Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors (Rev 1)

Under a marine time policy, a fortuitous ingress of seawater may constitute a loss by perils of the seas even where the ingress was caused by crew negligence or earlier unseaworthiness. The relevant question is whether the ingress was a real efficient cause of the loss and whether the casualty was fortuitous; the antecedent negligence need not itself be a peril of the seas.

The want of due diligence proviso in the Inchmaree clauses applies to proximate causes and to the named insured peril relied upon for cover. A fraudulent device supporting an otherwise valid claim forfeits the claim where it is directly related to and intended to promote the claim and would, if believed, produce a not insignificant improvement in the assured’s prospects.

The Owners claimed €3,241,310.60 under a hull and machinery time policy for damage caused by flooding of the engine room of the vessel DC Merwestone. The flooding followed crew negligence in leaving a sea suction valve open and failing to drain an emergency fire-pump system in freezing conditions. Frozen components cracked, seawater entered the bowthruster room and then passed through defective cable glands into the duct keel and engine room.

The Underwriters relied on lack of an insured peril, the Inchmaree want of due diligence proviso, unseaworthiness under section 39(5) of the Marine Insurance Act 1906, and fraudulent devices in the presentation of the claim. The central issues were whether the casualty was caused by perils of the seas, how the Inchmaree proviso operated, and whether the Owners’ account of an earlier bilge alarm was a fraudulent device.

1. Perils of the seas. The claim was prima facie covered because the fortuitous ingress of seawater was a proximate cause of the loss. A fortuity causing the ingress need not itself be a peril of the seas. The relevant casualty, comprising the fortuitous event and the resulting ingress, was of a maritime character. Crew negligence and non-debilitative unseaworthiness did not prevent the ingress from being a peril of the seas.
2. Debility. The exception for debility concerned inherent weakness or wear and tear, where the loss was unconnected with an external fortuitous event. It did not apply merely because the vessel had become unseaworthy through an earlier external accident during the period of a time policy.
3. Inchmaree clauses. The want of due diligence proviso was confined to proximate causes. It did not operate as a freestanding exclusion for every proximate cause resulting from the assured’s negligence. It applied to the specified insured peril relied upon for cover, here crew negligence or contractors’ negligence.
4. The Owners were not negligent in failing to include a formal cold-weather procedure in the safety management system. The email instruction sent to the vessel was sufficient in the circumstances. The Owners were also not negligent in relation to the concealed cable-gland defects, bilge alarms or pumping system.
5. Fraudulent device. Following Agapitos v Agnew, a fraudulent device required a statement made knowingly, without honest belief, or recklessly as to its truth. Conscious dishonesty was not a separate requirement. The device had to be directly related to and intended to promote the claim and, if believed, tend objectively to produce a not insignificant improvement in the assured’s prospects.
6. The statement that a bilge alarm had sounded at noon and had been ignored because of the vessel’s rolling was a reckless untruth intended to promote the claim. It was material under the applicable test. The otherwise valid claim was therefore forfeited.
7. The cost of installing a new engine was objectively reasonable under section 69 of the Marine Insurance Act 1906. The claim nonetheless failed because of the fraudulent device. The Owners’ claim was dismissed.

First-instance decision in the Commercial Court. The Owners’ claim was dismissed because the claim was forfeited for fraudulent presentation, although the underlying loss was otherwise covered and the quantum was reasonable.