Insurance fraudsters, look out! There are punitives about.

Can an insurer get punitive damages against fraudsters and fraudulent claimants? Until today the matter was doubtful. Although such damages had since Kuddus v Leicestershire Chief Constable [2002] 2 AC 122 been available on principle for all causes of action, they were still subject to Lord Devlin’s other limits in Rookes v Barnard [1964] AC 1129: statute aside, there had to be either public authority wrongdoing or an intent to make gains exceeding any compensation payable. The former was not relevant: as for the latter, even if the fraudster made a gain his liability was not less than but equal to, or — once other heads of damage such as investigation were thrown in — greater than, that gain.

Logical, but from today not correct, courtesy of some slightly tortuous reasoning from the Court of Appeal.

 Axa Insurance UK Plc v Financial Claims Solutions Ltd & Ors [2018] EWCA Civ 1330 (15 June 2018) involved a couple of fraudulent fender-bender-cum-whiplash claims against Axa. Axa, to their credit, smelt a rat. They paid nothing and instead sued the lawyers responsible for making the claims in deceit. In this action they claimed their costs in investigating, and superadded a claim for punitive damages. Reversing the trial judge, the Court of Appeal said they could have the latter, and mulcted each defendant in the sum of £20,000. The requirement for calculation of gains exceeding liabilities was satisfied, it was said, because even if the fraudsters knew they were liable for the full amount of their ill-gotten gains they hoped never in fact to pay; this hope was sufficient to generate the element of hoped-for profit.

The result is welcome, even if the reasoning is a bit surprising. It is also highly significant, since it seems to mean that almost any fraudulent claim against an insurer is now capable of generating a punitive damages liability in the person bringing it if the court thinks fit to exercise its discretion in favour of an award. This presumably includes cases where the fraudster is the claimant himself; although fraudulent claims by policyholders are now dealt with by Part 4 of the Insurance Act 2015, it seems unlikely that this provision was intended to pre-empt the right of the underwriter to sue in tort for deceit if he so wished.

As to when such awards will be made, this is not yet clear. At a guess they are most likely where the whole, or a large proportion, of the claim is bogus: it seems doubtful whether simple exaggeration cases will attract them. But all we can do now is wait and see.

 

We do need a marine insurance drugs clause

Another item for the agenda at the LMA (and elsewhere where they do insurance).  If someone tries to use your ship without your knowledge for drug-smuggling and the vessel gets seized, the Supreme Court has now confirmed in Navigators Insurance Co Ltd & Ors v Atlasnavios-Navegação Lda [2018] UKSC 26 that your insurance may well not respond, with your underwriters politely but regretfully telling you that you are on your own.

While an elderly  bulker, the B Atlantic, was loading a cargo of coal in Maracaibo, Venezuela, enterprising drug smugglers strapped nearly 300 lb of cocaine to her hull with a view to retrieving it later. The drugs were found, and the vessel seized and condemned by the Venezuelan authorities. Her owners’ H&M insurance included the Institute War & Strikes Clause, which gave cover for capture, seizure and arrest; against persons acting maliciously; and against confiscation and expropriation. But specifically excluded under Clause 4.1.5 was detainment, confiscation or expropriation by reason of infringement of customs or trading regulations. The underwriters declined to pay. Flaux J decided for the owners; the smugglers’ acts were those of “persons acting maliciously”, and Clause 4.1.5 did not apply because the substantial cause of their loss was the acts of the smugglers and not the resulting infringement of the Venezuelan customs code. The Court of Appeal disagreed: the exclusion of infringement of customs or trading regulations should not be limited in this way, and in the circumstances excluded liability.

The Supremes, led by Lord Mance, agreed with the Court of Appeal, but went further. Not only did the events fall fair and square within the exclusion of confiscation for breach of customs or trading regulations, but there had been no cover in the first place. “Persons acting maliciously” meant persons deliberately out to injure the interests of the owners. Unlike terrorists, bombers or garden-variety vandals, drug-smugglers did not fall in this category: they were criminals, true, and knew that what they did might have consequences for the owners, but this was not enough.

