Review of The Case of The Company Insurance Risks

In March 2018, the Supreme Court (sitting in a panel comprising Lord Mance, Lord Sumption, Lord Carnwath, Lord Hughes, Lord Briggs) will hear this appeal relating to the interpretation and interplay between clauses of the standard form Institute War and Strikes Clauses 1/10/83. The Supreme Court will consider whether the exclusion clause 4.1.5, for losses arising from detainment by reasons of infringement of customs regulations, operates to exclude cover where the infringement of customs regulations occurred due to an insured peril.

The Appellants were the owners of a vessel named the “B Atlantic”. It took out war risk insurance with the Respondents on the Institute War and Strikes Clauses 1/10/83 with additional perils. On 13 August 2007, in a Venezuelan port undersea divers inspected the vessel and discovered 132kg of cocaine strapped to its hull by an unknown person. This contravened Venezuelan law and as a result, the local authorities detained the vessel and convicted the Master and Second Officer. The owners eventually abandoned the vessel and claimed for constructive loss under the war risk policy.

The Policy provided cover against loss of, or damage to, the Vessel caused by any person acting maliciously. It also excluded the loss, damage, liability or expense arising from detainment or confiscation by reason of infringement of any customs or trading regulations (the “Exclusion”).

The insurers accepted that the owners and crew were not complicit in the smuggling and litigation proceeded on that basis. The insurer also accepted that the vessel constituted a constructive loss bur denied cover on the basis that detention arose by reason of the infringement of customs regulation.

The owners argued that on a proper construction of the policy, clause 4.1.4 did not exclude losses, which arose from an insured risk, namely the malicious acts of a third party under clause 1.5.