Scuttling: The Innocent Co-assured's (uninsured) Peril - "The Brillante Virtuoso"

Published date07 August 2020
Subject MatterFinance and Banking, Insurance, Litigation, Mediation & Arbitration, Financial Services, Insurance Laws and Products, Trials & Appeals & Compensation
Law FirmQuadrant Chambers
AuthorMs Nichola Warrender

What is required to establish an insured peril of "piracy" "malicious mischief" "persons acting maliciously" "vandalism" or "sabotage" in a war risks policy? This was a question answered in Suez Fortune Investments Ltd & Piraeus Bank AE v Talbot Underwriting Ltd & others ("The Brillante Virtuoso") [2019] EWHC 2599 (Comm).

On 5/6 July 2011 armed men were permitted to board the ship as she drifted off Aden. They ordered her to Somalia. Shortly thereafter an IED was detonated causing an engine room fire which spread, causing the crew to abandon ship and severe damage. Owners claimed this was a fortuitous hostile third-party attack. They and the mortgagee bank, as separate co-assureds, sued their war risks insurers. Liability was denied (amongst other things) on the basis of wilful misconduct and lack of an insured peril.

The case has a protracted procedural history. The vessel was found to be a constructive total loss: see [2015] EWHC 42 (Comm). Owners' claim was struck out for failing to disclose documents and relief for sanctions was refused: see [2016] EWHC 1085 (Comm). Only the bank's claim and insurers' counterclaim for declaration of non-liability proceeded to trial.

After a detailed factual enquiry into the circumstances of the loss, Teare J held that Owners had scuttled the vessel. Nevertheless, the bank argued that, so far as it was concerned, what had occurred was an insured peril. Teare J disagreed.

1. It was not piracy because there must not only be an unlawful attack at sea but conduct which a business man would say amounted to piracy. The events did not amount to piracy in the popular or business sense. There was no attack on the vessel. The motives of the armed men were not to steal or ransom the vessel or steal from the crew but to assist Owners commit a fraud upon insurers. An attempted insurance fraud is not an act of piracy.

2. It was not "persons acting maliciously" because following the Supreme Court decision in The B Atlantic [2018] UKSC 26 an element of "spite ill-will or the like" was required to establish the malice. This was absent in the present case. There was an intention to damage the vessel but this was in furtherance of a fraudulent plan and no doubt with an intention to profit. As in The Salem [1982] QC 946 the vessel was not lost or damaged because of a desire to harm the vessel or Owners. It was damaged because the armed men wanted to assist Owners and make money...

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