This is, if one may say so, a sensible and convincing decision on the facts and the wording. But it does leave owners high and dry when faced with a risk against which they can quite legitimately desire protection. A specific clause protecting against seizure for drug-smuggling committed without the knowledge or connivance of the owner or the crew now seems a high priority. As we said, it’s over to you at the LMA.

 

 

Marine Cargo Policies Do Not Normally Provide Cover for Economical Losses

Engelhart CTP (US) LLC v. Lloyd’s Syndicate 1221 for the 2014 year of account [2018] EWHC 900 (Comm)

Having purchased 1,967.898 metric tonnes of cooper ingots, said to be shipped in 102 containers from New York, the buyer (assured) obtained “Marine Cargo and Storage Insurance Policy” from various insurers at Lloyd’s. The insurance policy, inter alia, stated:

“… noted and agreed that unless otherwise declared the contrary, the broadest coverage shall apply.”

“Container Clause

It is agreed that this Insurance contract is also to pay for shortage of contents (meaning thereby the difference between the number of packages as per shippers and/or suppliers invoice and/or packing list loaded or alleged to have been laden in the container and/or trailer and/or vehicle load and the count of packages removed therefrom by the Assured and / or their agent at time of container emptying) notwithstanding that seals may appear intact, and/or any other loss and/or damage including but not limited to cargo and/or container sweat howsoever arising.”

 

“Fraudulent Documents

This insurance contract covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or Shippers of fraudulent documents of title, including but not limited to Bill(s) of Lading and/or Shipping Receipt(s) and/or Messenger Receipt(s) and/or shipping documents and/or Warehouse Receipts and/or other document(s) of title.

This insurance contract is also to cover physical loss of or damage to goods insured caused by utilisation of legitimate Bill(s) of lading and/or other documents of title without the authorisation and/or consent of the Assured or their Agents and/or Shippers.”

On arrival at Hong Kong for transhipment, it was discovered that no cooper ingots were, in fact, shipped in the containers. Indeed, no such cargo existed and the containers only contained slag of nominal commercial value.

The assured’s claim for indemnity was turned down on various grounds but it was specifically stipulated by Sir Ross Cranston, sitting as a judge of the High Court, that all risk marine cargo insurance was generally construed as covering only losses following from physical loss or damage to goods and this policy as a whole did not displace the presumption against cover for pure economic loss.

The trial judge  dismissed the assured’s contention that the alleged loss fell under the container clause stressing that the term “shortage” in the clause should be given its ordinary meaning and could not cover a situation where there was no goods in the first place. He also emphasised that the “fraudulent documents” clause expressly and exclusively responded to “physical loss of or damage to” goods through the acceptance of dishonest documents so this clause rather than displacing the presumption against cover for pure economic loss in cargo policies endorsed it in the sense that it did expressly indicate that no cover was available for physical losses.

2 points emerge from the judgment:

  1. Considered from the perspective of the construction of contracts, the decision is not at all surprising. It is in line with the spirit of several high profile judgments of the Supreme Court, such as Rainy Sky SA Kookmin Bank [2011] UKSC 50; Arnold v. Britton [2015] UKSC 36 and Impact Funding Solutions Ltd v. Barrington Support Services Ltd [2016] UKSC 57, which emphasise that construing a written document is “first and foremost” a textual exercise. On that premise, a clear and express wording is required to extend the cover of a marine cargo policy to losses which are economic in nature. General statements in the policy purporting to describe the nature of coverage provided in broad terms are not on their own capable of extending the nature of cover beyond physical loss or damage to goods.
  2. It is somehow surprising that the insurers did not develop an alternative defence to the claim by arguing that the policy in this case was void (or did not attach) as the subject matter of insurance has never existed in the first place (see AF Watkinson & Co. Ltd. v. Hullett (1938) 61 L1L Rep 145) In fact, it was argued forcefully in Marine Insurance Fraud, (2014, Informa Law) at 2-117-2-118) that where insurance is obtained for an imaginary cargo, the non-disclosure and misrepresentation is of such magnitude that there is no cover at all.             

