 4.1.5).

In August 2007, the vessel loaded a cargo of coal in Venezuela for transport to Italy. But on inspection by authorities before the vessel left the country, 132 kilos of cocaine were discovered strapped to the hull. The vessel was detained and confiscated under Venezuelan law. In due course the ship owners claimed under the policy for their loss, identifying the relevant insured peril as the conduct of unknown third parties acting maliciously in using the vessel for drug smuggling. The insurers accepted that the drug smuggling was carried out by third parties, and accepted that the detention by Venezuelan authorities amounted to a constructive loss of the vessel for the purposes of clause 3 of the policy. But the insurers denied liability, relying on clause 4.1.5, because the vessel had been detained by reason of infringement of customs regulations.

FIRST INSTANCE AND THE COURT OF...