Atlasnavios-Navegação v Navigators Insurance
Atlasnavios-Navegação, LDA (formerly Bnavios- Navegação, LDA) v Navigators Insurance Co Ltd and others  UKSC 26: UK Supreme Court; Lords Mance, Sumption, Hughes, Hodge, Briggs;  AC 136; 22 May 2018
Alistair Schaff QC and Alexander MacDonald, instructed by W Legal Ltd, for the owners
Colin Edelman QC and Guy Blackwood QC, instructed by Stephenson Harwood LLP, for the insurers
DRUG SMUGGLING: INFRINGEMENT OF CUSTOMS REGULATIONS: DETENTION: SEIZURE: CONSTRUCTIVE TOTAL LOSS: THIRD PARTY ACTS: ACTING MALICIOUSLY: WAR RISK INSURANCE POLICY: EXCLUSION CLAUSE: CONCURRENT CAUSES
The Supreme Court was asked to consider a claim for total constructive loss under a war risk insurance policy. While the policy covered loss of or damage to a vessel caused by detainment, malicious acts by third parties, and confiscation, it excluded from the insurance any loss or damage arising from arrest, restraint, detainment, confiscation, or expropriation by reason of infringement of customs or trading regulations. The court first held that the concept of “acting maliciously” required an element of spite or ill-will, intending to cause loss of or damage to the insured interest. As such, unknown drug smugglers who strapped bags of cocaine to the vessel’s hull had not been “acting maliciously” where they had not intended to cause the vessel’s detention or cause loss or damage at all. The court went on to consider that, even if the loss were found to have been caused by the malicious acts of a third party, it would still have been excluded by the exclusion clause as arising, at least concurrently, from detainment by reason of infringement of customs regulations.
The Case Note has been contributed by Candice Lau, BBA (Law), LLB (HKU), LLM (Cantab), a barrister at Alan Leong SC’s Chambers, Hong Kong.
The vessel “B Alantic” (“Vessel”) was used by unknown third parties in an unsuccessful attempt to smuggle drugs in Venezuela. The drugs were discovered by the Venezuelan authorities. The authorities detained the Vessel. After the Vessel had been detained for over six months, the owners abandoned it and claimed indemnity against the defendant war risk insurers for its constructive total loss under a standard war risks insurance policy on the Institute War and Strikes Clauses (1/10/83), with Additional Perils cover which included “loss or damage to the vessel caused by … any person acting maliciously”. These provided, inter alia, as follows:
Subject always to the exclusions hereinafter 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.
In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the Vessel for a continuous period of 12 months [by agreement reduced to 6 months] then for the purpose of ascertaining whether the Vessel is a constructive total loss the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery …
4.1.5 arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations.”
At issue was whether the Vessel sustained a loss by an insured peril, entitling the owners to recover the Vessel’s insured value from the defendant war risks insurers. The owners contended that the drug smuggling by unknown third parties amounted to malicious acts under Clause 1.5, and further, Clause 4.1.5 did not operate to exclude liability because (i) the “infringement” only occurred because of the insured malicious acts and (ii) the detainment was “by reason” of malicious acts which themselves and without more amount to or give rise to the relevant “infringement”.
The Supreme Court unanimously dismissed the owners’ appeal. Despite the common ground between the parties that the attempted drug smuggling by unknown third parties constituted unknown persons “acting maliciously” within Clause 1.5, the Supreme Court considered it necessary first to re-examine the scope of “any person acting maliciously” in Clause 1.5. Upon the court’s analysis, it transpired that such “common ground” between the parties in the lower courts had been mistaken.
The Supreme Court held that the Vessel’s loss was not caused by “any person acting maliciously” within the meaning of Clause 1.5. First, as reflected from the wordings in Clause 1.5, what the drafters appeared to have in mind were persons whose actions were aimed at causing loss of or damage to the vessel, or other property or persons as a by-product of which the vessel was lost or damaged. Here, the attempted drug smuggling involved no such aim. The aim of the smugglers would have been the exact opposite of what in fact happened, viz the detection of the drugs and the consequent loss or damage to the Vessel. Second, the clauses must be read in the context of established authority. With reference to various cases, the concept of “any person acting maliciously” in Clause 1.5 relates to situations where a person acts in a way which involves an element of spite or ill-will or the like towards the property insured or at least to other property or a person, and consequential loss of or damage to the insured vessel or cargo. Although smuggling was itself a wrongful act done intentionally without just cause or excuse, the smugglers were not “acting maliciously”, since they had not intended that their acts should cause the Vessel’s detention or cause it any loss or damage, Clause 1.5 was not engaged.
Further, even assuming that the Vessel’s loss had been caused by a person acting maliciously within Clause 1.5 (which had been rejected by the Supreme Court), the court decided that such loss would still have been excluded by Clause 4.1.5 as arising, at least concurrently, from detainment by reason of infringement of customs regulations. First, it was held that there was no basis to argue that the apparent coincidence of the malicious act insured under Clause 1.5 and the customs infringement excluded under Clause 4.1.5 necessitates an implied limitation to the effect that Clause 4.1.5 would not apply “where the only reason why there has been an infringement of the customs regulation by the vessel is because of the malicious acts of third parties”. The role of Clause 4.1.5 is to cut-back or define the limits of cover otherwise available under Clause 1. Second, while the general aim in insurance law is to identify a single real, effective or proximate cause of any loss, in some cases there could be two concurrent causes, particularly where an exception clause takes certain perils out of the prima facie case. Here, if the attempted smuggling constituted a malicious act within Clause 1.5 at all, this was at best only one element in the causative events leading to the loss; detection, detainment and its continuation for 6 months were equally essential contributing causes of any loss. Where an insured loss arises from the combination of two causes, one insured, the other excluded, the exclusion prevents recovery. The malicious act (if any) would not have caused the loss without the seizure and detainment. Since the seizure and detainment arose from the excluded peril of infringement of customs regulations, the owners’ claim would have failed by virtue of Clause 4.1.5.
The Supreme Court has clarified the definition of the phrase “acting maliciously”, one commonly found in the standard insurance contracts. In identifying the cause(s) of vessel’s loss, the court, instead of minutely formulating a chain of causation, held that there might be multiple concurrent causes of insured loss in some cases. In the event where one of the causes falls within the ambit of the exclusion clause, such loss would be excluded from the perils insured. This approach has significant implications on the scope of cover of an insurance policy. Commercial entities should bear in mind the potential gap in cover as a result of any exclusion clause in their insurance contracts.