CTL Assessment in Marine Insurance

The Swedish Club v Connect Shipping (The MV Renos) [2018] EWCA Civ 230

The insured vessel, the Renos, was on a laden voyage in the Red Sea in August 2012 when a fire broke out. The owners sought assistance and on 23 August a salvage agreement (in LOF form) was signed to deliver the vessel to a place of safety. The salvors invoked the SCOPIC clause immediately and brought the vessel to anchorage off the Suez Canal on 31 August. The owner’s surveyor inspected the vessel and estimated that the repair cost would be in the region of US$ 8 million. The insurer’s surveyor, on the other hand, valued the repair costs around US$ 5.527 million. It was a common ground between the assured and insurer that to be declared as a constructive total loss (CTL) under s. 60 of the Marine Insurance Act (MIA) 1906, the repair costs needed to be in excess of US$ 8 million.

The vessel was towed to a place of safety, the port of Adabiya (Egypt), by the end of September 2012.  There, the owners in conjunction with the insurer’s surveyors drew up a repair specification which was completed by the end of November. In December, the owners received several repair quotations ranging from US$ 2.8 million to US$ 9 million. Discussions over the repairs continued between the assured and insurer throughout January 2013 and ultimately the owners issued a notice of abandonment on 1 February 2013.

The insurers refused to accept the notice of abandonment on the premise that it was not given within a reasonable time after receipt of reliable information of the loss and a reasonable time for inquiry, as stipulated by s. 62(3) of the MIA 1906. The trial judge, Knowles, J, delivered the judgment on this point [2016] EWHC 1580 (Comm) in favour of the assured indicating that due to the complexity of the repairs required and contradictory information received from different surveyors as to the cost of repairs, it was understandable why it took until 1 February 2013 for the assured to give notice of abandonment. Therefore, it was held that the assured did not lose its right to abandon the vessel to underwriters under s. 62(3) of the MIA 1906.  The insurers appealed to the Court of Appeal on this point.

Another point of dispute was the type of costs that can be taken into account for the purposes of the CTL calculation. Relying on the wording of s. 60(2)(ii) of the MIA 1906, which stipulates that “in estimating the costs of repairs…. account is to be taken of the expense of the future salvage operations” the insurers argued, unsuccessfully before the trial judge, that the costs incurred prior to the date of date of the notice of abandonment should not be included. It was also argued that the payment due under the SCOPIC clause should not be taken into account in estimating the costs of repairs. This argument was also rejected. The insurers also appealed against these findings to the Court of Appeal.

The Court of Appeal’s decision is momentous especially on the issue of calculation of cost of repairs for identifying whether CTL can be declared on the premise that “the cost of repairing the damage would exceed the value of the ship when repaired”.  Hamblen, LJ, who delivered the judgment of the Court of Appeal, was of the opinion that the relevant date for calculating the costs of repair for this purpose was the date of the casualty. The reference to “future” in s. 60 (2)(ii) was justified on the premise that this was a word of inclusion rather than exclusion making it clear that future costs should be taken into account alongside those already incurred. This certainly makes sense considering how matters progress in practice. Once a casualty arises, the first consideration of any owner is to appoint a salvor to assist his ship rather than sending a notice of abandonment to their hull insurers just in case the casualty is serious and the cost of repair (including salvage cost) is high enough to justify abandoning the insured vessel to underwriters. At that stage, the assured simply does not possess adequate information to be able to make a decision as to whether to send a notice of abandonment or not.

