The ZouZou: No Insurance Cover For Ship Detained Under Venezuelan Anti-Smuggling Laws

• Published date: 18 May 2022
• Subject Matter: Finance and Banking, Insurance, Charges, Mortgages, Indemnities, Financial Services, Insurance Laws and Products
• Law Firm: Quadrant Chambers
• Author: Mr Andrew Guy Blackwood QC and Benjamin Coffer

OVERVIEW

The Commercial Court handed down judgment today in Piraeus Bank v. Antares ("The ZouZou") [2022] EWHC 1169 (Comm). The decision concerns mortgagees' interest insurance and the standard exclusions in a war risk policy.

Guy Blackwood QC and Benjamin Coffer appeared for the successful insurers, instructed by Jonathan Evans, Craig Boyle-Smith and Ingrid Hu of Kennedys LLP.

The claim arose out of the detention of the vessel "ZouZou" in Venezuela following an allegation that the crew were attempting to smuggle diesel oil. The vessel was detained for about 14 months and then released. Four members of the crew were subsequently tried and acquitted. The owners of the vessel claimed for a constructive total loss under their war risks cover, but the war risks underwriters avoided the policy on the grounds of material non-disclosure by the owners, unrelated to the detention.

The Claimant bank was the mortgagee of the vessel, and had taken out mortgagees' interest insurance (or 'MII') with the Defendant insurers to protect its interest as assignees and loss payees under the owners' policies. Following the avoidance of the war risks policy, the bank sought to recover from the Defendants under the MII. The bank's claim was for about USD 71 million plus interest.

The Defendants successfully argued that there was no MII cover because the loss would not have been covered by the war risks policy, irrespective of the avoidance. There would have been no cover under the war risks policy because that policy contained exclusions for any loss "arising out of action taken by any state or public or local authority .under the criminal law of any state . or on the grounds of any alleged contravention of the laws of any state". These exclusions are similar to, although potentially wider than, the standard exclusion which appears in the Institute War and Strikes Clauses for detainment "under quarantine regulations or by reason of infringement of any customs or trading regulations".

The bank's primary argument was that these exclusions did not apply because the detention of the vessel had been unlawful under Venezuelan law. The bank argued that the Venezuelan public prosecutor had been under a duty to procure the release of the vessel once it became apparent that the detention was no longer necessary for the criminal investigation, and that the prosecutor's failure to do so rendered the detention unconstitutional.

The evidence of Venezuelan law took up most of the trial, but...