532. Atlasnavios-Navegação, LDA v Navigators Insurance Company Ltd (the “B Atlantic”) [2012] 1 Lloyds Rep 629; [2015] 1 Lloyds Rep 117; [2016] EWCA Civ 808; [2018] UKSC 26

War risks insurance – narcotics strapped to the hull leading to detention and confiscation -constructive total loss – insurers entitled to rely on customs infringement exclusion

The Facts

The vessel was insured on a standard war risks policy on the Institute War and Strikes clauses 1/10/83 with additional perils. The conditions for hull and machinery cover (Section A) provided:

“Institute War and Strikes Clauses hulls – time clause 281. 1/10/1983 including strikes, riots and civil commotions, malicious damage and vandalism, piracy and or sabotage and or terrorism and or malicious mischief and or malicious damage. Including confiscation and expropriation.

Perils

Subject always to the exclusions hearing after referred to, this insurance covers loss of or damage to the vessel caused by:

1.2         Capture, seizure, arrest, restraint or detainment, and the consequences thereof or any attempt thereat

1.5         Any terrorist or any person acting maliciously or from a political motive

1.6         Confiscation or expropriation

2            INCORPORATION

The Institute time clauses – hulls 1/10/83 … are deemed to be incorporated in this insurance insofar as they do not conflict with the provisions of these clauses.

4            EXCLUSIONS

This insurance excludes:

4.1         Loss, damage, liability or expense arising from

4.1.5                    Arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations.”

Clause 6 of the Institute time clauses – hulls 1/10/83 provided:

“Perils

6.1         This insurance covers loss of or damage to the subject matter insured caused by:

6.1.5                    Piracy

6.2.5                    Barratry of master, officers or crew

Provided such loss or damage has not resulted from want of due diligence by the assured, owners or managers.”

After loading a cargo of coal in Lake Maracaibo, Venezuela, for discharge in Italy, 3 bags of cocaine weighing 132kgs were found strapped to the vessel’s hull, 10 meters below the water line.

The vessel was detained and then confiscated under the Venezuelan Anti-Drug Laws.

Findings

Flaux J held that a limitation had to be read in to the exclusion clause: if a deliberate attempt to have the vessel detained by committing the crime (a put up job) would not fall within the exclusion then why should the malicious act of a third party, as occurred on the present facts, do so.

The infringement of customs regulations was at the same time a malicious act, and so, an insured peril. The customs infringement was simply a manifestation of the malicious act and therefore could not operate as exclusion.

The Court of Appeal (Christopher Clarke LJ) disagreed. If the infringement of customs regulations also happened to be a malicious act and therefore an insured peril – this did not deprive the exclusion of its efficacy. This was the natural meaning of the clauses.

The UKSC per Lord Mance revisited a question which was common cause between the parties: that the attempted drug smuggling was a “malicious act”.

After calling for additional argument the UKSC decided that “malicious act” had to include a deliberate assault on property or property interests which drug smuggling was not. The smugglers while foreseeing harm to the vessel did not intend harm to her or her owners.

This finding would have been sufficient to dismiss the appeal. The court went on, however, to re-examine the CA’s reasoning and affirmed it.

An insured peril and an exception may be contributing causes of the damage in which case the exception will always trump the peril.

Commentary

Dealing in narcotics, although different from the mere evasion of taxes, usually associated with customs infringements, fell within the clause because of the wide interpretation sanctioned in the Anita where contraband of war was in issue.

In the Kleovoulos of Rhodes the Court of Appeal had held, with specific reference to drugs, that smuggling was smuggling ie hiding cargo from the authorities.

Lord Mance’s judgment contains a useful discussion on the role of precedent in contractual interpretation, his premise being that insurance policy clauses are drafted with case law in mind.

 

 

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