The decision of the Court of Appeal on the SCOPIC expenses could prove to be more controversial. In the present case, the cost of the salvage operation was around US$ 1.2 million for the notional Art. 13 salvage award and US$ 1.428 million in respect of SCOPIC paid over and above the Art. 13 award. It was the contention of the insurers that the SCOPIC costs should not be taken into account as costs within s. 60(2)(ii) of the MIA 1906 as the SCOPIC remuneration was conceptually different from Art. 13 award payable and not payable under the hull and machinery policy. Affirming the first instance judgment, Hamblen, LJ, rejected this contention. He was of the opinion that the benefit that was conferred on the insured property by the SCOPIC services could not be easily divorced from the benefit under Art. 13 award. Put differently, had there been no SCOPIC element, the insured vessel would presumably have been declared economically unsalvageable and, therefore, a wreck. Therefore, in determining whether the vessel had become a CTL it should be disregarded which insurer (hull and machinery insurer or P & I Club) pays which part of the salvage award. The author understands the reasoning behind this decision. But it ultimately means that in determining whether CTL under a hull and machinery policy has arisen, costs which do not fall for indemnity under that policy (i.e. SCOPIC award) should be taken into account. One might regard this outcome counter-intuitive and even slightly peculiar and it is possible that insurers might wish to reverse this position by adding clauses to the contracts in future to the effect that SCOPIC reward should not be taken into account in calculating costs under s. 60(2)(ii) of the MIA 1906.

The decision of the Court of Appeal on the point whether the assured had lost their right to abandon the vessel to them under s. 62(3) of the MIA 1906 does not set a precedent but is a good illustration of the difficulties that can emerge after a casualty in determining whether notice of abandonment was given in a reasonable amount of time. On this point too, the Court of Appeal affirmed the judgment of the first instance judge. Hamblen, LJ, stressed that in determining whether notice of abandonment was given in a reasonable time the factual context needed to be examined carefully. The nature of the casualty in this case meant that obtaining reliable information about the loss would inevitably be complex and take time. Also, given that the repairs required were likely to be substantial and complex, it would have been very difficult to have reliable information as to loss until quotations from various shipyards had been received. Such quotations were not received until early December. Furthermore, insurers on several occasions challenged the findings of the assured’s surveyor making it rather difficult for the assured to have reliable information to make a decision as to whether they would abandon their interest to the insurer or not. Hamblen, LJ, concluded on this point at [58] by stating “…the Insurers chose at the time to carry out their own detailed surveys so as to produce their own repair specification and quotations for repair costs, which they relied upon to demonstrate that the Vessel was not a CTL. They shared that information with the Owners, insisted on its correctness, and can hardly complain if it is taken into account in considering whether there was reliable information of the loss.”

Counting the costs for a constructive total loss. The Renos.

 

The Renos provides important guidance as to the costs that can be taken into account in determining whether a vessel is a CTL. The Court of Appeal, [2018] EWCA Civ 230, has upheld the first instance decision of Knowles J, [2016] EWHC 1580 (Comm), that the owners were entitled to be indemnified by their insurers on a constructive total loss (‘CTL’) basis.

On 23 August 2012 a fire broke out in the vessel’s engine while she was on a laden voyage and the owners appointed salvors under LOF 2011. The salvors invoked the SCOPIC clause. On 1 February 2013 the owners served notice of abandonment which the insurers promptly rejected on the grounds that it had been given too late and that owners could only claim on a partial loss basis. Knowles J held that owners did not have reliable information of the loss until 25 January 2013 and that the notice of abandonment (‘NOA’) had been given with reasonable diligence thereafter.

There then came the issue of which costs could be taken into account for the purposes of the CTL calculation. The insurers argued that two costs should be discounted from the CTL calculation. First, there were costs incurred prior to the date of the NOA. The insurers pointed to s.60(2)(ii) of the Marine Insurance Act which provides “In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired…” The insurers argued that the reference to future general average contributions and future salvage operations showed that shows that past salvage and general average costs did not count and there was no logical reason to treat other types of expenses any differently.

