Oceanus Capital SARL v Lloyd’s Insurance Company S.A. (The “Vyssos”)
DMC/INS/26/01
England
Oceanus Capital SARL v Lloyd’s Insurance Company S.A. (The “Vyssos”)
English Commercial Court: Sue Prevezer KC (sitting as a Judge of the High Court: [2025] EWHC 3293 (Comm): 17 December 2025
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2025/3293.html
Nicholas Vineall KC and Neil Dowers (instructed by Wikborg Rein LLP) for Oceanus (Insured)
David Bailey KC and Emma Franklin (instructed by Kennedys Law LLP) for Lloyd’s (Insurer)
MARINE WAR RISKS INSURANCE (“MWRI”): MORTGAGEE’S INTEREST INSURANCE (“MII”): VESSEL SENT BY OWNER INTO ADDITIONAL WAR RISKS PREMIUM (“AWRP”) AREA WITHOUT NOTIFYING WR UNDERWRITER IN ADVANCE AND WITHOUT PAYMENT OF AWRP TO MAINTAIN MWRI COVER: VESSEL BECAME CONSTRUCTIVE TOTAL LOSS BY SEA MINE CASUALTY: WHETHER MORTGAGEE ENTITLED TO INDEMNITY FOR LOSS CAUSED BY ‘INSURED PERIL’ UNDER MII POLICY WHERE OWNER UNABLE TO RECOVER LOSS UNDER MWRI POLICY DUE TO BREACH OF TRADING LIMITS WARRANTY: WHETHER MORTGAGEE PRIVY TO BREACH: WHETHER LOSS WAS FORTUITOUS
(N.B. the judgment is being appealed to the Court of Appeal and an update note will be provided in due course if a further judgment is handed down.)
DMC Rating: Developed
Summary
The High Court held that the Mortgagee-Insured was entitled under the MII policy to the indemnity claimed, namely the USD3.6m value of the mortgagee it had secured on the Vessel and lost as a result of the casualty, because:
1. the loss was proximately caused by the sea mine strike on the Vessel;
2. the Mortgagee was not privy to the conduct of the Vessel’s Owner; and
3. the loss suffered by the Mortgagee was fortuitous and not inevitable.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and Deputy Editor of DMC’s CaseNotes
Background
“VYSSOS” (“Vessel”) was owned by Lyra Mare (“Owner”) which insured its interest in her under a MWRI policy on the Institute War and Strikes Clauses Hulls wording, covering worldwide trading subject to, among others, a warranty that she would not enter, sail for or deviate towards certain waters, including the territorial waters of Ukraine, unless otherwise agreed with the WR underwriters in return for payment of an additional war risks premium (“AWRP”).
The Vessel was mortgaged by the Owner to Oceanus Capital (“Mortgagee”) by a first preferred mortgage for USD3m financing, with an endorsement of the Mortgagee’s interests on the Owner’s insurance policies and club entries. The Mortgagee also insured its interests as mortgagee of the Vessel with Lloyd’s Insurance (“Insurer”) under the MII policy. The material parts of the wording of that policy are set out below at (fn.1).
While the Vessel was on charter, the Mortgagee was informed that the charterer intended to trade her into Ukrainian waters. The Mortgagee insisted that additional war risks cover (“AWRC”) be put in place and was later provided with a copy of what appeared to be a cover note evidencing AWRC had been obtained for the voyage. The Vessel subsequently was damaged by a sea mine strike in Ukrainian waters and was declared a constructive total loss.
The cover note later transpired to be a forgery and no AWRC had in fact been obtained by the Owner. The Mortgagee sought an indemnity under its MII policy. After the Insurer had declined cover, the Mortgagee commenced proceedings in the English High Court seeking a declaration of its entitlement to an indemnity. The quantum of the indemnity was agreed by the parties to be USD3.6m net of interest and costs. The Insurer declined the claim on the grounds that:
1. the proximate cause of the loss was the Mortgagee’s inability to claim under the AWRC due to the Owner’s forgery of the AWRC cover note and not its inability to recover under the Owner’s MWRI policy as a result of an ‘insured peril’ occurring under the MII policy;
2. the claim was excluded by the express proviso at clause 1.1 of the MII policy, namely that the Mortgagee was privy to the occurrence or existence of the Owner’s breach of the MWRI policy trading limits; or
3. even if the loss was caused by an insured peril under the MII policy and the proviso was inapplicable, the occurrence or existence of the insured peril was not fortuitous, because a breach of the MWRI policy trading limits was a known certainty to the Mortgagee.
