Insurance Exclusions

Insurance Exclusions

If you are involved in the shipping industry, you will be only too aware of how quickly challenging and difficult legal problems can arise at sea. When you need to make an insurance claim, the complexities of maritime law can present real barriers to getting the swift resolution you need.

At top Bahamas law firm ParrisWhittaker, our award-winning team of maritime lawyers is able to advise on all aspects of maritime and shipping law – including how best to tackle complex insurance claim disputes.

The Case of the B Atlantic

A recent decision by the Commercial Court in the case of the B Atlantic [2014] EWHC 413(Comm) provides some useful insight into how the courts are likely to view insurance disputes, and in particular the construction of clauses relating to customs regulation exclusions.

In this case, the vessel B Atlantic had completed loading a cargo of coal in Venezuela when the authorities discovered a large quantity of cocaine strapped to the hull. The vessel was detained, the crew arrested, and in due course the Master and the Second Officer were charged with complicity in drug smuggling.

The vessel was detained by the Venezuelan authorities, and was eventually abandoned by its owner, who proceeded to make an insurance claim under a “war risks” insurance policy.

“War Risks” Insurance Policy: Clauses and Constructions

The insurance policy under which the vessel owners made their claim incorporated an exclusion clause relating to customs regulation infringements, in the Institute War and Strikes Clauses Hull 1/10/83. This exclusion is relied upon by war risk underwriters.

The insurance underwriters did accept that the vessel constituted a constructive total loss to the vessel owners, but rejected the insurance claim. Their argument was that the loss arose “by reason of infringement of…customs regulations,” which is an expressly excluded peril under the Institute War and Strikes Clauses (clause 4.1.5).

The underwriters also accepted that the loss of the vessel arose from persons “acting maliciously,” which falls within the scope of clause 1.5 of the Institute War and Strikes Clauses; but it was their contention that the actions of the drug smugglers were not the cause of the loss of the vessel. Rather, the loss of the vessel had been caused by the vessel’s detention under customs regulations – the peril excluded under clause 4.1.5.

The Court’s View

In making their decision, the Court took into account the judgment in Handelsbanken v Dandridge [2002] EWCA 577, and the guiding principle that, when interpreting exclusions within the Institute War and Strikes Clauses, applying clause 4.1.5 to every single claim in which a customs infringement arose “would not accord with the spirit of the policy.”

Accordingly, the Court concluded that where a vessel is detained because of a customs infringement, such that she becomes a constructive total loss, if that customs infringement arose because of the malicious acts of a third party the exclusion clause at 4.1.5 could not be relied upon by the underwriters.

Consequently, the underwriters were not entitled to reject the insurance claim. It is possible that the underwriters will now move to appeal the Court’s decision.

This case is significant, because it emphasises a trend in the English Courts to look at the application of exclusion wordings as part the claim in its entirety, and not simply to apply each wording merely because it is possible.

How can we help?

The award-winning maritime lawyers at ParrisWhittaker are experienced in all kinds of shipping disputes, including complex insurance claims arising from incidents both at sea and in port. If you need swift, incisive legal advice, the experts at ParrisWhittaker are waiting to take your call.