Second there were the SCOPIC costs incurred by owners. The insurers argued that these should not count towards the cost of repairs for the CTL calculation. They sought to rely on that para 15 of the SCOPIC clause by way of defence pursuant to the Third Parties (Rights against Insurers) Act 1999. Paragraph 15 provides that “no claim whether direct, indirect, by way of indemnity or recourse or otherwise relating to SCOPIC remuneration in excess of the Article 14 Award shall be made in General Average or under the vessel’s Hull and Machinery Policy by the owners of the vessel.”

Knowles J rejected both arguments. Section 60(2)(ii) of the Marine Insurance Act 1906 did not refer to the giving of NOA and did not distinguish between the time when a repair cost might be incurred. The reference to future general average contributions and future salvage operations were words of inclusion not exclusion. As regards SCOPIC no claim of any sort had been made relating to remuneration under the SCOPIC clause. SCOPIC remuneration was relevant only as part of the cost of repair to be taken account in deciding whether the vessels was a CTL.

The Court of Appeal have upheld the decision of Knowles J on all these points.

 

Recovery by underwriters: an unconfident sequel to the Atlantik Confidence debacle.

It might look rather churlish for an insurer in paying out on a claim to talk in the same breath about what happens if it should later decide that it wants its money back. Nevertheless it was failure to do this that landed a group of marine underwriters in expensive satellite litigation in Aspen Underwriting Ltd & Ors v Kairos Shipping Ltd & Ors [2017] EWHC 1904 (Comm).

The background to all this was last year’s decision in Kairos Shipping v Enka & Co LLC [2016] EWHC 2412 (Admlty) (noted here for the benefit of our readers), where following the loss of the 27,000 dwt bulker Atlantik Confidence in the Middle East, cargo underwriters successfully broke limitation on the basis that the sinking was a put-up job. The vessel’s hull underwriters, having previously paid out on the orders of her owners’ bank under an insurance assignment provision, now sued the bank to recover their money. The bank, based in the Netherlands, tried to put a spanner in the works by denying the jurisdiction of the English courts under Art.4 of Brussels I Recast, and very nearly succeeded.

The agreement under which the underwriters settled the payout contained an English jurisdiction clause. However it had been signed by the underwriters and the owners, and not by the bank, which had merely given consent for any monies to be paid out to a third party rather than themselves (they were actually paid to the brokers).  Teare J was not prepared to infer that the owners had signed for the bank as principals, or that the bank by agreeing to payment to a third party (the brokers) had demanded payment so as to bring themselves within the doctrine of benefit and burden. The underwriters only won, by the skin of their teeth (and the skill of IISTL stalwart Peter Macdonald-Eggers QC), because of a just plausible alternative argument that some kind of tort of misrepresentation had been committed by or on behalf of  the bank which had had its effects in England, thus enabling the underwriters to invoke Art.7(2) of Brussels I.

Moral (it would seem): all policies should contain a term, rigorously enforced, stating that no monies will be paid out save against a signed receipt specifically submitting to the exclusive jurisdiction of the English courts in respect of any subsequent dispute respecting the payment.

Hopeful law professors will of course look forward to a decision on the substantive point of recovery (which raises interesting issues of tort law, not to mention restitution should the entire litigation take place here with the agreement of the bank). But one suspects they will do so in vain. It seems likely that this case, like so many others, will end up in the great mass of claims “settled on undisclosed terms.”

A Euro-spanner in the P&I works: direct actions allowed against insurers in EU courts, and no argument allowed.

UK-based P&I clubs will be hopping mad at the decision of the ECJ today in Assens Havn (Judicial cooperation in civil matters) [2017] EUECJ C-368/16, and will doubtless be joining a number of others in saying that Brexit can’t come soon enough. The problem can be summed up thus: as regards events in the EU the Assens Havn decision has blown out of the water their carefully-crafted provisions aimed at ensuring that all proceedings against them in respect of their members’ liabilities are sorted out in England.