Judgment
Having dealt with the background, facts, policy terms and parties’ submissions, the Judge found in favour of the Mortgagee-Insured for the following reasons.
1. Causation
The Judge considered that the proximate cause of the Mortgagee’s loss was the loss of or damage to the Vessel as a result of the sea mine strike with the result, subject to the privity and fortuity issues, being that the Mortgagee was entitled to recover USD3.6m, net of interest and costs, under the MII policy.
The precise scope of the cover turned on the MII policy wording, in particular clause 1.1. That wording required a loss incurred by the Mortgagee “resulting from a loss of or damage to … the Mortgaged Vessel” and a claim which would, on its face, have been payable under the Owner’s “Policies and Club Entries” but for an ‘insured peril’ referred to in the MII policy. In this case, the peril insured by the MII policy was the Owner’s trading of the Vessel in Ukrainian waters in breach of the MWRI policy trading limits without paying AWRP to get AWRC.
While there are different forms of mortgagee interest insurance, the Judge noted their overriding purpose was to protect mortgagees against loss which they reasonably expected would be covered by owners’ insurances but which was not, ultimately, covered due to some misconduct by owners for which mortgagees were not responsible. The loss indemnified under the MII policy resulted from what would otherwise have been covered by the Owner’s MWRI policy but for WR underwriters’ defence of the Owner’s breach of the MWRI trading limits.
The MII policy wording in the present case was also markedly different to, and so distinguishable from, the MII wording dealt with in The “ZouZou” (fn.2).
2. Privity
Having noted the Mortgagee did not have any mechanism by which it could have prevented the Vessel’s trading in Ukrainian waters, the Judge considered that the Mortgagee was not privy to the Owner’s breach of the MWRI trading limits.
While there was no direct authority on what privity meant in the context of a MII policy, the Judge considered the judicial meaning given to privity in section 39(5) of the Marine Insurance Act 1906 (fn.3) was highly persuasive in the present context too. That meant the concept of privity could not mean something more favourable to insurers under MII policies than it meant in the general common law as explained by the Court of Appeal (fn.4) and the House of Lords (fn.5).
The latter judgment focused on the “blind-eye” knowledge element of privity (i.e. being aware that something may not be right but deciding not to investigate to avoid finding out for certain), and made clear that there is a relatively high degree of connivance or blame worthiness required and that an insured cannot be fixed with knowledge through negligence alone; it must know or have deliberately ignored signs. So, the question for the Court to determine was whether the Mortgagee knew (in fact or by blind-eye knowledge) and “consented to” or “concurred in” (terms often used interchangeably) the Owner’s breach of the MWRI trading limits.
The Judge found on the facts that the Mortgagee knew the Vessel was sailing for Ukrainian waters and that AWRC was required and had sought to ensure that AWRC was obtained. Thus, the Mortgagee only consented to the voyage on the condition that AWRC had been arranged for areas outside the territorial limits of the MWRI policy. However, contrary to what the Mortgagee was told, no AWRC had in fact been arranged, the Mortgagee having been duped, by the fake AWRC cover note, into believing that AWRC had been obtained for the voyage. It was on that then unknown and false basis alone that the Mortgagee had consented to the voyage.
Those facts meant, in the Judge’s view, that the Mortgagee had never validly consent to or concurred in the Owner’s breach of the MWRI trading limits. That was because the Mortgagee did not know the true position, had no reason to be suspicious of the AWRC cover note (having received one on a similar voyage a month earlier), and had not turned a blind-eye or blandly ignored the facts.
3. Fortuity
The Judge was satisfied that the loss suffered by the Mortgagee was fortuitous.
The Judge concluded that the loss suffered by the Mortgagee, as Insured, had resulted from the loss of the Vessel by reason of the sea mine strike. That loss would, in the ordinary course, have been covered by the MWRI policy but for the Owner’s breach of the trading limits warranty.
The sea mine strike was clearly fortuitous, because that event had not been an inevitability on the Vessel entering Ukrainian waters and the loss that had been incurred by the Mortgagee was not bound to result from conduct voluntarily entered into by its choice. The Mortgagee was not privy to the insured peril under the MII policy, namely the Owner’s breach of the MWRI policy trading limits warranty.