The background (see here in this blog) arose out of events ten years ago in the Danish port of Assens. A Danish tug, entered by bareboat charterers with Navigators Management (UK) Ltd, negligently damaged shore installations. The charterers being insolvent, the port sued Navigators in Denmark under a Danish direct action statute. Navigators relied on the English law and jurisdiction clause in their agreement and insisted on being sued in England. The port relied on Arts 10 and 11 of Brussels I (now Recast 12 and 13, there being no relevant difference), saying that in matters of insurance the club could be sued in Denmark as the place where the damage occurred. Navigators said that Art.13.5 (recast Art.15.5) allowed the relevant jurisdiction to be ousted by agreement, including agreement between the insurer and the insured. It was only fair, they argued, that if the port wanted to use a direct action provision to sue them, the port had to take the insurance contract warts and all. The Danish courts sided with Navigators, but referred the matter to the ECJ.

The ECJ was having none of it. True, the plain words of Art.13.5 said that the provisions of Part 3 of the Regulation could be contracted out of in the case of (inter alia)  marine third-party insurance contracts. True also that the Brussels provisions dealing with direct actions against insurers — Arts.8-10 and 11.2 — indubitably formed part of Part 3. Nevertheless, the Court managed to interpret the Regulation as forbidding any contractual ouster of the direct action provisions. This it did on two grounds. One, flimsy enough, was that the direct action provisions contained no specific saving for Art.13.5. The other was that the victim of an accident always had to be protected in its claims on the basis that it was likely to be the weaker party (!). This can best be described as bizarre: not only is the right of contracting-out under Art.13.5 carefully limited to insurance against solidly commercial risks, but the victims are likely to be substantial businesses or authorities and / or their property insurers, none of which one would have thought deserving of any particular solicitude.

Discounting any entirely unworthy thoughts connected with ideas such as sour grapes and Brexit, one can only speculate that the Court regarded the regime that previously protected P&I clubs as a tiresome anomaly, to be removed almost at any cost. In any case, the position now appears clear. In EU jurisdictions that allow direct actions against insurers, P&I clubs will have to resign themselves to being sued wherever bad things happen. Only in the case of other EU jurisdictions, and outside the EU, where they have in addition the useful weapon of the anti-suit injunction available to them (see here) — can they continue as before and benefit from the savings in costs and trouble of one unique English forum.

How to read the Inter-Club Agreement: order a ship around at your own risk

Teare J today faced a neat point of interpretation of the ICA. In Transgrain Shipping (Singapore) PTE Ltd v Yangtze Navigation (Hong Kong) Co Ltd [2016] EWHC 3132 (Comm) Transgrain sold soya bean meal to Iranian buyers. To transport it they chartered 45000 grt bulker MV Yangtze Xing Hua on a NYPE time charter trip. The ICA was expressly incorporated. The vessel arrived: the buyers were decidedly leisurely about paying for the cargo or collecting it. Transgrain in response ordered the vessel to wait for four months, it being cheaper to pay hire and/or demurrage (which could then be billed to the buyer) than to warehouse the cargo ashore.

At the end of the period the cargo overheated. The owners settled a cargo claim by the consignees for about € 2.6 million, and then turned on Transgrain. In arbitration proceedings neither Transgrain nor the owners were found to have been at fault; the overheating had been caused, unsurprisingly, by sitting for about 18 weeks off the Iranian coast. As a result Transgrain argued that this was a case of “all other cargo claims” and argued for a 50-50 split under s.8(d) of the ICA. Owners countered that under the proviso to s.8(d) claims caused by the “act or neglect” of one or other party were for that party’s account: Transgrain argued that “act”, yoked as it was to “neglect”, implied “negligent act” and that, there being no fault in anyone, the proviso fell away.

Teare J sided with owners: “act”, he said, meant “act”, no more and no less. Probably rightly, in our view. If you insist on using a vessel in a particular way – for example as a floating warehouse – and a third-party claim results, there is much to be said for the idea that this is something you do at your own risk. Mind you, this result now leaves plenty of work for lawyers in future cases in arguing about how far a given claim is caused by a given (faultless) act: but we can leave that for another day.

Direct actions against insurers — EU-style

P&I clubs already have their issues with the EU, as regards (for instance) Solvency II: see our post here. Now another cloud looms. P&I clubs based in the UK jealously guard their English law and jurisdiction clauses. But where a direct action is brought in an EU state, is the jurisdiction clause compatible with EU law?

The point has arisen in Denmark and is headed for the ECJ. A Danish tug, entered with Navigators Management (UK) Ltd, caused mayhem in the Danish port of Assens. The tug’s bareboat charterers being insolvent, the port sued Navigators in Denmark under the Danish direct action statute: Navigators relied on the English law and jurisdiction clause and insisted on being sued in England. The port relied on Arts 10 and 11 of Brussels I (equivalent to Recast 12 and 13, there being no relevant difference between the two here), saying that in matters of insurance the club could be sued in Denmark as the place where the damage occurred. Navigators said that Art.13 (recast Art.15) allowed the relevant jurisdiction to be ousted by agreement. The port retorted that this was all very well, but a term in the contract between the charterers and the club could not in the nature of things be binding on it as a third party. Whereupon the club riposted that if the port wanted the advantage of the contract between it and the charterers then the port had to take that contract warts (i.e. jurisdiction clause) and all.

At this stage it’s not clear why the port wanted so much to sue in Denmark. We can only presume that, despite the cover being written under English law, Danish law would apply to the exclusion of English law to at least some aspects of the direct claim and deprive the club of some advantage or defence otherwise available.

What the ECJ will hold is anyone’s guess. One hopes it will side with the insurer: one way P&I clubs keep costs down and liabilities in check is to avoid entanglements with foreign law as far as possible, and keep in reserve the possibility of insisting on “pay to be paid” provisions — something many EU jurisdictions take a poor view of. There’s certainly some logic on that side. In particular, the right under Art.13 to exclude jurisdiction is specifically stated not to apply to direct personal injury claims against liability insurers: something that seems to suggest that but third party direct claims in general can be excluded. On the other hand, logic (if one may say so) has not always been the ECJ’s strong suit when the court has been presented with the opportunity to extend EU control over commercial activities.

If the decision goes against Navigators, we may see yet another item added to the already long UK Brexit wish-list.

Many thanks to HFW (who give the arguments in detail) for the tip-off. More detailed coverage of the affair (in English) from the Copenhagen law firm Gorrissen Federspiel can be found here.

Might you need a specialised drug-smuggling insurance clause?

Another worry for hard-pressed shipowners operating in the Caribbean and bits of South America. If someone tries to use your ship as a mechanical “mule” for drug-smuggling and the vessel gets seized, you can lose insurance cover. In Atlasnavios Navegação Lda v Navigators Insurance Company Ltd [2016] EWCA Civ 808 this happened to an elderly  bulker, the B Atlantic. While she was loading a cargo of coal in Venezuela, enterprising drug smugglers strapped nearly 300 lb of cocaine to her hull for later retrieval. The drugs were found, and the vessel seized and condemned.

The loss was prima facie covered under the Institute War & Strikes Clause, which gave cover for capture, seizure and arrest; against persons acting maliciously; and against confiscation and expropriation. But specifically excluded under Clause 4.1.5 was detainment, confiscation or expropriation by reason of infringement of customs or trading regulations, which led the insurers to decline to pay. Flaux J decided for the owners, essentially on the basis that the substantial cause of their loss was the malicious acts of the smugglers and not the resulting infringement of the Venezuelan customs code. The Court of Appeal disagreed: the exclusion of infringement of customs or trading regulations should be given its ordinary meaning, and in the circumstances excluded liability.

As we said at the beginning, a big headache for owners (and in future a matter for consideration by their insurance brokers).