Moreover, the Mortgagee was fundamentally deceived by the forged AWRC cover note into allowing the Vessel on the voyage. In such circumstances, it was also not right to say that the Mortgagee had a choice in whether to rely on the AWRC cover note or to hold the Vessel back from going on the voyage.
Comment
While the conclusion reached in this judgment differs from a prior judgment on mortgagee’s interest insurance, the result in the present case is intuitively right because of the particular wording used in this policy.
That result also aligns with the underlying purpose of mortgagees obtaining their own separate cover in the event of owners breaching the primary policy. That is because under the primary policy a claim by mortgagees as endorsees would be defeated if owners breached the terms of the policy.
The Judge gave permission for the Insurer to appeal to the Court of Appeal. The appeal is expected to be heard later this year (fn.6). The writer is of the view that the appeal is unlikely to succeed for the reasons above.
Footnote 1:
“1. INSURING CLAUSE
1.1 This insurance will indemnify the Assured for loss resulting from loss of or damage to or liability of the Mortgaged Vessel which, in the absence of an insured peril set out in Clause 2.1 below, would prima facie be covered by the Owners' Policies and Club Entries, and not excluded therein, but in respect of which there is subsequent non-payment (or reduced payment which is approved in advance by the Underwriters hereon) by any of the Underwriters of Owners' Policies and Club Entries as a result of any insured peril, provided always that such insured peril occurs or exists without the privity of the Assured.
1.2 The indemnity payable hereunder shall be:
1.2.1 the amount of the Assured 's net loss and any amounts recoverable under Clause 6 herein, collectively not exceeding the sum insured on the Mortgaged Vessel, or
1.2.2 the amount of the unrecoverable claim or part thereof under any of the Owners' Policies and Club Entries whichever is the lesser amount.
[…]
2. DEFINITIONS
2.1 Insured Perils […]
2.1.2.3 breach of trading warranties contained in any of the Owners' Policies and Club Entries
2.2 Owners' Policies and Club Entries — means [...] war risks on terms equivalent to current Institute War and Strikes Clauses Hulls - Time and full protection and indemnity risks on conditions equivalent to the rules of a P&I Club that is a member of the International Group of P&I Associations.
2.3 Net Loss - means the Assured's loss under the loan agreement to the extent secured by mortgage on the Mortgaged Vessel net of any amounts recovered or recoverable under all security arrangements contained in or collateral to the loan including but not limited to all mortgages (whether on vessels insured hereunder or on other vessels), liens, any floating and fixed charges, security interests, guarantees, insurance policies and pledges.
[…]
4. WARRANTIES
It is warranted in respect of the Mortgaged Vessel that:
4.1 Owners' Policies and Club Entries have been taken out and, except as a result of the occurrence or existence of an insured peril without the privity of the Assured, shall be maintained throughout the currency of this insurance for an insured value and limit of liability not less than the amount insured hereunder or the amount of the outstanding loan to the extent secured by the Mortgaged Vessel
[…]
6. DUTY OF ASSURED
[…]
6.2 It is the duty of the Assured and their servants and agents to take such measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable under this insurance.
6.3 The Underwriters will reimburse charges properly and reasonably incurred by the Assured their servants or agents for such measures except for legal costs and expenses incurred by the Assured in relation to any claim under Owners' Policies and Club Entries which shall only be reimbursed in accordance with clause 6.4 herein.
[…]
Any amounts payable under this clause shall be included within and shall not be additional to the sum insured.”
Footnote 2:
Piraeus Bank AE v Antares Underwriting Limited [2022] EWHC 1169 (Comm) – https://www.bailii.org/ew/cases/EWHC/Comm/2022/1169.html
Footnote 3:
“In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.” (Judge’s emphasis added)
Footnote 4:
Compania Maritima San Basilio v Oceanus Mutual Underwriting Association (Bermuda) Limited (The “Eurysthenes”) [1977] QB 49
Footnote 5:
Manifest Shipping Co Ltd v Uni Polaris Insurance Co Ltd (The “Star Sea”) [2003] 1 AC 469 – https://archive.onlinedmc.co.uk/the_'star_sea'.htm
Footnote 6:
https://casetracker.justice.gov.uk/getDetail.do?case_id=CA-2026-000025
